Types of bond

* Fixed rate bonds have a coupon that remains constant throughout the life of the bond.

*High yield bonds are bonds that are rated below investment grade by the credit rating agencies. As these bonds are relatively risky, investors expect to earn a higher yield.

*Zero coupon bonds do not pay any interest. They trade at a substantial discount from par value.

The bond holder receives the full principal amount as well as value that has accrued on the redemption date.

*Inflation linked bonds, in which the principal amount is indexed to inflation. The interest rate is lower than for fixed rate bonds with a comparable maturity. However, as the principal amount grows, the payments increase with inflation.

* Asset-backed securities are bonds whose interest and principal payments are backed by underlying cash flows from other assets.

* Subordinated bonds are those that have a lower priority than other bonds of the issuer in case of liquidation.

In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is paid, then government taxes, etc.

The first bond holders in line to be paid are those holding what is called senior bonds. After they have been paid, the subordinated bond holders are paid.

* Book-entry bond is a bond that does not have a paper certificate. As physically processing paper bonds and interest coupons became more expensive, issuers have tried to discourage their use.

Some book-entry bond issues do not offer the option of a paper certificate, even to investors who prefer them.

bonds are more of a pure loan. In effect, you lend money to a company or the government with the guarantee that you will get it back over time, in exchange for getting paid interest.

In that sense, buying bonds can provide a nice mix with stocks and other investments. And you can do it yourself, although it's smarter to work with a financial planner to be sure bonds fit with your particular investment strategy