A bond is essentially an IOU. It’s sold by a company or federal, state or local government. It’s a promise you are going to lend your money by purchasing a bond and they’re going to use the money either to finance a deficit, finance a project, etc.

While they are using your money, they promise to make you interest payments. These payments typically don’t change for the duration of the bond and they typically come every six months. And at the end of the term, the entity that borrowed your money promises to return your money without an adjustment for inflation.

Bonds can be a safe tool for generating income in retirement.