How do investors earn money from bonds?


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Robert A Kearse Profile
Robert A Kearse answered

When an investor buys a bond (with principal), he usually receives a set, predetermined rate (interest rate).

The interest is usually paid on a quarterly or annual basis.

Investors like bonds because of the FIXED rate of return which reduces some of the risk associated with stocks.

Since all bonds have a maturity date when the principal is returned to the investor, the original investment amount is secure unless the issuing entity defaults.

There is a rating system for bonds so issuing entities with poor financial fundamentals can be avoided.

There are many variations of bonds that differ from the basic structure listed above such as convertible bonds (into stock) and zero coupon bonds.

Hope this insight helps.

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