How To Invest In Bonds And Get Rich

How To Invest In BondsThis is a short, to-the-point article for everyone wondering how to invest in bonds.  We will cover what bonds are and exactly how to invest in these beautiful securities.  Remember that bonds can give you some very nice gains when the stocks in your portfolio are not.  Later in life, bonds also serve as a very nice way to attain the income stream you need to enjoy your retirement years.  But that is another story for another day, so let’s get on with the learning how to invest in bonds.

All bad Ian Fleming references aside, which I could make a ton, the prime function of a bond is that you’re lending money to a corporation for a fixed term, and getting a fixed rate of return, called the coupon rate, based on the original capital invested, out of it. The trick is figuring out how much of your investment portfolio should be in bonds versus other investment vehicles.

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The principle advantage of bond investing is that they’re rated in their risks. The bond has a term where it pays off (say 10 years) at which point you get your initial investment back. Bonds will pay a steady income of whatever their return rate is, taken as a percentage of the initial investment. Thus, if you invest $100,000 in a series of bonds that return interest at a coupon rate of 3.5%, each year, you’ll get $3,500 of interest income. The big advantage of bonds is their steady income stream, and that you get the initial investment back when you’re done.

How To Invest In Bonds

So, what’s a sensible investment strategy for bonds? Well, it depends on the type of bond you’re buying. Short term (less than five year) bonds tend to have low coupon rates, but have the advantage that your assets aren’t tied up for long periods of time. A mix of short term bonds means that if an emergency strikes while you’re retired, you’re very likely to have a bond maturing to give you an immediate lump sum of cash. Medium term bonds tie your money up for longer stretches of time (typically more five to seven or ten years.), while long term bonds tie your money up for 10 to 30 years or more. The coupon rate will also vary with the credit worthiness of the company the money is lent to; lower credit ratings result in higher coupon rates, and the highest credit rating is typically governmental bonds; this is one reason why the 30 year Treasury bill (or T Bill) is used as a baseline bond metric.

How To Invest In Bonds And Get RichThere’s more to bond investing than the coupon rate. Since bonds can be bought or sold at any time, very few people hold bonds to their full maturity, and bond funds keep portfolios of bonds with different maturity rates. In general, when the interest rate goes up, the price of an existing bond goes down, because buying a new bond at the higher rate gives a higher rate of return. When the interest rates go down, the bond price of an existing bond goes up, because it gives a higher rate of return than a newly purchased bond would.

At this point, you have been given a bunch of great information about how to invest in bonds.  There will a few new articles in the upcoming weeks explaining some advanced techniques about buying and selling bonds.  If you are thinking that you do not need to invest in bonds, you will want to read my article on diversification and see how bonds will help you maximize your investment portfolio.

As always, you will want to check out this penny stock newsletter that can you get you the money you really want to earn in this market.  Many of our readers have enjoyed huge gains, the question is…are you making the kind of money you want?

How To Invest In Bonds

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