Explain like I’m 5. What are bonds, how do they work, should I invest in them over etfs or alongside etfs, and are they worth investing in. Thanks in advance.
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Bond is an IOU you buy, whoever owns it gets paid a periodic coupon and when the time runs out the entire sum is paid back along with the last coupon payment. Lets say there is a yearly coupon payment of 10% of the nominal value of the bond which is 1000usd and the period is 10 years. So if you buy that bond you get 10 yearly payments, 100usd each and after 10 years the 1000usd value of the bond is paid back too, total you pay 1000 to buy the bond and get back 2000 over 10 years. Unless of course the bond emitter goes belly up and says they have no money and they aren’t going to pay anyone anything. That can happen.
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