As we continue our series on the basics of investing, we next turn our attention to bonds.

In my opinion, bonds get a bit of a bad rap in the FIRE community.

Bonds can be a bit more complicated and more challenging for an individual investor to purchase than bank products, and may not generate the same returns as stocks, but I think bonds can still play an important role in many portfolios.

As a general rule, bonds fit in between bank products and stocks when considering risk and reward. Over the long run, you will probably earn more by investing in bonds than in bank products, while also taking more risk. Over the long run, you will probably earn less by investing in bonds than in stocks, while also taking less risk.

That said, there are exceptions to every rule. Investing in certain high yield bonds or distressed debt can be extremely risky – but also potentially offer significant rewards.

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