Taking Stock  ~>  Next Article  (Just Charge It!)

• What are Stocks?
• So, You Want to Start Investing?
• Methods of Investing
• Investigate the Market
• Credit Card Smartz
• What is the Dow?
• Investing and Saving - what's the difference?
• What are Bonds?

What are bonds?

Bonds are completely different from stocks. While stocks are ownership in a company and don't require a return, bonds don't hold any ownership but do require a return. 

A bond is basically a loan from investors to a company. While it gives the company the extra money it needs without selling part of their ownership, they have to pay it back later... with interest. This can mean good or bad news for the company, depending upon their success. Like other loans, the company will usually have a coupon payment, which means they have to make payments at specific times. 

Say your county wanted to build a new elementary school, so they decide to issue $10,000,000 in bonds, or 100 bonds with face values of $100,000. If the bonds had a coupon payment of 5%, the county would pay each investor $5,000 each year for 20 years. Then, at the end of those 20 years, the county pays each investor a lump sum of $100,000 in order to make up the interest. This allows the county to use the investors' money for 20 years and pay it back more slowly than if they had paid $10,000,000 at once. 

If the company defaults, which means they miss one or more payments, the investor can take them to court to make them pay the remaining amount. Also, like stocks, bonds' values can change depending upon current interest rates and the company's success.

If you're like most Americans, you probably have a few U.S. Savings Bonds somewhere (your grandparents probably bought a few when you were born -- check with Mom). These are called Zero Coupon Bonds. Rather than making payments, the government sells their bonds for a percentage of the face value. For example, you can buy a $100 bond for $50. Over the years, your bond reaches maturity, or its full value. You can either choose to redeem it then for the $100, or, for an even larger return, wait a few more years. Depending upon how long you keep it, your bond can give you a return of several hundred percent! While this is definitely a good deal for you, the government also gets to use your money without making payments over time.

Other Options

So you've decided for sure that you'd like to invest, but you're not quite sure how. Check out the DSP/Drip Area, these are ways to invest without having large amounts of money, and we highly recommend them for beginner investors.  

However you decide to invest, always begin by doing some research on companies you are familiar with, like your favorite make-up or sporting goods company. While DSPs and Drips are a great place to start, just because a company doesn't offer them doesn't mean you shouldn't invest in the company. Talk with your parents, see what ideas they may have, then decide what's best for you. It may take a while to get comfortable with the different markets, rates, and terms, but the work pays off... literally!