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Investing In Corporate Bonds

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Investing In Corporate Bonds Is An Attractive Alternative to Stocks

Investing In Corporate BondsFor investors who want to invest in the private sector of the economy, Investing In Corporate Bonds is an attractive alternative to investing in the highly volatile stock market.  There are a wide variety of Corporate Bonds from triple A rated bonds  issued by well known corporations to junk bonds issued by companies in a state of financial distress.  Investors invest their money in Corporate Bonds to receive periodic interest payments from corporate bond issuers.

Although Corporate Bonds can vary in price over time, the typical price changes in corporate bonds are extremely small in comparison to stocks.  This stability makes Corporate Bonds an attractive investment for more conservative investors who want to earn money on their investments but do not want to endure market volatility.  Corporate Bonds are also preferred by some investors because in the event of bankruptcy, holders of Corporate Bonds will be compensated before stockholders.

Investing In Corporate Bonds | Not All Corporate Bonds Are The Same

There are thousands of corporations in the United States that issue Corporate Bonds.  Not all of these Corporate Bonds are the same.  The bond yield, or interest paid on the bonds, varies depending upon the credit rating given the bonds and the length of maturity of the bonds.  Generally, bonds that have good credit ratings of AAA or close to AAA have lower interest rates since the risk of default is lessened when purchasing bonds with good credit ratings.  Investment grade Corporate Bonds are rated from AAA to BBB-.  Below BBB- Corporate Bonds are considered non-investment grade bonds or “junk bonds”, which pay significantly higher interest rates to attract investors to buy these higher risk Corporate Bonds.  To entice investors to invest their money for long periods of time, Corporate Bonds that have long maturity dates have higher interest rates than Corporate Bonds with short maturity dates.  For more information about junk bonds, see:  The Junk Bond Market Offers High Yield Returns.

While buying highly rated investment grade Corporate Bonds is considered a low risk investment, such an investment still carries the real risk of total loss should the corporation that issues the bonds file for bankruptcy and the bonds fall into default.  To eliminate the risk of owning Corporate Bonds that fall into default and become worthless, a good risk mitigation strategy is to buy mutual funds or Exchange Traded Funds (ETFs) that invest in the Corporate Bonds and offer attractive dividends that are based on the yields provided by the Corporate Bonds that they hold.  Another advantage of buying mutual funds and ETFs that invest in Corporate Bonds versus buying individual Corporate Bonds themselves is that the mutual funds and ETFs are managed by professional money managers that seek out the best Corporate Bonds to invest in and are capable of foreseeing default problems and selling bonds that are in danger of default.  Also, Corporate Bonds mutual funds and ETFs offer liquid trading markets that make it easy for investors to buy and sell them, whereas individual Corporate Bonds may be thinly traded and difficult to efficiently buy and sell.

After the stock market volatility in recent years, including the sharp drop in the stock market in 2008 and 2009, many investors are seeking places to invest their money that offer substantial investment returns without the risk of substantial loss of investment capital and without having to endure excessive volatility.  Investing in the Corporate Bonds is a good way to for investors to earn decent investment returns without risking their investment principal.

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