Chances are when an individual thinks about investing they automatically think about the stock market. Although stocks are a popular way to invest there are other ways that are a bit more conservative if you aren’t into the high volatility of stocks. That being said one great option are bonds and Money & Markets Bond Investment has some great educational information to show you how to invest in stocks safely.
Chances are you have asked to borrow money before. Maybe you asked your parents for a dollar when you were a young child to get a candy bar at the grocery store. Just like we as individuals find times in our lives where we need to borrow money, companies and the government go through these periods as well. Companies tend to get the extravagant amounts of money they need from issuing bonds. In a bond, you as the individual are in essence the lender of money to these companies or government. It is like an IOU. Bonds are grouped under the fixed-income security group and refer to any security for are founded on debt. You are essentially loaning out your money to a company and in return they will pay you interest plus the amount you lent them. Some terms to keep in mind are the face value which is the amount loaned, the coupon which is the interest rate, and the maturity date which is the date the borrower is required to have the loan repaid in full. Here’s an example. Let’s say you buy a bond with a face value of $1,000.
The coupon on your bond is at a rate of 10% and the maturity date is 10 years. That being said, keep in mind that most bonds pay interest semi-annually so you would get an interest payment from your bond of $50 two times every year. So over the course of the 10 year period you will have made $1,000 in interest, plus receive back your $1,000 face value. You just doubled your investment. As you can see from this example, bonds are popular because they are pretty safe. If you buy from a reputable company you can guarantee basically no risk. That is a huge selling point for bonds.
Let’s say you are planning on going back to school in a couple years to get a master’s degree. You can invest in a bond for a short amount of time to be certain you will make some money on your investment and help to pay for your education. Another great selling point of bonds is that they are a great way to diversify your investment portfolio and they are considered fixed income securities. However, since there is little risk, bonds don’t give the investor the greatest return like an investor might receive from something more risky such as investing in stocks. However with investing in bonds you can have peace of mind in knowing you are safe which peace of mind means a lot to a more conservative individual like myself.