| Think you should invest money in bonds or bond | | | | keep its financial promises in regard to all of this |
| funds now? The best bond funds might pay three | | | | debt? |
| times the interest income you can get at the | | | | When doubt or fear looms, investors sell. If |
| bank. Even the safest bonds in the world, the U.S. | | | | foreign investors start to seriously sell the |
| Treasury bond, pay twice as much as a | | | | Treasury bond, bond prices will fall. When bond |
| longer-term bank CD. But before you invest in | | | | prices fall this has the effect of increasing interest |
| bonds to simply increase interest income, read | | | | rates. Example: if a $1000 bond that has a fixed |
| this. | | | | interest rate of 5% falls to a price of $500, |
| When you buy bonds you are lending money to | | | | someone buying it for $500 earns $50 (5% of |
| the issuer, like a corporation or the federal | | | | $1000) a year in interest ... 10%. If, that is, the |
| government. They are borrowing from you and | | | | issuer doesn't default. |
| promise to pay a fixed rate of interest; and to | | | | Even the best bond funds can't make money for |
| pay back the amount borrowed on a fixed date | | | | investors when bond prices are falling and interest |
| in the future. | | | | rates zoom upward. If investors can invest |
| What isn't fixed is the price or value of your | | | | money in a Treasury bond and get 10% a year, |
| investment as you hold it. Bonds trade in the open | | | | what kind of interest would they demand from |
| market much like stocks do. Hence, their price | | | | other bonds? |
| fluctuates. | | | | Fear is the greatest threat to any market since it |
| For the above reason you can lose money in | | | | generates selling. The point of this article is not to |
| even the safest bonds in the world, the Treasury | | | | predict doom and gloom for America's future. The |
| bond. And you can also take a loss in even the | | | | point is this: bonds and bond funds pay higher |
| best bond funds available, because when you | | | | interest because they involve risk. Interest rates |
| invest money with them you own a small part of | | | | are at historical lows and the temptation for |
| a large bond portfolio. | | | | investors to load up on bonds is high. |
| The bond market works like any other market. | | | | History shows that interest rates fluctuate. In the |
| Buying pressure sends prices up; and selling sends | | | | early 1980's you could make 15% interest and |
| them down. | | | | some experts predicted rates would only continue |
| The federal government borrows money by | | | | to go up. They were dead wrong; and if you think |
| issuing government securities like the Treasury | | | | rates at this point in time can only continue to fall |
| bond. Trillions of dollars worth of these safest | | | | its time to think again. |
| bonds in the world are owned by foreign | | | | The above scenario is my greatest financial |
| countries. Both China and Japan own a ton of U.S. | | | | nightmare for this country. Whether it occurs or |
| government securities. | | | | not ... in the not too distant future interest rates |
| The U.S. national debt is going through the ceiling | | | | will rise and bond prices will fall. If you own bonds |
| and everyone, including foreign governments, is | | | | when this happens you will lose money, even if |
| aware of it. What would happen if and when the | | | | you hold the safest bonds in the world or one of |
| rest of the world loses faith in America's ability to | | | | the best bond funds. |