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Take a Chance on Risky Bonds

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What Are Risky Bonds?

Risky BondsWhile risky bonds may sound like they belong in an S&M nightclub, they are actually a valuable part of many investors’ portfolios. Risk is often an attractive quality for investors and knowing how to use it to your advantage can result in quick, lucrative returns. Before you begin, however, it is important to understand how bonds work and what can make them risky. When you buy a bond you are essentially loaning money to a company. The loan may be much smaller than a typical bank loan, but the mechanics behind it are similar. The bond has a set interest rate that will be repaid at intervals. You can generally buy a bond that pays interest monthly, semi-annually or annually. When the bond reaches maturity, the company will repay the initial loan, buying the bond back from you. A bond is considered risky if there is the possibility that the company will not be able to pay you back. Risky bonds are generally sold by new companies or small companies that have not achieved financial success.

  The Benefits of Risky Bonds

There are a number of benefits to buying risky bonds. For one thing, you are helping out a company that may be just starting out and needs the money to succeed. If you can help them succeed, you can take part in their success and make money along with them. The other advantage to risky bonds is that they are usually extremely inexpensive. For very little money, you can have a regular source of income in the form of interest payments. This income can then be used to fund more expensive and more lucrative investments. It is important to note that bonds can also be resold. If you feel that the company may go under and that your risky bonds may no longer be lucrative, you can always sell them before you lose any money.

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