Bond Investing

Comments (20)


Bond Investing

By: Jakob Jelling

Bond investing is the safest way to invest long term.

One of the safest ways to invest is in bonds. If you are thinking about investing in bonds, chances are you are making a very good decision. You should be able to make a little bit of money on your investments - and you are not very likely to lose any money in the deal. However, while the stock market is confusing, the bond market is too. Therefore, before you start investing in the bond market, you should do some research and make sure you can find out what you need to know about bonds.

There are several different bond markets. One of the most well known and easiest bond markets to get into is that of municipal securities. These bond markets are essentially based around the buying and selling of bonds in states or cities. Usually the money from these bonds are initially used to build new schools or other public systems. Therefore, not only will you be investing in bonds but you'll also be able to help your area build schools and other structures that it needs.

Bond investing does not have to be done on the local level. Another type of bonds you can buy are from the federal government. These bonds are usually pretty easy to buy and usually can be used for many years afterward. The treasury securities market, for instance, has bonds that will not mature for more than ten years.

Bond investing works the same way as most other types of investments. You put your money in, get your bond, and then you cannot get your money back until the bond matures. Therefore, bond investing is strictly a long-term investment market. However, there are several different time lengths that you can buy bonds for. Some of the shortest bonds will mature after one year. These are the shortest bond lengths, and usually will not allow you to earn very much money on the bond.

Other types of bonds are longer. If you invest in an extremely long term bond (ten or more years) then you'll stand a chance of making a fairly decent amount of money. Most bonds also have a fixed value that they are worth. Instead of deciding exactly how much money you would like to give to a school, bank, or other organization for bonds, you need to buy a certain number of bonds that have fixed prices at first.

Finally, if you are thinking about bond investing, realize that you can sell your bonds before the maturity date - but you will not get as much money as you would have, and might even end up losing money in a deal like that.

About The Author

Jakob Jelling is the founder of Cashbazar.com. Go to http://www.cashbazar.com/investing.shtml and learn how to invest your money!

Comments

Aaron 14.03.2013. 04:42

Is it possible for a bond to be undervalued? I am new in bond investing. is it possible for bonds to be undervalued as well? The world of bonds is quite new to me, I am more trained in stock investing so I want to know if value investing can work to some extent to bonds.

Thanks!

Aaron

Admin 14.03.2013. 04:42

Of course. The usual way that people think about this is with junk debt. For instance, suppose that Delta bonds are selling at 35 but paying an 8% coupon with 5 years to maturity. If the bond does not go into default you get $140 for every $35 you invest - a return of a factor of 4 in 5 years. A four bagger in five years is a very successful equity trade (yeah, yeah, everyone has better trades than that). That's lots of room for "undervalued".

There are some serious differences with equity trading however, including:

a) Equity is about long term growth. Bonds are about near term liquidity. When you evaluate a company's debt you are evaluating whether they have cash flow to meet debt payments, not whether the market thinks that growth will extend for 10 years. "We have a great new product in the pipeline" is not very relevant for bonds.

b) Bonds have the recovery issue. If Delta above goes bankrupt after 3 years, you have a bankruptcy claim which is worth serious money - maybe .5 cents on the dollar or maybe 99.5 cents on the dollar (Your equity has little chance of recovery). Thus, bond evaluation is two stage - can they pay and what happens if they don't.

c) Leverage is a more important part of bond investing. With junk debt like above you aren't going to get much leverage but on other kinds of bonds huge leverage is available (20:1 is commonly available on very high grade debt).

d) Corporate structure and legal covenants matter. The devil may be in the details and you have to learn to wade through some turgid crap to be a bond sleuth.

Admin

RB 10.08.2011. 12:23

What would be the current strategy in bond fund investing? What should my investment strategy be at this time in bond fund investing?

Not talking about buying bonds but bond funds?

Should I stay short term and wait for interest rate to rise and transfer to longer bond funds?

Or just stay in intermediate funds and stay put?

RB

Admin 10.08.2011. 12:23

I take this to mean you are in Federal bond funds? Do you mean that you want to invest in a bond fund, or you are the investment manager of the bond fund?

If you are a shareholder: Because there is no maturity date on bond funds, go to the one that yields the highest return.

If you are the investor: Go for the lower rated bonds. It is worth the risk right now. If you go to long-term bonds, do it on a day when the Fed isn't giving a press conference.

Admin

governorhorton 03.01.2008. 21:13

Does anyone know any good books/resources in regards to investing in foreign bonds? I am also interested in knowing about mutual funds or other investment options that deal with foreign bond investing.

governorhorton

Admin 03.01.2008. 21:13

Try Jim Rogers, him and his wife recently traveled around the globe in search of investment ideas; he just wrote a book on China, and has other books including investment biker about the around the world trip, hot commodities, and adventure capitalist.

Admin

Derek 09.01.2007. 18:36

What are the best types of bonds to invest in? Well, I am 19 and I am working in a factory as of now. I still live with Parents. I am wondering what is the best Bonds to invest in at my age (if that matters even) and fits my lifestyle right now?

Derek

Admin 09.01.2007. 18:36

Any reason you want to invest in bonds? At your age you can live with some higher risk items like mutual finds.

Admin

Kevin J 03.02.2009. 00:06

Where on line would you be able to find a corporate bond prospectus.? Interested in bond investing but want to see if they are first denature and collateralized.

Kevin J

Admin 03.02.2009. 00:06

Moody's or Standard and Poor's will have lots of information on all bonds, including the ratings of those bonds.

Admin

ru with me 21.01.2010. 16:00

What is a realistic percentage I should make a year on investments? The old 10% over the long haul does not seem to be true anymore. I'm not interested in day trading, options, forex or other higher risk money vehicles. I'm more interested in stocks and bonds investing without a lot of trading going on.

ru with me

Admin 21.01.2010. 16:00

There was an article on that on the internet just a couple of days ago. Investment gurus were polled and the consensus was about 2% after inflation at the most. Some--a small majority--stuck to the 10%. A few pessimists came in at zero. If the last 10 years is any indication, one is going to have to think outside the box, to get 2%. Let's face it. There is every indication that the growth years are done and gone as a rule of thumb. The US economy appears pretty well headed the way the Roman empire went. The Roman empire had Nero. We had Bush and now Obama. The Roman empire had its senate and we have ours. A lot of parallels here.

Admin

Aaron 12.08.2011. 22:30

What is the name of investment strategy? What is the name of the investment strategy in which mutual funds or stocks are purchased in fixed dollar amount at regular intervals, regardless of how the market is performing?
A. Dollar-cost averaging
B.Stock investing
C. Bond investing

Aaron

Admin 12.08.2011. 22:30

That's A. dollar-cost averaging.

Admin

mayerj72 14.10.2010. 21:53

How can China buy all these bonds if their GDP is much lower than ours? To me that would mean that China is loaded with money, but they are not the richest nation on earth. So why are they buying all these bonds and investing their money in them. And is that a good thing or a bad thing that they buy all these bonds?

mayerj72

Admin 14.10.2010. 21:53

Not only can they, they have to.

China has a high savings rate, and doesn't sell their bonds to foreigners. They also have a trade surplus with the US, meaning they sell us more stuff than we sell them (makes sense, we have more money, right?).

In exchange for goods, the Chinese get dollars. What to do with them? They buy US bonds with them, which represent a part of the US' total economy.

There's other arguments to where they purposefully buy US treasuries to keep our currency artificially high compared to theirs, but that's another topic.

Admin

usa_jcrew68 07.04.2007. 22:12

What are common demoninators of the super-rich? I want to become wealthy by working smarter not harder.

I came up with 7 things that the super-wealthy do on a regular basis:

Low risk investments
Frugality
Keep cash reserves
Invest in stocks
Invest in bonds
Invest in real estate
They take risks

Can you name anything else?

usa_jcrew68

Admin 07.04.2007. 22:12

they take calculated risks on any investments. high or low risks. i am not sure about being frugal though. All i can say is that they practice good money management.

Admin

bored 10.12.2007. 03:25

How and were do i invest 1,000 dollars for 4 years?? I know nothing about stocks and bonds and investing. Could some wise people out there give me some solid investing advice?

bored

Admin 10.12.2007. 03:25

Do not invest in stocks. Too risky for you!
FOREX trading also is like a lottery for beginner. Do not start this gambling if you know nothing about stocks and FOREX trading.

Better try to invest in someones small business. You may receive up to 20% guaranteed interest a year.
You will not get such high returns on stocks, mutual funds, bonds or CD's.
If you invest $1,000 at 20% APR, you will get back $2,073.60 in 4 years.

Some of the European banks pay 8% to 14% a year (3-5 years deposits).
If you invest $1,000 at 14% APR, you will get back $1,688.96 in 4 years.

I run my own business and my net profit is over 5% a month.

Email me at investment4us@hotmail.com and I'll give you a valuable advice if you are serious about investing.

Best of luck!
My experience and common sense

Admin

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