Bonds
Introduction to Bonds
Bonds are debt securities that represent a loan made by an investor to a borrower — typically a government, corporation, or other entity. When you invest in a bond, you’re essentially lending your money to the issuer in exchange for regular interest payments and the return of the principal amount (face value) at maturity.
Bonds are a popular investment option for those seeking steady income, lower risk compared to equities, and capital preservation.
Bonds are considered relatively safer investments compared to stocks, making them a popular choice for conservative investors seeking stable income and capital preservation. They play a crucial role in diversifying portfolios and supporting long-term financial planning.
Why Invest in Bonds?
Regular Income
Bonds provide fixed interest payments, ideal for income-focused investors.
Capital Preservation
Safer than stocks, especially government or highly-rated corporate bonds.
Predictability
Known returns and maturity periods allow for financial planning.
Tax Benefits
Some government bonds offer tax-free interest income.
What to Consider Before Investing
Interest Rate Environment
Bond prices are inversely related to interest rates.
Maturity Period
Long-term bonds (10+ years) can offer higher yields but are more sensitive to interest rate changes.
Yield and Return
Look at the yield to maturity (YTM), which shows your expected total return if the bond is held until maturity.
Tax Implications
Municipal bonds may offer tax-free income, especially attractive for high-income investors.
Diversification
Use bonds to balance out risk in a portfolio heavy in equities.