Bonds 101
This thread is for educational purposes only and will have no securities offered for sale. It will teach you about investing in bonds. The bond market does not receive the attention of the average investor that the stock market does. We don't have Jim Cramer and the rest of the media with all of their bells and whistles to get peoples' attention. The bond market is much larger than the stock market and should be a part of your arsenal of investment knowledge. There are great opportunities to make substantial returns in both markets and the bond market was brought to the retail investor about 20 years ago. Before then it was more of an investment tool for institutions and the ultra wealthy. There were very few middle and upper middle class individuals who owned bonds and the numbers of them that own bonds today is much lower than it should be due to simple lack of knowledge and media coverage. I believe it's so important that people learn about bonds because they have a date in the future when the issuer has a contract to return the investor's money (make sure you know about credit ratings. I'll post something later in the week). I will try to have an individual bond topic to discuss several times a week, but we'll try to stick to simple bonds. If you have any questions about bonds and fixed income please feel free to ask them here and make sure you speak with your financial advisor before you invest.
What are bonds?
A bond is a debt security, somewhat like a loan that is divided up into $1000 increments and sold to investors. When you buy a bond you are, in essence, lending money to the entity that issued the bonds. Bond issuers can be corporations, national governments, municipalities, government agencies or any other entity wishing to raise capital for operations or improvements. When you buy bonds the issuer is obligated to pay you a specific rate of interest and repay the face value (principal) when it "matures", or comes due.
There are many types of bonds to choose from: U.S. government securities, municipal bonds, corporate bonds, mortgage backed bonds, casino bonds, and many other types. Many mortgage backed bonds pay principal and interest on a monthly basis. You can receive a very strong degree of protection from the sub-prime crash by investing in mortgage backed bonds that are guaranteed by the federal government or a federal agency who guarantee on time payment of principal and interest. Beware, there are AAA rated mortgage backed bonds that are not backed by the government or a government agency that are dangerous.
Important features to consider when investing in bonds.
There are many things that an investor needs to consider before they invest in bonds: credit quality, interest rate, maturity, price, yield, call dates, and tax status. You need to use these factors to decide if a bond agrees with your financial objectives. If you're looking to buy a boat in 5 years and want to put your money to work until you're ready to visit the boat dealer, a bond with a maturity of greater than 5 years would not be consistent with your goals. If you can't afford to lose any money a bond with a high yield and low credit rating is probably not for you due to frisk of default. If you have $1 million saved for your retirement and need $50,000 a year to live happily then a bond that pays less than 5% interest is not the bond that fits your needs. These are just a few examples of how we judge whether an investment is suitable for us. There are many other considerations that you need to discuss with your financial advisor before investing in bonds. I'll post these considerations within the next week or so.
This thread is for educational purposes only and will have no securities offered for sale. It will teach you about investing in bonds. The bond market does not receive the attention of the average investor that the stock market does. We don't have Jim Cramer and the rest of the media with all of their bells and whistles to get peoples' attention. The bond market is much larger than the stock market and should be a part of your arsenal of investment knowledge. There are great opportunities to make substantial returns in both markets and the bond market was brought to the retail investor about 20 years ago. Before then it was more of an investment tool for institutions and the ultra wealthy. There were very few middle and upper middle class individuals who owned bonds and the numbers of them that own bonds today is much lower than it should be due to simple lack of knowledge and media coverage. I believe it's so important that people learn about bonds because they have a date in the future when the issuer has a contract to return the investor's money (make sure you know about credit ratings. I'll post something later in the week). I will try to have an individual bond topic to discuss several times a week, but we'll try to stick to simple bonds. If you have any questions about bonds and fixed income please feel free to ask them here and make sure you speak with your financial advisor before you invest.
What are bonds?
A bond is a debt security, somewhat like a loan that is divided up into $1000 increments and sold to investors. When you buy a bond you are, in essence, lending money to the entity that issued the bonds. Bond issuers can be corporations, national governments, municipalities, government agencies or any other entity wishing to raise capital for operations or improvements. When you buy bonds the issuer is obligated to pay you a specific rate of interest and repay the face value (principal) when it "matures", or comes due.
There are many types of bonds to choose from: U.S. government securities, municipal bonds, corporate bonds, mortgage backed bonds, casino bonds, and many other types. Many mortgage backed bonds pay principal and interest on a monthly basis. You can receive a very strong degree of protection from the sub-prime crash by investing in mortgage backed bonds that are guaranteed by the federal government or a federal agency who guarantee on time payment of principal and interest. Beware, there are AAA rated mortgage backed bonds that are not backed by the government or a government agency that are dangerous.
Important features to consider when investing in bonds.
There are many things that an investor needs to consider before they invest in bonds: credit quality, interest rate, maturity, price, yield, call dates, and tax status. You need to use these factors to decide if a bond agrees with your financial objectives. If you're looking to buy a boat in 5 years and want to put your money to work until you're ready to visit the boat dealer, a bond with a maturity of greater than 5 years would not be consistent with your goals. If you can't afford to lose any money a bond with a high yield and low credit rating is probably not for you due to frisk of default. If you have $1 million saved for your retirement and need $50,000 a year to live happily then a bond that pays less than 5% interest is not the bond that fits your needs. These are just a few examples of how we judge whether an investment is suitable for us. There are many other considerations that you need to discuss with your financial advisor before investing in bonds. I'll post these considerations within the next week or so.