What is Bond Investing?

Bond investing often gets overlooked in favor of the much hyped stock market or the much beloved savings accounts. In actuality, however, many individuals are discovering what seasoned investors have known for years. A wise portfolio contains a full range of securities including stocks, the traditional savings account and bond investments.

If stocks represent the most variable of investments and the neighborhood savings and loan is the safest, bond investing fall into the middle ground. A bond investment yields a higher return than money in the bank, but can fall short of the tremendous profits possible in the stock market. On the flip side, bonds vary in stability, but almost all are a much safer investment than high growth stocks.

What are Bonds?

Bond investments are simply a loan. You loan your money to a bank, company, the government or other entity, and in return you get your money paid back on a certain date with interest. Bond interest rates vary with each offering as well as with the entity making the offering. A safe, government investment will yield the lowest return (in exchange for the degree of safety) and high-yield bonds may offer a tremendous profit, but the risk is high.

When purchasing a bond, you are loaning a company your money. The company sets a time limit on the issue which can vary from less than a year to more than twenty years. Upon maturation, you receive the full price of the bond which includes the interest, or profit. While it is possible to purchase individual bonds, especially from the government, many investors prefer to let a manager take care of their bond investment and these individuals invest in money market accounts or bond funds – much like mutual funds.

Balancing the Portfolio

Many investors make the mistake of not adequately balancing their investment portfolio. Depending on your life stage, certain percentages of your investments should be comprised of stocks, bonds, and readily available cash. The closer you are to retirement, the more secure your investment should be. This is the time to increase bond investments and begin decreasing investments in stocks.

Stocks, including mutual funds, are considered a long-term investment. The price fluctuates daily, and only by investing in the long term can you guarantee a profit. A bond investment, on the other hand, is a more stable instrument. Most bonds are guaranteed and the interest rate is locked in. As retirement looms, many investors realize that secure portfolio options, such as bond investing, are the best way to guarantee a safe and secure financial future.

For more information about Bond Investing, please refer to: www.bondsinvesting.info