The purpose of an investment portfolio is to help individuals and families meet their financial goals. These goals differ from person to person and change over time. For example, a student who recently graduated will have different goals than an executive who is near retirement.

In the previous section, you learned about stocks and how they fit into an investment portfolio. Some investors find that they need a portfolio that provides more immediate income and greater safety than a portfolio that is composed mainly of stocks and stock mutual funds can provide. One way to accommodate these needs for increased income and safety is to add bonds to a portfolio. This section discusses basic information about bonds, including risk and return for bonds, bond terminology, types of bonds, the way that bonds are valued, and the costs of investing in bonds.

When you have completed this section, you should be able to do the following:

1. Explain the risks and returns associated with bonds.
2. Understand bond terminology.
3. Describe the major bond categories.
4. Explain how bonds are valued.
5. Explain the costs of investing in bonds.