Bond funds invest in many kinds of bonds, which represent IOUs from business or government agencies to which money has been lent. The primary objective of a bond fund is income from the interest paid on the loans. Whereas the value of a stock constantly changes in ways that are often unpredictable, the interest income on a bond is predetermined and can be relied upon, unless the business or government agency runs into serious financial difficulties. Thus, bonds are sometimes called fixed income securities, and bond funds may be referred to as fixed income funds. Because bond funds are usually less volatile and lower-risk than stock funds, they are often chosen by investors whose main objective is safety. Therefore, consider bond funds for short-term investment goals. In addition, many investors like to keep a portion of their money in bonds at all times, as a way of guarding against large, unexpected shifts in the stock market.
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