|
Home / Finance / Investing
Introduction to Bonds
By:Jim Pretin
If you are relatively new to investing, you probably have heard of stocks, but know absolutely nothing about bonds. They do not offer the same sex appeal as stocks. Movies such as Wall Street and Boiler Room have gotten many neophyte investors excited about the stock market, and not once are bonds even mentioned in these films. Bonds are somewhat perplexing; the terminology is a little confusing. This article will hopefully help you understand how bonds work and whether or not they sound like an appropriate investment vehicle for you.
Simply put, corporations, governments, and municipalities borrow money by issuing bonds for sale to the general public. Companies sometimes need additional monies to expand their business, while governments need money for infrastructure. And just like any other loan, the bondholders are paid an interest rate on their money. And, generally speaking, at the end of a certain term, the borrower has to pay back the face amount of that loan.
Interest payments are made at a predetermined rate and schedule. The interest rate is usually referred to as a coupon. The date on which the borrower has to pay back the principal is known as the maturity date. If the lender holds the bond until maturity, he or she will get their principal back. So, for example, if you lend a company $10,000 by purchasing a corporate bond, and it pays an 8% coupon and has a maturity date of 10 years from now, that means you will be paid $800 per year for the next 10 years, and then you will get back the entire initial investment on the maturity date.
Bonds are considered debt instruments, whereas stocks are equity. The reason why stocks represent equity, or ownership, in a corporation, is because stockholders are entitled to receive a portion of the earnings in a corporation, whereas bondholders are only entitled to receive interest payments on their loan. If the bond issuer goes bankrupt, bondholders have a higher claim on the assets derived from the liquidation of the company; stockholders are compensated only after everyone else if a company goes belly up, and sometimes get nothing at all.
There are basically 3 different types of bonds. Government bonds are issued by the federal government, and are considered the safest as is the debt of any country with economic stability. Municipal bonds are issued by local governments, and are also considered safe. More importantly, municipals are exempted from federal tax and often from state taxes as well, making them a very lucrative investment. Finally, there are corporate bonds, which can be risky, depending on the financial condition of the company that is doing the issue.
I hope this information has helped you become familiar with bonds. Try to set aside some money for investing and start while you are still young. The earlier you begin, the more money you can potentially make down the road. Carefully research the credit rating of the company when investing in corporate bonds, and go for municipals or government issues if looking for security.
Digg
del.icio.us
Blink
Stumble
Spurl
Reddit
Netscape
Furl
Article keywords: bonds
Article Source: http://www.articles2k.com
Jim Pretin is the owner of http://www.forms4free.com, a service that helps programmers make email forms.
|
|
| Top Investing Articles |
- 1). Day Trading With The Camarilla Equation By : Steve Waller
Origins of the Camarilla Equation
Discovered while day trading in 1989 by Nick Stott, a successful bond trader in the financial markets, the 'Camarilla' equation uses a truism of nature to define market action - namely that most time series have a tendency to revert to the mean.
The equation produces 8 levels that are meant to predict these reversal points allowing the trader to profit from them.
|
- 2). HYIP’s versus Autosurfs: Which Is Better For You? By : Hyip-Status.com
A high yield investment program is essentially an investment in which you have the choice of how much you can invest in the program, hoping for a high yield. Any amount can be invested in a HYIP, and in fact small amounts works rather well for HYIP’s, but there is an advantage (and disadvantage) to using large investments.
An autosurf is better known as a “traffic exchange”; a person buys advertising that is placed in rotation with other advertisements.
|
- 3). How to Interpret and Profit from Financial Statements By : Pleeds
Financial statements are a useful tool for judging the health of a company, and for comparing it to its competitors. They show what the company owes and owns, the profits or loses it has made over a given period, and how their position has changed since their last statement. Generally if you can tell which direction a company is heading in, you can also forecast future stock prices with some accuracy.
|
- 4). Taking Control of your Finances. By : Debra Lohrere
To find money to invest for your future, you need to make sure that your outgoing expenses are less than the income that you are receiving. You need to develop an excess that you can have free to invest.
Now before you start to think….”well I don’t have any excess left…if I was earning more money….then I would have some free”. Let me dispel this myth…and tell you that it is a known and excepted fact that the amount of money that people earn has little if any bearing on whether or not they have an excess left to invest.
|
- 5). High Yield Investing Is Like A Game Of Poker By :
We often get newbies emailing us asking whether or not investing in HYIP's is worth the time and the risk. This is a great question and the short answer is "it all depends".
First of all, the main question you must ask yourself before investing in any HYIP is: "Do you plan on investing money that you will definitely need in the future?" In other words,.
|
|
|
- 7). Different Kinds Of Investments By : Juan José
These days, you can’t retire without using the returns from investments. You can’t count on your social security checks to cover your expenses when you retire. It’s barely enough for people who are receiving it now to have food, shelter and utilities. That doesn’t account for any care you may need or in the even that you need to take advantage of such funds much earlier in life.
|
- 8). A Cooling Real Estate Market and Investing in Pre-foreclosures By : John Appleseed
With the housing market cooling and demand for mortgage loans shrinking, banks and other lenders are turning to nontraditional and sometimes riskier mortgages to bring in additional business and make up their dropped off business.
Many lenders have turned to mortgage products designed to lower monthly loan payments and to help borrowers qualify more readily for larger loan amounts, while others require little in the way of documentation during the approval process.
|
- 9). FOREX Investing Compared to Other Investment Opportunities By : Cindy Brooks
With over $1.5 trillion changing hands daily, it might be advantageous for you to investigate the extremely lucrative business opportunity involving currency trading.
Once the domain of major banks and corporations, this field is now an open playground for the ordinary individual.
The following information gives you a comparison of different investment opportunities in comparison to Forex trading Forex could be the perfect opportunity for you if you are willing to have an open mind and investigate.
|
|
|
| New Investing Articles |
|
|
|
|
- 3). What Is An Investment Club? By : Roy Phay
Investment clubs are very hot in the market nowadays. Thousands of individuals are investing through clubs, and many of them find a great deal of success.
|
|
|
|
|
- 6). Investing in St. Louis Real Estate By : Robert Palmer
It is common for investors to express uncertainty over their ability to manage their portfolios during prolonged periods of market volatility. But prudent investors understand that making sound investment decisions shouldn’t be based on the market’s twists and turns. Rather, these decisions should stem from an understanding of investment fundamentals and an awareness of the mistakes others have made.
|
- 7). How Investment Options Works The For Buyer By : Ian Dennis
A call investment option is a financial contract involving two parties, the buyer and the seller of this type of investment option. Often it is simply labeled a "call". The buyer of the option has the right but not the obligation to buy an settled quantity of a particular commodity or financial instrument from the seller of the option at a certain time for a certain price.
|
- 8). The Dow Jones Industrial Average: Failing the Average Investor By : Steve Selengut
In addition to a well thought out Investment Plan, successful Equity investing requires a feel for what is going on in the real world that we all refer to as "The Market". To most investors, the DJIA provides all of the information they think they need, and they worship it mindlessly, thinking that this time tattered average has mystical predictive and analytic powers far beyond the scope of any other market number.
|
- 9). How to Spot Market Turning Points Using Free Legal Insider Information By : Steve Todd
How would you like to be able to take advantage of insider information and trade with the most successful traders in energies commodities, stocks and commodities?
Well you can - with the commitment of traders report, published by the CFTC. This report shows insider commercial trading positions by professional hedgers!
The commitment of traders report is available FREE, but hardly any traders use it - yet it can predict tops and bottoms, with amazing accuracy, when used correctly.
|
- 10). Market Timing – A Danger to Your Financial Success By : Steve Todd
Market timing are the two most dangerous words in investing - especially when practiced by novice traders.
Market timing is the strategy of attempting to predict future price movements through use of various fundamental and technical analysis tools - and when used to predict trending moves, ends in disaster, and losses.
Many investors feel that market timing is the same as trend following and the two go hand in hand, they don’t.
|
|
|
