| To know if bonds might be right for your | | | | Since a bond is a type of loan, there is interest |
| retirement planning, you should first understand a | | | | paid on that loan. Its interest payment is known |
| few basic things about them. | | | | as a "coupon." You may have heard of "Zero |
| The majority of people know very little if | | | | Coupon" bonds? Zero coupons are bonds that |
| anything about bonds. In fact, as Robert Kiyosaki | | | | don't pay interest payments as you go, but pay it |
| mentions many times in his Rich Dad books, most | | | | out at the end of the term of the bond. |
| people don't know the difference between stocks | | | | Investors buy zero coupon bonds at deep |
| and bonds. They are very different. | | | | discounts from the face value, which is the |
| When you buy stock you are technically a part | | | | amount a bond will be worth when it "matures" or |
| owner of that company - or at least a stock | | | | comes due. |
| holder. You own equity in the company. That is | | | | When a zero coupon bond matures, the investor |
| why stocks are also known as equities. | | | | will receive a lump sum equal to the initial |
| When you buy a bond you are actually loaning | | | | investment plus the interest. In other words, the |
| your money out to the company or government | | | | bond was purchased at a discounted face value |
| who issued the bond. Instead of going to a bank | | | | (similar to savings bonds). |
| and borrowing money, companies and | | | | State and local governments also issue bonds. |
| governments issue bonds. So bonds are debt | | | | You may have heard of a bond issue to help build |
| instruments. They are like IOUs. | | | | a school or some other government building in |
| When a company is considered a high-risk outfit | | | | your area. Those who buy the bonds are actually |
| (many times because of a poor credit rating or | | | | lending money for the project. |
| they are overextended -with too many loans) | | | | So, should bonds be in your retirement portfolio? I |
| their bonds are often called "Junk" bonds. | | | | would answer yes. At least a small portion of |
| The federal government of the US has probably | | | | your nest egg should be in bonds. The closer you |
| issued more bonds and T-bills (which is just | | | | are to retirement age, the less risky type of |
| another form of bond) than anyone else! That is | | | | bond you should want (no junk) in your portfolio. |
| why you will hear that the US is in debt to China. | | | | You may also want more bonds the closer you |
| The US did not actually go over to China and | | | | get. |
| borrow money, but China did invest in US bonds | | | | You might also take a look at some bond funds |
| and T-Bills. So in effect, they are loaning money | | | | or better yet, some bond ETFs. Let experts |
| to the US when they buy those bonds (and you | | | | handle the actual bond picking for you, while you |
| are too, any time you buy "Savings" bonds - or | | | | relax with a well balanced retirement portfolio! |
| any other type of US bond). | | | | |