You are the bank
When you buy a bond you reverse the roles. Instead of borrowing money from the bank — you lend money to someone else. It could be the government, a municipality or a large company. They pay you interest for an agreed period and repay the loan when the bond matures.
Simply put: A stock makes you a co-owner. A bond makes you a creditor — someone who has lent money and expects it back with interest.
"There are many ways to let money work for you. Bonds are the calm and reliable path."— Florence Scovel Shinn
How does a bond work?
Example
You buy an Equinor bond for 100,000 NOK with 5 years maturity and 4% annual interest. Each year you receive 4,000 NOK in interest. After 5 years you get 100,000 NOK back. Total return: 20,000 NOK.
Types of bonds
Government bonds
Issued by the government. Considered virtually risk-free because governments can always repay in their own currency. Lowest interest of all bond types.
Corporate bonds
Issued by companies. Higher interest than government bonds — higher risk because companies can go bankrupt. Interest depends on the company creditworthiness.
High yield bonds
Bonds from companies with low creditworthiness — also called junk bonds. Very high interest to compensate for high risk.
Green bonds
Money used for environmentally friendly projects — renewable energy, green infrastructure. Growing market combining ESG and bonds.
The relationship between interest rates and bond prices
Rule of thumb: When interest rates rise — bond prices fall. When interest rates fall — bond prices rise. They always move in opposite directions.
Bonds vs. stocks
Bonds
✓ Fixed and predictable income
✓ Lower risk
✓ Priority in bankruptcy
✗ Lower expected return
✗ No growth potential
Stocks
✓ Higher expected return
✓ Growth potential
✓ Inflation protection
✗ Higher risk
✗ Last priority in bankruptcy
Classic rule: The percentage of bonds in your portfolio should equal your age. 30 years old = 30% bonds. 60 years old = 60% bonds.
"Balance is not boredom — it is the strength that keeps you standing when the storm comes."— Florence Scovel Shinn