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The Bond Market and How You Can Benefit

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




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