Zeroing in on bonds

Q What are zero-coupon bonds? — R.L., Cadillac, Michigan

A They’re regular bonds — with a key difference. With a bond, you lend money, typically to a company or government. When you buy a traditional $10,000 bond sporting a 3 percent interest rate, you’re lending $10,000 to the borrower, and you can expect to receive interest payments of 3 percent per year. (In the past, you’d have had to send in coupons in order to receive these payments.) When the bond matures, you get your $10,000 principal back.

With a zero-coupon bond, you collect no interest payments, but the amount you lend is less than the amount you’ll receive at maturity. Thus, a zero-coupon bond might pay you the equivalent of 3 percent per year by having you lend $7,441 today in order to receive $10,000 in 10 years.

Q I want to sell some losing stocks, instead of waiting for them to recover. How dumb is that?

— G.D., Charleston, South Carolina

A It depends. If the company is healthy and growing and has merely encountered a temporary hiccup, you might do best to hang on. But if your research suggests that its problems will be long-lasting, sell. Why try to earn back a certain amount in it when you can more reliably earn that same amount (or more) elsewhere?

For example, if your shares of Home Surgery Kits (ticker: OUCHH) are underwater by $1,000 and you no longer have much faith in the company, sell the shares for a loss. If you move what’s left into a more promising stock, you’re more likely to earn that $1,000 back — and more. Keep your money invested in your best ideas.