Bonds

What is a bond?

A bond in investing terms is a loan you give to governments or companies and for which you get paid interest.

For example, you might buy a £1,000 UK government 4-year bond that pays 4% interest per year (£40). After the 4 years, you get your £1,000 back but you will also have earned £160 in interest (£40 for each of the 4 years).

How much should you invest in bonds?

Bonds are more stable than shares but they usually provide lower returns so they make more sense if you prioritise stability over potentially higher-return but volatile investments.

A potential guideline for how much to invest in bonds is: