Invest Like a Pro: A 10-Day Investing Course

by Jesse Mecham

Bonds are less risky than stocks, but there are still risks! If you own a bond, you're worried about three things: •Default risk. If the company goes bankrupt, they may not be able to pay you back. Your initial investment, and the future interest payments that investment would have earned, would be lost. •Interest rate risk. You may buy a bond from YNAB at 7%, and then watch as interest rates rise across the market! Suddenly, you're stuck with a 7% payment on your $1,000, while your neighbor (who doesn't even cut his grass!) invests in a bond that's paying him 10%. •Inflation risk. We talked about this risk as it relates to your overall investment return, but it specifically affects bonds. In an environment where a dollar buys less and less each day, the $1,000 you invested that bought a nice computer ten years ago, may only be "worth" $750 when it's paid back to you.