Similar to cash investments, bonds involve individuals giving their money to organizations as a loan. There are two main types of bond: government bonds and corporate bonds.
The interest payments of bonds are called ‘coupons’ and organisations typically pay coupons every 3 months, every 6 months or every 12 months.
Bonds are usually issued with a fixed timeframe, where the organisation agrees to pay the original investment back in full at the end of the agreed timeframe.
Corporate bonds are usually seen as riskier than government bonds. An individual should expect to receive a return above 3% per year with corporate bonds, but less than 1% per year with government bonds.
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