Should You Invest in the Bond Market?
You probably know that stocks are the big-boys in the investment world. Businesses live and die on stocks. A publicly traded stock can give a company much needed capital to help it grow. And of course, when it grows, Rothenberg.ca investors get a return. At the same time, if a company cannot grow, the investors lose out and that deters other investors from joining the fray. Below read about how and when you should invest in Bond Market.
Indeed, stocks can be a profitable and smart investments, but they are also risky, and because of that, you might want to consider investing in the bond market instead.
The Benefits of Investing in the Bond Market
Essentially, a bond is a loan that is provided by an investor to a company, in exchange for interest. Bonds can be safer than stocks because they are more structured, offering a fixed payment schedule to you, the lender, until full repayment of the original capital (by a set date).
Bonds Carry the Following Benefits
- They are simple in structure therefore adding diversity to any portfolio
- Generally lower risk than equity investments
- Liquidity—you can redeem them at any time
- More stable than equity investments
- The Risks of Investing in the Bond Market
While the benefits might make the bond market seem like a no-brainer, every investment carries some risk. That being said, bond risks are generally more reasonable.
Some of the Risks Associated with Investing in the Bond Market
- Vulnerable to something called a “call risk,”. Which involves the issuer calling for the bond holder to redeem it so that the issuer can then open a new offer.
- Vulnerable to inflation, which can affect the final bond yield
- Similarly vulnerable to a financial crises – Bonds depend on whatever the present financial environment is at the time they are cashed out
As you can see, these risks are minor when compared to those associated with other equity investments (such as stock and real estate, for example). Still, there are only two types of bonds—which also makes this investment class easier to understand.
These bonds allow for citizens of a country to loan money directly to their government to reap the interest. Similar to a bank, except in this case you are not loaning that money to a company. Of course, these can greatly vary but, in general they have a fixed redemption date.
Generally regarded as simpler than government bonds, corporate bonds are often less complex. These debt obligations are often issued in round number. It is important to remember that risks and benefits can vary depending upon the volatility, behavior and overal success of the corporation associated with the bond.