What Are Bonds And How To Buy Them
How do bonds work?
Types of bonds
Types of bond risk
Price versus yield
How to buy bonds
Things to look for when buying bonds
Pros and cons
- Interest income. When you invest in bonds, you receive regular income in the form of interest payments. If you hold the bond until maturity, you will also get the principal amount back. Bonds are very safe and you will never lose the investment unless the entity defaults.
- Profit on sale. You can resell the bonds anytime you want to. If the bonds sell at a higher rate than you bought them, you will make a profit. Some traders bid up the price beyond its face value and it can help generate high profits.
- Low rate of return. If you compare bonds with other investment products, you will notice that the rate of return is lower in the long term. Since the risk is low, the return is also low. In this case, it may not be possible to earn enough to outpace inflation. If your goal is to save for retirement, investing only in bonds may not be enough.
- Default risk. Some companies also default on bonds due to which you could end up losing all your money. They offer higher interest rates to lure buyers and quickly default. Hence, always check the S&P ratings of the bond issuer before you purchase.
Stocks vs. bonds
Ownership vs. debt
Fixed income vs. capital gains
Are bonds right for you?
The bottom line
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