Bonds investment is one of the safest ways you
can invest your money and hold value much longer, depending on the type of
bonds you select and how long you plan to hold the investment. The type of
bonds you choose will depend largely on your financial goals and how much you
want to invest at the time, tax situation, and the time in which you plan to
accomplish your goals in. After assessing your own particular financial
situation and determined your financial goals, you can begin researching the
type of bonds that best suit your particular situation. There is a lot of
different type to review and making the right choice isn’t easy. A bonds
investment should typically be made on more than one type of bond in order to
diversify the portfolio so that if one doesn’t hold face value that another
will and make a profit. Diversifying your bonds investment over several
different types of bonds will assure that your bond portfolio will not be
overly affected by an economic downturn. Having a bonds investment with only
one type of bond could cause a problem in the event of insolvency or a ratings
downgrade. The ideal situation for a bonds investment would have the investor
buy bonds of various different issuers and maturities, which would have the
effect of diversifying risk. With several different maturities, an investor can
better control interest rate risk. Having a variety of issuers gives the
portfolio a hedge, in the event that one of the issuers finds itself in
financial difficulty. A well-diversified bond portfolio might include
government, municipal, corporate and agency bonds, to name just a few. By
having a variety of issuers, the bond portfolio will be protected to a certain
degree in the event of an economic downturn affecting one or more sectors of
the economy. Notwithstanding, the investor should pay special attention to the
issuer of the bonds and that the issuer is solvent and in good standing. Buy
and hold represents the most popular bonds investments strategy. By buying and
holding bonds, your principal remains intact while the bond earns interest.
Some bonds pay out interest twice a year, while other bonds sell at a
discounted price, reflecting the amount of interest in the discount. With a
discounted bond, the issuer is obligated to pay the bondholder the full amount
of the principal when the bond matures. Buying and holding bonds makes up one
of the most conservative investment strategies.
Jay Hawk
