RECENT NEWS
New York Times  36 min ago  Comment 
Three Albuquerque teenagers accused of fatally beating two homeless men beyond recognition with cinder blocks, bricks and a metal fence post have been ordered held on $5 million bonds on murder charges.
SeekingAlpha  9 hrs ago  Comment 
Strategists went into 2014 with a consensus bearish view on bonds (as was also the case in 2010-2013...). The market action so far has not been kind to that view, with yields plunging in the developed markets. It may be that I have fallen into a...
DailyFinance  10 hrs ago  Comment 
TORONTO, ONTARIO -- (Marketwired) -- 07/21/14 -- Clairvest Group Inc. (TSX:CVG) ("Clairvest"), together with Clairvest Equity Partners III Limited Partnership ("CEP III", collectively "Clairvest"), announced today that its investment partner Light...
SeekingAlpha  10 hrs ago  Comment 
By Donald van Deventer: We last ranked the best value 10-year fixed rate corporate bond issues on June 6, 2014. Today we rank the best value corporate bond trades with daily trading volume of at least $5 million and maturities of 10 years or...
Financial Times  11 hrs ago  Comment 
Issuance has dropped to $105bn so far this year, 4 per cent down on the same period in 2013 and the lowest year-to-date figure since 2002
Forbes  11 hrs ago  Comment 
Part One of a multi-part interview with Vanguard's Chief Economist, Joseph H. Davis, Ph.D. In this article we discuss the state of the current low interest rate environment and how investors should adjust their expectations as well as their...
Finance Asia  Jul 21  Comment 
Asian high-yield bonds come with the best quality covenants globally as investors continue to scrutinise borrower profiles.




 
TOP CONTRIBUTORS

A bond is a type of debt. It's a loan from an investor to an institution, and in exchange the investor collects a predetermined interest rate. When a company needs capital to expand its business, it issues bonds to the public. Investors buy them with the understanding that they will collect the original principal plus interest when the bond matures at a set date. Federal, state, and municipal governments issue bonds for a similar purpose, to raise money for projects and public programs.


Types of Bonds

Bonds or Stocks?

Making the choice between stocks and bonds can be complex. In general, though, the key consideration is your own planning horizon.

Bonds are, in general, more predictable than stocks, and (on average and in general) give you lower returns. If you believe you'll need predictable access to money over, say, a 20-year period, you may be better off with bonds. For example, if you want to put aside a specific amount of money for a grandchild, expecting that money to be available for college in eighteen years, and not expecting to have other capital available. Insurance companies invest heavily in bonds for just this reason: it matches predictable liabilities (future insurance claims) against predictable cash flows (principal and interest).

Some bonds have tax advantages; for example, municipal bonds are typically exempt from state taxes in the state that issued them, as well as federal taxes. This can make them more attractive, though often you will find that the market has arbitraged away the difference, and that corporate (that is, taxable) bonds carry a higher gross yield -- and the same net yield after taxes. Although many investors invest in munis for just this reason -- they "don't like the taxman" -- they may not be making the optimum investment choice.

Bonds are not riskless, however. They carry credit risk ("will I get my money back?"), prepayment risk, liquidity risk and interest-rate risk. Many bonds give the bond issuer the right to repay the bond early -- which happens more often when rates are low, in other words, just when you don't want your money back. This is prepayment risk. Liquidity risk is the risk that you won't find a good price for your bond when you want to sell it -- because there are so many more bond issuers than stock issuers, and because bonds are not exchange-traded, there may not be a willing buyer. Interest-rate risk is the opposite of prepayment risk: when rates go up, the value of your bond will drop (it drops more, the further away it is from maturity). If your circumstances change and you need to sell the bond before maturity, you can lose capital that you would otherwise receive, if you held the bond to maturity.

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A how to on investing in bonds

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