Over the long term, there is little that can beat the stock market for investing potential returns. For over seventy years, the stock market has averaged around a ten percent increase each year. However, stocks come with varying degrees of risk, but they all come with risk. Investing in bonds is considered much less risky than the stock market. Bonds are offered by companies, government entities, and organizations. When an investor purchases bonds, they are loaning the issuer money. At a set period of time, the bond will mature and can be redeemed for the cost plus possible interest earned. The interest rates on bonds are not all that impressive.

However, the risk is considered very low because unless the issuer is a company who goes out of business, the bond holder will at least receive his capital investment back again. Investing in bonds can offer interest paid annually to the bond holder. These factors make bonds a popular choice with retired people. While retirement funds may be built up using investments in the stock market, many people shift their money to less risky investments when approaching retirement age. During retirement, even less risky investment vehicles are used. The pay out of a bond’s annual interest earned can be distributed monthly or quarterly, helping retirees with income cash flow.

There are different types of bonds that are available to investors. Investing in bonds can be in the municipal, corporate, government, mortgage-backed, asset-backed, and international bonds. Within each of these categories, there are even more subcategories. Within the subcategories, specific bonds come with different interest rates, maturities, issuers, and other features. The United States bond market is the largest securities market in the world. The average trading daily on the United States bond market is comprised of 1,036 billion, while the United States stock market trades 169.1 billion dollars.

Bond money is used to pay for improvements to schools, building libraries, road developments, power plants, transportation systems, among other things. Company bonds are often used during times of growing pains. As the company makes a large leap in growth, internal cash flow may not keep up with the needs of the company fast enough. Bonds can be issued as an effective way to bridge the gap between the sharp increase in growth and the resulting profit influx. As with any security that an investor is considering, investing in bonds should be researched and carefully considered. Though they are low risk, there is still some risk involved.