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Understanding The Types of Investment Bonds Available

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Investment Bonds

What Are Investment Bonds?

Investment Bonds are debt securities issued by an entity that needs to raise money for their company, city or country. They are an important part of a well-balanced portfolio and offer more stability than the stock market.

The investor purchases a bond and is paid a fluctuating interest rate on their investment for loaning the issuer their money. Bonds are issued by many entities, including municipalities (municipal bonds,) corporations (corporate bonds,) and federal agencies, to name a few.

They are generally a low yield, low risk portfolio asset, and should make up a larger portion of an older adult’s retirement portfolio. As with any investment, the return on the invested capital is not guaranteed, and due diligence should be carried out before committing any money.

Types of Investment Bonds

There are many choices when it comes to buying bonds. Here are a noteworthy few:

Municipal Bonds: These bonds are issued by municipalities, who in turn use the money for city projects, infrastructure improvement and projects for improving the community in general. Some, but not all of these bonds are not taxable.

U.S. Treasury Securities

One of the most common and historically safe investments is bonds. These include treasury bonds, T-bills and other U.S. government-backed securities. There is a huge market for trading these bonds.

Corporate Bonds

As the name suggests, these investment bonds are issued by public and private corporations. This is an excellent way for reputable companies to raise funds for various business-related projects. Corporate bonds are essentially IOUs and do not give the investor ownership in the corporation. Any interest earned from these bonds is taxable.

High Yield Bonds

Issued by those entities that are considered “high-risk” by credit rating agencies, high yield bonds offer higher interest rates to attract investors. Of course, with those higher returns comes a higher risk of losing money. Research these organizations well before purchasing their bonds.

Earned interest on bonds is paid out on a regular schedule, depending on the type of bond issued. All bonds are issued a maturity date upon purchase. This date determines how long the buyer will receive interest payments and when the principal will be repaid. Buying and selling investment bonds can be lucrative, but requires extensive knowledge to do so on a regular basis.

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