How to Invest in Bonds
Fixed income sets the floor under a portfolio. Understand yield, duration, and credit before you buy.
Income · 7 min read
What you are buying
A bond is a loan: you receive periodic coupons and your principal back at maturity, assuming the issuer stays solvent.
Price and yield move in opposite directions. When rates rise, existing bonds fall in price.
Back to topDuration is the risk dial
Duration estimates how much a bond's price moves for a one-point change in rates. A duration of seven means roughly a 7% price move.
Match duration to when you need the money rather than to a forecast of interest rates.
Back to topCredit quality and tax treatment
Treasuries carry effectively no default risk; investment-grade corporates pay more for modest risk; high-yield behaves more like equity in a crisis.
Municipal bonds can be attractive in taxable accounts because their interest is often free of federal tax.
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