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By Bill Dufrane
Unlike the volatile stock market, bonds are quite stable over
long periods (most of the time). They have more predictable
characteristics — owing to their fixed interest rates. This
guide will make some sense of bonds for those looking to get
into investing.
1. Bonds Are Expensive
Unlike stocks, bonds are traditionally much more expensive,
and
are given out in $1000 increments and a minimum investment of
$5000. Of course, the benefit of dishing out this kind of
money
is that with other investors bond funds can be pooled and
diversified, maximizing return while minimizing risk.
2. Have An Expert Do It For You
Since the fund is managed by investment professionals, so the
theory goes, it has a better chance of achieving its goals
than
the sucess you might have trying to invest on your own. You
have
limited time and training needed to make those kinds of
decisions. For that service, of course, the investor pays a
fee.
3. Bonds Are Very Safe
OK, thats somewhat of a lie. Bonds arent entirely safe, but
highly rated corporates (AA or above) or U.S. Treasuries are
as
good as it gets. Unlike the stock market, bonds are very
low-risk investments. As such, they also have a very low
return
on your investment.
4. Buyer Beware
When choosing a representative for your bond, be sure they are
reputable. Some traders charge trading fees, as much as $10
per
trade, and this can add up to a huge trading fee by the end of
the year. One scam some traders do is invest your money in
lower amounts, in some cases charging the $10 for a trade that
wouldn't make $10.01 in profit.
5. Bonds And Maturity
Bonds and stocks are both securities, but the difference is
that stock holders own a part of the issuing company (have an
equity stake), whereas bond holders are in essence lenders to
the issuer. Also bonds usually have a defined term, or
maturity, after which the bond is redeemed whereas stocks may
be outstanding indefinitely. An exception is a consol bond,
which is a perpetuity, a bond with no maturity.
About The Author: For more great bond investing related
articles and resources check out
www.investingadvisor.info
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