Other than perhaps Annuities, bonds are the most boring financial product in the world. As a young punk, I couldn't have cared less about them as I chased small-cap stock glory. But now that I'm older (and no longer allowed to chase small-cap glory by decree of my significant other), I know that bonds are supposed to be part of my portfolio, and their share of the pie should only get bigger as I age.

(The rule of thumb I've always heard is that you take 100 minus your age to determine what should be in stocks. The rest should be bonds and other boring yet safer investments.)

So, today I'm going to start learning about bonds, and you're coming with me.

At its most basic level, owning a bond is the same as giving a loan--it's like a very official I.O.U. Instead of giving a loan to your dodgy stepbrother with a cockamamie business scheme, though, in most (not all) cases the bonds you buy will be I.O.U.'s to more reputable entities, such as the U.S. government (save the jokes), and you'll be expecting some interest on your loan. So, when you "buy" a bond, in reality you are lending your money in much the same way a bank does.

So, who do you "buy" bonds from, and why are they giving little old you interest on them? Why don't they just go to a bank, for Pete's sake?

Well, in general these entities issue bonds because they want so much money that no bank would lend it them. It might be the federal government, it might be state or local city government, it might be large corporations. They sell bonds to you and thousands of other small investor/savers in order to get the money they need at still decent interest rates.

When you buy a bond, you keep it for a set period of time, until what is known as maturity, usually more than a year. At maturity you get the agreed-upon value of the bond. For example, you might buy a bond today for $80 that will pay you back $100 in five years, or a bond that will pay you a 4% interest rate each year until the maturity date. Unlike stocks, there's not much guessing with bonds--you're told upfront what your return will be, provided you hold the bond until maturity. (However, there are bonds tied to interest rate fluctuations, which does make returns less assured.)

Although bonds are not guaran-damn-teed, it's pretty rare that you don't get what's coming to you, unless you go for crazy bonds that promise super high returns, which isn't much different than speculating on penny stocks.

Bonds can be structured in different ways, but that's the basic idea.

So, that's step one in learning about bonds. I feel smarter already.

Now, how do I buy a bond, what type of bond should I buy, why do some offer different interest rates than others, etc., etc. and so forth?

I'll tackle those questions on Monday.