Investing in Bonds 101
You have worked hard for many years. You have saved a nest egg of your hard-earned money, and now you want to invest your money for your later years. Casino’s are generally not a good investment strategy. Real estate is volatile and recently upside down. The stock market scares you and causes sleepless nights. Stuffing your mattress with dollar bills, payroll checks, and gold seems a bit silly. What alternative do you have? You might want to consider the bond market. First and foremost, you must understand exactly what bonds are and how they can generate or lose money.
In finance, a bond is a debt security. The bond is like a loan. The holder of the bond is the lender or creditor. The issuer of the bond is the borrower or debtor. The coupon is the interest on the loan. The issuer is the authorized entity which owes the holder a debt. Depending on the terms of the bond, a certain amount of interest must be paid to the lender for using his money. Once the bond is completely paid back to the lender, it is deemed mature or paid off.
Bonds provide the borrower with external cash to finance long term investments. Bonds and Stocks are both securities, but the major difference between the two is in ownership of the company. In stocks, you purchase a partial ownership of a company. In bonds, you simply provide the financing. Also, in the case of bonds, the term or time limit of the loan is clearly defined. In stocks, ownership is not constrained by time.
Generally, the rate of return is safer with bonds but the return on investment is also smaller than stocks. Simply stated, you take less of a gamble so you earn less profit. Most bonds are issued by public authorities like cities, municipalities, state, local or federal government, or super large international companies. Most of the time, banks or syndicates buy the entire issue of the bond and then they resell it and make a profit by selling it at a higher rate than they purchased. This process is called underwriting. The syndicate takes the risk of not being able to sell the entire bond issue to end investors.
Most short term bonds reach maturity in one to five years. Medium term bonds or note reach maturity in six to twelve years. Long term bonds will mature in a time span greater than twelve years. There are many specific types of bonds. However, high yield bonds are bonds that are not rated as safe as other types of bonds. Thus, the risk is much higher and the possible return on your investment is much higher.
Bonds are an excellent option for many people, especially those on a fixed income, that require a safe and reliable entity in which to invest money with little chance of a major loss.
Investment Securities 101
For many people who are not involved in the finance field, investments are a true puzzle. Most rely on experts and hope they pick someone who is both proficient and honest. Nevertheless, your financial future is YOUR financial future and not an agent or advisors. Thus, it is incumbent upon each of us to oversee our own financial destiny. Having a basic understanding of investment strategies is vital to achieving this goal. One of the key investment avenues many people use is in the securities field.
A security is generally a fungible, negotiable financial instrument representing financial value. There are generally three different types of securities. Debt Securities are generally banknotes, bonds or debentures. Equity Securities are represented most often as common stocks available to the general public. Derivative Securities are generally contracts involving forwards, futures, options and swaps.
A company, country, city or other entity that issues the security is called the issuer. It is vital to be aware of laws and regulations involving securities to be safe within this field.
Securities can be represented by a certificate but in this era of electronic banking procedures, non-certificated securities is much more common. These securities are simply an asset in the investor’s portfolio.
The United States Securities and Exchange Commission is an excellent source for the novice investor to utilize in initially delving into this field. They are an excellent research tool for determining laws and regulations that must be met to participate lawfully. This government site also provides specific tutorials in different types of securities. It keeps you abreast of upcoming changes in laws and provides a library of all related forms and submissions. The SEC also provides valuable research in the form of accessing public records to make more informed choices. They publish a newsletter that provides one with a general overview of hot topics within this investment field. It is also possible to use this site to determine if your advisor or agent is certified and found proficient in the field of securities.
If you are in the market for a specialist, the SEC is a great place to get testimonials and lists of recommended professionals. It also provides options for municipal bonds offered through governmental controls.
Be informed, be careful, and do your homework, but this field can yield big dividends.
Welcome to Securities Investment Blog
Welcome to the Securities Investment Blog! My name is Susan Blackman and it is my sincerest pleasure to welcome you to my new personal finance blog. The reason for the creation of this blog is for me to share my knowledge of securities, investments, and personal finance as a whole. I will have plenty of topics to write about because personal finance has many wonderful things to write about. As a Professor of Economics this is what i enjoy doing. Teaching others how to better prepare themselves for the world is a true joy. I hope you enjoy reading the Securities Investment Blog!