| In the investment world, there are two
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| | and you'll pay the current market price
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| words we hear more than any others,
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| | on the bond (which fluctuates daily)
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| stocks and bonds. While each can offer
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| | though still receiving the same coupon. A
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| their own advantages and disadvantages,
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| | bond's "total return" is all the money
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| both should be included in your
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| | you will earn off of the bond. That
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| portfolio. As a general rule, stocks have
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| | includes the annual interest along with
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| outperformed bonds since 1926; returning
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| | its loss or gain in the market.
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| 10.4 percent against government bonds'
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| | Bountiful Bonds
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| 5.4 percent showing.
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| | There are a ton of bonds to choose from,
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| However, when stocks go bad, and they
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| | but the safest choice is a U.S. Treasury.
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| will, bonds will always be there for you.
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| | Interest and payments on these are
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| Over short periods of time (like the bear
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| | guaranteed by the "full faith and credit"
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| market of 2000 to 2002) bonds easily
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| | of the United States Government.
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| outpaced the growth of stocks. However
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| | Within Treasuries, there are several
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| the world of bonds can be a confusing
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| | bonds to choose from, all requiring
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| one, so let's learn a little more about
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| | different investment commitments, terms,
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| them.
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| | and interest rates.
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| Why to get fond of bonds
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| | You can also choose from mortgage backed
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| The first word in smart investing is
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| | bonds, which can yield around 1 percent
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| "diversification". That means you own a
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| | more than Treasury bonds with a typical
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| good mix of volatile stocks and steady
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| | $25,000 investment. Then there are
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| bonds in your portfolio. When one takes a
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| | corporate bonds. Most of these are issued
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| hit, the other will usually hold steady.
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| | in $1,000 denominations and have terms
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| Whereas stocks will only give you liquid
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| | ranging form one to 20 years, or even a
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| results when you sell, bonds pay interest
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| | few weeks to 100 years. The values of
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| regularly, making them an attractive
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| | corporate bonds depend on the credit of
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| investment choice for retirees looking
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| | the company you're bonding. Like
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| for regular income.
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| | everything else, it's a risk reward
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| Bonds are also some of the some of the
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| | proposition when selecting a corporate
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| safest investment choices you can make,
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| | bond.
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| second only to cash. U.S. Treasuries
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| | Finally, you can also purchase municipal
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| offer a risk free vehicle of stashing
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| | bonds in state and local governments and
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| funds for a limited amount of time, and
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| | agencies. These are usually available in
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| you'll usually see modest gains while
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| | denominations starting at $5,000, with
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| you're at it.
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| | terms of 30 to 40 years. The great thing
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| Also, many bonds provide income that's
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| | about municipal bonds is that your
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| tax free. That's a good thing, even
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| | interest returns are typically exempt
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| though most of these pay a lower yield
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| | from most federal, state, and local
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| than what you might get from taxable
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| | taxes.
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| bonds.
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| | Risk-Reward
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| Bonds at work
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| | Though bonds are typically less volatile
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| When you purchase a bond, you're
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| | than stocks, there are still risks.
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| basically lending money to a corporation
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| | Interest payments can be worn by
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| or the government so they can go about
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| | inflation. If interest rates rise, bond
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| their everyday business or complete
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| | prices will fall. Also, some bond issuers
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| certain projects. In return, they pay you
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| | reserve the right to "call" back bonds
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| interest annually and then give back what
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| | before term. If this happens, you'll only
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| you've invested once the bond "matures",
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| | get "par value" on the buy back, though
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| meaning its term ends.
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| | "callable" bonds offer higher interest
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| Now for a little lingo. A bond's "par
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| | returns than noncallable bonds. Also, if
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| value" is the price paid for it when it
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| | a corporation you have bonded goes belly
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| was new. A "coupon", is what the bond
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| | up, say goodbye to your money. Finally,
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| pays annually in interest. For example, a
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| | bonds, as with most investments, are at
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| $10,000 bond paying 8 percent a year
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| | the mercy of the ups and downs of the
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| would have a coupon of $800. If you don't
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| | everyday market. Just remember, the
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| buy a bond new, you'll be purchasing from
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| | longer before your bond matures, the more
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| another person in the "secondary" market,
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| | unpredictable it becomes.
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