Definition
A loan you make to a government or company in exchange for regular interest and your money back at maturity. Bonds are steadier than stocks and act as the shock absorber in a diversified portfolio.
Why it matters
Bonds are what let you hold stocks through a crash: they fall less, sometimes rise, and give you something stable to spend or rebalance from. The right bond share is the difference between riding out 2008 and selling at the bottom.
Example
In a 60/40 portfolio during a year when stocks drop 25%, the bond side may hold roughly flat. The investor rebalances by selling some bonds to buy cheap stocks instead of panic-selling.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.