Bonds
and other fixed-income investments pay a set income over a set term.
At the end of the term, the amount you have invested is returned to
you. Fixed-income investments offer a steady income stream and historically
less volatile price fluctuations than stock investments. But fixed-income
investments aren't without risk. Sometimes a bond issuer, for example,
can run into financial difficulties, default on its bonds, and not be
able to return the face amount of the bonds to investors. Also, bond
prices move up and down, largely in reaction to interest-rate swings.
Thus, investors in bond
mutual funds, as well as investors in individual bonds who don't plan
on holding them until maturity, face the possible risk of losing principal.
