| Bonds and bond investing do not refer to | | | | issue, up to the time of maturity, bonds trade in |
| SAVINGS BONDS, which are not really bonds at | | | | the bond market. You can sell or buy any of |
| all. Bond investing refers to debt securities; and | | | | them in the market on any business day. Thus, if |
| while a savings bond is guaranteed safe real | | | | you own them, you can sell them before |
| bonds are not. Clear as mud? Let's simplify. | | | | maturity. |
| Open your mind to bond investing because bonds, | | | | THE FIXED INTEREST RATE is the reason that |
| as well as stocks, are the building blocks of a | | | | even an ultra safe Treasury bond fluctuates in |
| balanced investment portfolio. You could be | | | | value, because interest rates in the economy |
| invested in these securities in a mutual fund you | | | | change on an ongoing basis day after day. Let's |
| own without being aware of it. Before I explain | | | | say that you hold a bond with a 5% coupon rate |
| the basics, let's go to a source of confusion: the | | | | that pays you $50 in interest each year. If |
| U.S. Treasury who issues both savings bonds and | | | | interest rates start going up, the value of your |
| Treasury bonds. Both (like all bonds) are a form | | | | investment will fall because investors now can get |
| of borrowing money from the public. | | | | a higher rate elsewhere. Would you pay $1000 to |
| Savings bonds are simply a savings vehicle, where | | | | earn 5% when you could get 6% on a new |
| our government pays you interest for the use of | | | | issue? No, you'd buy the 5% issue only if you got |
| your money while guaranteeing that you will not | | | | a discount. The market functions to bring prices in |
| take a loss. Treasury bonds are the real thing, | | | | line with reality as investors buy and sell. |
| long-term debt securities that mature 30 years | | | | Many mature folks love bond investing because |
| from date of issue. Once these securities are | | | | these securities pay a higher fixed rate than most |
| issued (sold) to the public they trade in the open | | | | other investments, and they want this higher |
| market. Although they are the safest long-term | | | | income. The problem is that some don't |
| debt securities in the world, you can lose money | | | | understand the last paragraph above. If interest |
| here because the price or value of any bond | | | | rates go up, bond investing is a loser. |
| fluctuates as it trades in the market day in and | | | | You should not be clueless now, but you are |
| day out. I'll explain shortly. | | | | probably not quite ready for prime time investing |
| Bonds are called debt securities and are sold to | | | | in bonds on your own, either. Get started in bond |
| investors by the federal government, by | | | | investing like most people do, through mutual |
| municipalities and corporations who want to | | | | funds. Here professionals do the selection and |
| borrow a lot of money for 20 years or so. They | | | | portfolio management for you. In this way you |
| pay a FIXED interest rate to whoever owns | | | | own a very small part of a large bond portfolio. |
| them until they mature (say in 20 or 30 years). | | | | If you want to learn more, there are numerous |
| Then the bondholder is paid back the $1000 or | | | | articles available on the subject of bonds and bond |
| whatever the issuer borrowed. From the time of | | | | funds. Good Luck. |