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The Bond Market and How You Can Benefit

In the investment world, there are twocurrent market price on the bond (which
words we hear more than any others,fluctuates daily) though still receiving
stocks and bonds. While each can offerthe same coupon. A bond's "total return"
their own advantages and disadvantages,is all the money you will earn off of
both should be included in yourthe bond. That includes the annual
portfolio. As a general rule, stocksinterest along with its loss or gain in
have outperformed bonds since 1926;the market.
returning 10.4 percent againstBountiful Bonds
government bonds' 5.4 percent showing.There are a ton of bonds to choose from,
However, when stocks go bad, and theybut the safest choice is a U.S.
will, bonds will always be there forTreasury. Interest and payments on these
you. Over short periods of time (likeare guaranteed by the "full faith and
the bear market of 2000 to 2002) bondscredit" of the United States Government.
easily outpaced the growth of stocks.Within Treasuries, there are several
However the world of bonds can be abonds to choose from, all requiring
confusing one, so let's learn a littledifferent investment commitments, terms,
more about them.and interest rates.
Why to get fond of bondsYou can also choose from mortgage backed
The first word in smart investing isbonds, which can yield around 1 percent
"diversification". That means you own amore 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 takescorporate bonds. Most of these are
a hit, the other will usually holdissued in $1,000 denominations and have
steady.terms ranging form one to 20 years, or
Whereas stocks will only give you liquideven a few weeks to 100 years. The
results when you sell, bonds payvalues of corporate bonds depend on the
interest regularly, making them ancredit of the company you're bonding.
attractive investment choice forLike everything else, it's a risk reward
retirees looking for regular income.proposition when selecting a corporate
Bonds are also some of the some of thebond.
safest investment choices you can make,Finally, you can also purchase municipal
second only to cash. U.S. Treasuriesbonds in state and local governments and
offer a risk free vehicle of stashingagencies. These are usually available in
funds for a limited amount of time, anddenominations starting at $5,000, with
you'll usually see modest gains whileterms of 30 to 40 years. The great thing
you're at it.about municipal bonds is that your
Also, many bonds provide income that'sinterest returns are typically exempt
tax free. That's a good thing, evenfrom most federal, state, and local
though most of these pay a lower yieldtaxes.
than what you might get from taxableRisk-Reward
bonds.Though bonds are typically less volatile
Bonds at workthan stocks, there are still risks.
When you purchase a bond, you'reInterest payments can be worn by
basically lending money to a corporationinflation. If interest rates rise, bond
or the government so they can go aboutprices will fall. Also, some bond
their everyday business or completeissuers reserve the right to "call" back
certain projects. In return, they paybonds before term. If this happens,
you interest annually and then give backyou'll only get "par value" on the buy
what you've invested once the bondback, though "callable" bonds offer
"matures", meaning its term ends.higher interest returns than noncallable
Now for a little lingo. A bond's "parbonds. Also, if a corporation you have
value" is the price paid for it when itbonded goes belly up, say goodbye to
was new. A "coupon", is what the bondyour money. Finally, bonds, as with most
pays annually in interest. For example,investments, are at the mercy of the ups
a $10,000 bond paying 8 percent a yearand downs of the everyday market. Just
would have a coupon of $800. If youremember, the longer before your bond
don't buy a bond new, you'll bematures, the more unpredictable it
purchasing from another person in thebecomes.
"secondary" market, and you'll pay the



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