If you are new to the investing world, you might not know to much about bonds. As with other investments, risks are associated with bonds also even though many people assume interest bearing securities are risk free for some reason.
Every six to eight weeks the Federal Reserve meets and they review the health of the economy and it is here that they decide on interest rates. As a way to tighten the supply of money, they will raise the interest rates if inflation is rising. This is where the bonds come in. If the interest rates go up, the price of bonds go down. Interest rate movements won’t matter if you can keep your bond until it reaches maturity.
Some investors will need to, for whatever reason, cash in their bonds before that maturity date. In this event, interest rate that have gone up since you bought and you sell early, that bond will be worth less than when you bought it, meaning you lost money. A healthy portfolio will have a mixture of investment and not all in just one area.