Welcome to professorsavings.com, we teach finance basics. Today we will teach you about an introduction to bond investing.
Bond investing is the purchase of the bonds or debt of a company or government.
Professor Savings wants a long-term investment that is secure and will grow, so he purchases a treasury bond. These bonds are promises from the government that they will pay you back your investment with interest.
Treasury bonds can be purchased through a bank, a stock broker or online from the Treasury Department. The government uses the money from Professor Savings’ bonds to fund the projects such as highway maintenance, public works and even more.
There are many types of bonds for a variety of different institutions. State and local governments issue municipal bonds to finance local projects.
Companies issue corporate bonds to borrow money investors instead of securing a loan from the bank.
The companies can then use the money from selling bonds to build new factories, buy new businesses or simply pay off older debts. Bond investing is normally considered a conservative style of investment.
The return-on-investment is historically lower than you might get from a stock investment but bonds are not tied to the stock market.
Instead, they reflect the credit rating of the government or business. The riskier a business is, the more interest it has to pay to attract investors.
Warning to remember, local city, government, and even countries can declare bankruptcy.
So if Professor Savings wants to continue investing in debt, he can buy a range of bonds that have different interest rates in risk profiles.
With some careful thought, Professor Savings can create a bond portfolio that is as diversified as any stock portfolio.
If diversification is Professor Savings’s main goal, however, she would do well to use a mix of stocks and bonds.