Bonds are good investments with lowered risks. Investing in bonds is lending money for interest, you buy a bond at a lower price and if you hold for a long period of time, the maturing time, you get paid the full price of the bond. They money earned is the difference between the initial payout and the money recievBut there’s more to it than that it depends on the kind of bond you’re buying or selling.
The types of bonds available for investorspayback when the bond matures. the types of bonds are “U.S. government securities, municipal bonds, corporate bonds, mortgage- and asset-backed securities, federal agency securities and foreign government bonds”. Whether or not it is advantageous to buy bonds varies according to the type the bond issued, to the state of the economy at the time of the purchase, and of course the length of time a buyer is willing to wait until the bond matures.
U.S. government securities
Securities issued by the U.S. government and its agencies to fund their enterprises are the most secure kinds of bond investments because they’re backed by the government. Generally, a steady and even economy benefits the bond issuers as well as the bond holders. But wait, if the economy is tumbling downward and the government is fearful of a recession, they will raise the interest on these bonds in order to attempt stabilization. This will be disadvantageous for the bond holder and will lower the value of the bond.
Municipal bonds
Municipal bonds are loans to cities and to other non-governmental enterprises as well as governmental enterprises to finance improvement. As an example, a bridge may need be repaired or built, sewer systems will need an overhaul and where will the money come from? The money will come from bonds issued for this purpose.
How safe are these for the buyer? They are relatively safe but they do have risks depending on the economy. One real plus for the buyer of municipal bonds is their tax-free status. Many of them are issued for government related enterprises and as such the tax-free status is an attractive incentive to get individual investors.
Municipal bonds, when designated as zero coupon bonds, means no payment is made until the time of maturity and then one full payment is made. Of course the usual bond payment is semi-annual but in this particular area, the real advantage of buying this bond is its low selling price. A large discount on the value of the maturing bond will be set as a purchasing price. As an example, on a bond that promises at payment time, quite a few years hence, $20,000 possibly will only have a $6,500 price tag.
Mortgage and asset-backed securities
Mortgage and other asset-backed securities have had a reawakening in the last few years. Once thought to be without flaws, the housing market collapsed forcing many to lose everything. Over speculation on both sides, the potential owner of the home and the loaning companies, most often banks, caused this debacle which was brought about by deregulation of the bond markets. Home ownership is the biggest advantage to this type of bond investing.
Corporate bonds
Corporate bonds are issued by large business enterprises to finance their expansions, nationally and internationally. This is the largest face value type issued. The advantages and disadvantages depend on the stability of the company. The risk of this type of bond investing is greater than the usual run of the mill government or municipal bond; consequently, the advantage at maturity is equally greater. Speculators with lots of money to invest and with the patience to wait long periods for their returns are drawn toward this type of bond investment.
Foreign government bonds
Foreign government bonds are risky but they’re necessary if the world is to rally around a global economy that takes into consideration all the peoples of the world. No longer can one country maintain a growing economy with no regard for the countries that are having difficulties. Everyone must understand International trade did away with isolationism.
The advantage of buying bonds from foreign companies is in better world citizenship and being a part of their growth as a viable market for the rest of the world. The disadvantage is the newness and the increased uncertainties that brings.
The best reason to invest in bonds is in long-range planning for retirement and for school financing. A little money set aside for that college education for a new baby or a one year old will grow along with the infant and both will mature along together. There’s nothing immediate about bond investing, excepting careful and methodical planning.