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7 Things to Consider When Investing in Bonds

In: Business and Management

Submitted By ZMorlock
Words 723
Pages 3
Financial Services Investing in Bonds
Investing in bonds is a complex matter, one that involves much thought prior to dumping [usually] a large amount of money into a corporate, municipal, or government bond. There are many things to consider before you should invest in a bond: (1) risk profile and target return, (2) when is/are the maturity date(s) and do they follow your investment horizon, (3) what are the risks, (4) can the bonds be purchased back before maturity, (5) are the interest payments made at a fixed or floating rate, (6) can the issuer cover its debt obligations, (7) and lastly, how are the bonds secured. All of these should be considered before rushing into purchasing a bond of any kind.
First, before investing it is important to perform a self-assessment of risk. Essentially, one should evaluate how much they can, or are willing to risk in their investments. This must be done before a strategy can be drawn up. When thinking about a risk profile, the investor must think about possible negative effects from failed investments, the costs of each risk, as well as target return for the bond(s). In addition to a desired target return, an investor should have a defined investment horizon, which should align with the investing bond’s maturity terms, or maturity date. The date of maturity is the date in which the investor will receive the principal payment, which is the amount that was originally invested in the bond, by selling the bond back to the issuer. If any interest was not paid out in the form of a coupon payment, the investor can expect that amount in addition to the principal at the date of maturity. Of course, if the issuer defaults, this payment will not be issued back to the investor, thus the risk involved. There are many risks involved when investing in bonds. First, there are risks in analyzing and ultimately investing in the bonds to…...

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