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A New Perspecitive on Bonds

Why bonds are a safe investment and potentially tax-free income.

This story appears in the June 2009 issue of Entrepreneur. Subscribe »

When it comes to investing, "" usually stand for "boring." But in today's upside-down economy, bonds provide not only a safe haven from the volatility of the , but also the potential for attractive yields. Depending on where you live and the type of bond you buy, the income from your bonds may also be tax-free.

It's easy to see the appeal of fixed income securities in uncertain times like these. Unlike stocks, which gain or lose value depending on the company's financial performance and macro factors affecting the economy, a bond pays out a fixed income stream in good times and bad. Think of a bond as a loan that you make to a corporation or government entity. The investor (that's you) lends out the for a certain period of time and pockets periodic interest payments plus the full principal amount when the bond matures.

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