10 Facts You Should Consider When Buying Bonds

14. Apr, 2010 0 Comments

Good financial planners recommend diversified portfolios. Putting all your money in stocks or real estate leaves you vulnerable. Bonds will help you balance your portfolio, regardless of your age. Here are some facts to consider:

1. If you use a broker or brokerage service, you will pay a commission. Make sure you know the additional charges you are paying.

2. You can purchase government bonds directly from the government (with no added commission) at treasurydirect.gov.

3. Bad news for the economy is good news for bonds. A period of lower inflation and interest rate cuts increases the value of bonds. Consider economic conditions and indicators before buying bonds.

4. Bonds are not foolproof investments. If the company issuing the bond goes bankrupt, and your bond is unsecured, you may have trouble collecting.

5. Check the company’s “report card” before purchasing corporate bonds. Rating agencies such as Moody’s and Fitch regularly analyze financial conditions.

6. Higher yields are available – for more risky investments. Make sure you can tolerate the risk that goes along with the reward.

7. If you are in a high tax bracket, consider U.S. Treasury bonds, whose interest is not taxed at state or local levels. Municipal bonds’ interest is exempt from federal and sometimes state and city income taxes.

8. Keep it balanced! Sure, a higher yield investment is appealing. But, as with all investments, the more risk involved, the higher the chance of losing money.

9. When interest rates increase, bond prices fall. Bonds maturing at different times (one year, three year, five year, etc) can level out your risk, and make you less vulnerable to fluctuations.

10. If you are just starting out, consider a Bond Fund. Fund managers provide a valuable service by keeping current on the market. You pay for the service, but you get expertise in return.

Charles E. Johnson is an entrepreneur and the current owner of. For more information on the bond market and investing in bonds, visit the Articleportfolio.com bonds page here: http://www.articleportfolio.com/buying-bonds.html.

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