Lending Your Money Out

A bond is the opposite of a stock. Instead of buying ownership, you are lending money — to a government, a city, or a corporation. They pay you back with interest over a set period.

Bonds are generally calmer than stocks. A U.S. Treasury bond is backed by the federal government, making it one of the most reliable IOUs on the planet. The trade-off? Lower returns. Bonds typically earn 2-5% annually, which barely keeps pace with inflation in some years.