Bonds are securities representing the debt of the issuer.
You're buying an IOU for which the issuer must pay the bondholder a specified rate of interest for a specific period of time and then repay the face value upon maturity. You choose the duration of bond and also credit quality. Bonds are rated with the highest ranking, AAA or Aaa, given to issuers with the best credit and the lowest ranking, D, given to issuers who have defaulted on their loans. Intermediate-term bonds maturing in five to seven years will hold onto the value of what you have. They serve as protection for your portfolio against drops in the stock market.