Investing In Bonds

Table of Contents
Chapter 1: Growing Your Wealth with Investments
Chapter 2: Learn How To Invest
Chapter 3: Cash Investments
Chapter 4: Investing in Stocks
Chapter 5: Investing In Bonds
Chapter 6: Investing in Real Estate
Chapter 7: Investing in Mutual Funds

Investing in Bonds

A bond is like an IOU given by a company or a government organization against the money you lend them for a certain period of time. The income from bonds is the interest or the coupon on the bond that is directly proportional to the risk involved in it. Here are the different types of bonds available in the market:

  • Government Bonds – These bonds are issued by a government agency – at a fixed rate of interest and for a specific period of time. Offered by the municipality, state or the federal government, these are usually savings bonds like EE Bonds, Series I bonds or municipal bonds.

    These bonds have a lower rate of interest when compared to the other types of bonds because of their lesser risk. The advantage of these bonds is that they are relatively safe and the interest earned from these bonds is exempt from tax.

  • Corporate Bonds – Companies issue bonds to investors just like they issue stocks. The difference between stocks and bonds is that by purchasing stocks, you own a share of the company’s holdings while investing in bonds makes you a lender to that company.

    The returns from the bonds are determined by the risk involved in it – the higher the bond’s risk, the higher your returns. The rate of interest offered on corporate bonds is higher than the rest as there is a possible risk involved if the company runs into bankruptcy. Corporate bonds can be further divided into Convertible bonds and Callable bonds.

  • Junk Bonds or High Yield Bonds – These are high-risk bonds that offer a rate of interest higher than the interest on corporate bonds. Investing in these bonds can be dangerous and needs extreme care and consideration.

Bonds are ideal when you are investing for long-term benefits. Although they are secure investments and earn high interest, bonds have a specific lock-in period and are not easily cashable, which makes them unsuitable for emergencies.

Next Chapter: Investing in Real Estate