Bond
A loan sliced up and made tradable. When rates rise, existing bonds are worth less, because they pay less than new ones.
In the chapter
Putting the surplus to work
From the same chapter
- ReturnWhat an investment gains or loses, in percent. Without saying over what period, a percentage means nothing.
- Real returnThe return once inflation is stripped out. The only one that says whether you gained purchasing power or just figures.
- VolatilityHow much an investment's value swings. Not the same as risk: the real risk is needing the money at exactly the worst moment.
- DiversificationSpreading out so no single failure takes you down. It does not raise expected return: it lowers how bad things can get.
- PortfolioAll your investments seen as one thing. Judging a position on its own leads to decisions that make the whole worse.
- Asset allocationWhat proportion goes to each asset type. It explains most of how a portfolio behaves, far more than picking well within each type.
- EquitiesStakes in companies. They pay more over the long run and swing far more: those two are the same fact.
- Fixed incomeLending money for an agreed interest. 'Fixed' refers to the coupon, not the price: a bond's value does move.