Pros & Cons of Investing in Bonds

What are Bonds?

A bond is a debt security, by which you are lending money to a government, municipality, corporation, federal agency or other entity known as the issuer. In return for investing in the bond, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it becomes due.

Why Invest in Bonds?

It is always prudent for an investor to maintain a diversified investment portfolio consisting of bonds, stocks and cash in varying percentages, depending upon individual circumstances and objectives. Bonds help you to diversify your portfolio, thereby, reducing your risk exposure.

Investing in bonds provides a predictable stream of income and repayment of principal.

Bonds maturing within three to five years will hold on to the value that they are worth. They offer some protection against stocks related losses in a portfolio.

The negative side of investing in bonds:

All investment products have drawbacks. Bonds are no exception. Some of the negative aspects of investing in bonds are:

Most bonds have a call option. This gives the issuer the right to call back the bonds held by investors generally after five to ten years. When the issuer calls back a bond, it pays your principal back along with the accrued interest and perhaps, a small premium. Issuers adopt this strategy when they can obtain money at interest rates lower than that of the bond in question.

When interest rates go up, the price at which the bond can be sold goes down. If you are forced to sell the bond due to pressing circumstances, you may not back the entire amount invested resulting in losses.

Long-term bonds can tend to be volatile and can somtimes fail to keep up with inflation.

Read More Free Investment, Wealth Creation & Personal Finance Articles & Tutorials at: http://www.global-investment-institute.com

The Global Investment Institute has been setup to aid people in the pursuit of a better lifestyle through managing their money effectively, investing wisely and wealth planning for their future.

---

Preparing to Invest: How to get started

Investments can be a source of great potential earnings. The... Read More

Love The Thrill of Risk? Invest in an Annuity!

With the stock market in steep decline, people are looking... Read More

Find a Methodology and Minimize Investment Madness

There are many reasons to be investing these days, and... Read More

Exchange Traded Funds

They call 'em ETFs.There are hundreds of them.The mutual funds... Read More

Investing Offshore for Retirement

As an expatriate you are in a privileged savings and... Read More

Success Trading for New Traders: What Does Bid and Ask Mean?

Do you ever wonder exactly what's going on in the... Read More

The Biggest Oil Opportunity in the World ? And How You Can Profit From It

Where is the second biggest deposit of oil reserves in... Read More

How to Terror-Proof Your Money

"To drift is to be in hell, to be in... Read More

Have Analysts Gotten Honest?

It caught my attention when I heard an analyst on... Read More

An Old Dividend Stock Investment Idea, for a New Generation

Death and taxes! The certainties of life! And then, of... Read More

Wit and Wisdom on Money, Wall Street and Success - Part #1

I love to collect quotes as they concisely promote a... Read More

Chinas Inscrutable Currency Strategy

Purpose: Expose Opportunities for Smart InvestorsThe move by China's central... Read More

It?s Never too Early to Start Investing!

Remember the old saying, "never too late to start"? Well,... Read More

Holy Grail Investments

Every year I go to the Money Show in Orlando,... Read More

The Dreaded Direct Question

(Please have a glass of water within reach before reading... Read More

Variable Annuities

You know all the articles you read about annuities that... Read More

In a Time of Need

As I take my leisurely walk with my dog through... Read More

Are You An Investment Dummy Like Me?

I am good at a few things. I can certainly... Read More

Finding False Gold in Penny Stock

As far as traders go, many do not see the... Read More

Property Investment Just Got Exciting

There is an area in Brazil that has lower crime... Read More

Getting Started In Investing

Are you ready to open your pathway to financial independence?Well... Read More

Effective Advice For A New Generation of Investors

CATCHING A FALLING KNIFEOne of the most common mistakes made... Read More

Creating a Financial Future - Putting Your Plan Into Action Part 1

This column has previously discussed "picturing the future that we... Read More

The Benefits of Laddering Your CD Investments

If you've decided to stock some money away in a... Read More

Investing & Online Stock & Share Trading- The Stock & Share Markets are Booming But Be Warned

I had the pleasure of being invited on a friend's... Read More

Trading Tips No 4: Technical Analysis The Holy Grail Syndrome

Everyone knows that the Holy Grail of investing and trading... Read More

Who Wants To Be A Millionaire?

I am sure you have probably read about the power... Read More

Raising Capital Using a Public Company

Going public in this manner is ideal for companies that... Read More

A Safe Port For Mutual Funds But Not You!

Soft dollars, a form of legal kickback, is a sly... Read More

The Convertible Craze Brightens The Future Of Equities

Convertibles are stealing the show with their safe investment image... Read More

Invest To Make Money, Not To Get Rich

The technology boom of the '90s romanticized the "rags-to-riches" ideal... Read More

Invest or be Pink Slipped

Firing an employee seems to be easier and easier for... Read More

Trading Baskets Part I

Q. What is a basket?A basket is a group of... Read More