Whereas stocks give investors part ownership of a company, bonds are loans made by investors to corporations or governments. Rather than benefiting from company profits the way that stock holders do, bond holders receive a fixed rate of return – a percentage of the bond's original offering price. The return is called the 'coupon rate'.

Bonds have a maturity date at which time the principal amount is returned.

Bonds can be issued for any period of time – some take up to 30 years to mature.

Bonds always carry the risk that the principal amount may not be paid back. Companies with higher credit worthiness are more likely to be safe investments but their coupon rate will be lower than companies with lower credit ratings.

Credit ratings are provided by firms such as Standard and Poor and Moody's Investor Service. Credit ratings range from a high AAA to a low D.