An Introduction To Bonds
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Written by: GavinClarke
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Word Count: 419 |
Date: Sun, 9 May 2010 |
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Since the stock market endured turbulent times during 2008 and 2009, many investors looked towards buying bonds to escape the volatility. In uncertain periods, bonds can be a more sturdy investment than the stock market, which can sometimes be turbulent.
Bonds are loans issued by the government or companies. If you buy a bond, then you are providing a loan to whoever issued it. A bond usually has a fixed rate of interest, and the sum which youve paid into the bond will usually be paid back to you at the end of the term. This article introduces you to bonds.
Corporate Bonds - Companies issue corporate bonds as a means of raising money that they can reinvest in their business. They have a nominal value (normally £100), which will be returned to the investor on a future date. They also pay a stated rate of interest annually, which is usually fixed.
Because corporate bonds can be traded on a stock exchange, their price can go up and down. Should you wish to invest in corporate bonds, or youd like to know more, then take a look at Legal and General.
Gilts (Government Bonds) - Gilts are government issued bonds that pay a fixed rate of interest twice a year. Because the government is unlikely to go bankrupt, gilts are considered safe investment products.
Although they are very safe, you are not guaranteed to get all of your investment back. Like corporate bonds, gilts can be traded on a stock exchange, so theyre price goes up or down. You can buy gilts through a broker, high street banks or through the government at the Debt Management Office.
Bond Funds - A bond fund invests in a diversified portfolio of bonds (usually with both corporate and gilts) which will often have various interest rates and dates for maturing. Because the fund is diverse range of investments, it lowers the risk to your capital.
Because theres a mixture of investments in a bond fund, they dont have a fixed return. Rather they aim for a target return. They are very useful investment products when used alongside a diversified stock portfolio for long term investors.
About the Author
Evon Zaharek is very knowledgeable on savings and accounts and loves to write about corporate bonds
.
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