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Bond funds allow you to buy shares in lots of different bonds at once, so it offers protection against potential defaults on one bond.

Investing in bonds can be less risky than investing in stocks. However, bond funds are more volatile than money market funds. They're also riskier than certificates of deposit (CDs) and U.S. savings bonds because they fluctuate in value - that is, they rise and fall in price according to the changing market conditions.

The more risk you take, the greater your chance for reward. But bonds are generally safer than stocks because they offer loans to corporations and governments. Generally, these borrowers repay their debts. However, even among bond funds there is some diversity in terms of credit quality (the likelihood that a company or government can pay its debt).

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