![]() Barring bankruptcy, bond holders are all but guaranteed to see the return of their initial investment. Capital Preservation – Unlike stocks, which are subject to a highly fluctuating market, bonds are relatively stable.While it's true that bonds don't carry the higher earning potential of stocks, they do offer some distinct benefits of their own. Of course, the relative safety and stability of bonds also appeals to the experienced speculator, and they are an important part of any well structured portfolio. This makes them much more stable than stocks, which is why they are an ideal financial product for first time investors. Benefits to the Investorīonds are considered fixed income securities, because investors know exactly how much of a return they will receive on their investment. Finally, when the bond reaches maturity, the organization repays you the original amount borrowed, or the face value of the bond. When you buy one or more of these bonds, you are essentially loaning the organization a portion of the capital they are trying to raise in return for which, you (the bond holder) will be paid a set amount of annual interest over the term of that loan. For example, if a government or corporation needs to raise funds to expand services or operations they will issue bonds onto the public market. In modern terms, it might be compared to crowd-funding. When organizations need to raise large amounts of capital, they will often borrow from the public at large. We'll discuss the various types of bonds, their cost to yield potential, and their place in a structured portfolio.Īt their most basic, bonds are really a type of loan. So, for the beginning investor we've put together an introductory guide to bonds. After all, you can't be successful if you don't know how the game is played. Of course, before you begin investing in bonds it's important to understand a bit more about them and how they work. Indeed, even experienced speculators understand the value of investing in bonds, and their rightful place in a diversified portfolio. But for the novice investor, the stock market can be a dangerous place, and most financial advisers recommend starting with more conservative investment products.īonds are an ideal alternative to the stock market, and their relative safety and stability have made them one of the most popular investment products on the market. It's hard not to be fascinated by the hustle and bustle of the stock exchange, where fortunes can be made and lost in the wink of an eye. That's understandable, really trading in shares has a definite aura of excitement about it. ![]() When it comes to investment opportunities, most people immediately think of the stock market. ![]()
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