2. Bonds, Fixed Income, and Money Markets

Bonds are easily the simplest investment instrument most people claim to not understand. A typical bond is simply a written promise to pay the owner of the bond (the bondholder) fixed amounts of money on fixed future dates, which is why this asset class is also called “fixed income securities”. Where bonds begin to differ from bank deposits is that a customer depositing $100 at a bank generally expects to be able to withdraw $100 (plus any interest) no matter what happens in the market, while a bond with $100 face value might be trading in the market at $99, $101, or even at $50 or $150 depending on how far in the future the fixed payments are scheduled and who the issuer promising to pay them is. In other words, although the income is fixed, the value is not.