Part 3: Bonds

Welcome back to The Apricot Investor’s Glossary series, where we take complex terminology and turn it into bite-sized pieces of knowledge, perfect for seasoned investors and newbies alike. The series starts with fundamental vocabulary and will delve into more complex terminology over time.

In Part 1: Investment, Risk, Diversification, we compared investments to planting an apricot tree. In Part 2: Stocks , we started exploring some of the “seeds” – different investment types – you can plant in your financial garden. Now let’s discover another popular type: bonds.

Bonds

Imagine a fictional country, Apricotland, wants to build a park for its citizens, but needs to raise money for that. They might choose to issue a bond: a promise to pay back with interest over a set period. Let’s say the imaginary country decides to issue a bond with a 9% interest rate (the coupon rate) and a set period (maturity date) of 3 years. You can lend money to Apricotland by buying these bonds. During these 3 years, you’ll receive 9% interest payments (the coupon) on an annual or semi-annual basis. At the end of the maturity date, 3 years in our case, Apricotland will pay you back the loaned money too.

In case you need to sell the bond before the end of its maturity date, you can sell it on the market.

The imaginary country gets a nice new park, while the investors get returns. Win-win.

Bonds can also be issued by companies, in which case they’ll be called corporate bonds. 

– Think of it as loans you give to governments or companies, like Armenian government bonds*. You lend them money for a set period (maturity date), and they pay you interest (coupon) in return. When the bond matures, you get your initial investment (principal) back.

– Risk: Bonds are generally considered to have lower risk than stocks, but the potential returns are also lower.

This is another common type of investment “seeds” (instruments) available. It’s important to remember that investments are subject to market fluctuations and carry inherent risks. Before investing, consider your financial goals and your ability to take financial risks.

See you in Part 4 where we’ll explore more types of investment instruments. And remember, investing in knowledge is one of the most valuable decisions you can make.

*The examples in this text are for illustrative purposes only. This does not constitute investment advice or a recommendation to buy or sell any specific investment instrument.