A major part of earning and saving in modern day life involves investment and wealth creation and management. This process involves purchasing bonds where you lend the issuer your finances in return for a constant return on the investment. In short, bonds are recognized as investments that give you a fixed income to you, the creditor.
The issuers can be the federal government, state or the corporations. You need to pay the interests quarterly and on the date of maturity your issuer gives you the payment levied on the principal amount of loan.
The US government issued bonds; these are known to be exceptionally safe in terms of investment. The investments coming under high risk investment category include:
• Municipal bonds
• Corporate bonds
• State issued bonds
• City issued bonds
These bonds don’t always guarantee the safety of your investments. Wealth creation undoubtedly carries some amount of risk element with it. As you purchase a bond, your interest amount gets locked and this involves the risk factor.
Locking your bonds at lower rates of interest is a better thing to do, especially, when the market rates are fluctuating. Taking your decisions on the present market conditions is very important. There are the bonds rating companies that rate different bonds as safe or high risk investments. They are rated from A to C where “A grade bonds” are considered the safest. The high yield bonds are also known as “junk bonds”. This also sends out a warning to the investor who must know about his bonds clearly before investing.
As against stocks, the bonds are traditional investment platforms and are considered a great way to give your wealth creation efforts a steady footing.
However, before investing in a bond you must understand what type of the bond it is. The government issued bonds that are identified as treasury bonds, agency bonds and agency bonds. Post issuance the rate of the bond can always fluctuate in the market.
Further the investment in your bonds must be based on your needs and the amount of risk you are ready to take. Before investing you should also learn thoroughly about the different types of bonds. For instance, the debentures are the unsecured taxable bonds. There are the mortgage bonds which most people try to avoid if they are not strongly financially secured. The Treasury Bonds are considered to be the safest as they have no credit risk.