Investing in Bonds
Bonds are a big part of any financial plan to invest and grow wealth. If you are considering buying bonds you need to have a good overview on how bonds work.
First, when you get into investing in bonds you should understand what you are investing in and how your investment will turn a profit. When you buy a bond you are lending money to an entity known as the issuer. The issuer will then give you a bond that promises to pay back the value of the bond plus interest. The bond will then return the investment plus interest when it comes due. Bonds come in 3 different terms. Short-term bonds are for up to 5 years. Medium-term bonds are 5 to 12 year. Long-term bonds is anything over 12 years.
One of the main reason to invest in bonds is that it gives you flexibility in your financial planning. Bonds come in many varies that can meet you needs and give you a low risk investment. Bonds give you a predictable income, since you know when the bond will come due and for how much. This is a great way to have income for saving for the long-term. Bonds can help pay for college, buy a house, or have enough money for retirement.
The bond market has several ways to invest. Individual bonds can be bought from the primary market when they are first issued. Individual bonds can be bought and sold on a secondary market. Buying in the secondary market lets you buy bonds in smaller amounts, but they normally have a markup.
One can also invest in a bond fund. These are a group of bonds managed by professionals. This gives you the option to take out your interest payments at different times and the ability to automatically reinvest your profits. Funds will usually charge annual fees plus fees for selling any bonds.
Money market fund run similar to a bond fund. The difference is money market funds invest in short-term bonds. This gives investor the ability to convert the bond into cash in a quick amount of time. Money can be withdraw at anytime without penalty. The minimum invest for this fund is $1,000 to over $10,000.
A bond unit investment trusts has a set portfolio that does not change. This lets you know how much you will earn since the investments never change. These bonds require a small supervision fee and a sales charge.