Why Invest in Bonds?

The bond market is not glamorous. When the economy is going strong, you’ll rarely hear talk at parties or read articles about the hottest bonds or bond funds. However, for the conservative portion of

Bonds are essentially a means in which you lend companies or the government money for a period of time. The due date is the maturity of the bond. During the time that the money is borrowed, or the life of the bond, the bondholder earns interest for having purchased the bond, or loaned the money. Bonds can be purchased at face value or at either a discount or a premium, depending on the interest rate of the bond and the bond market. Essentially, if general interest rates rise above the rate of your bond, your bond decreases in value. Conversely, if general rates drop below the rate of your bond, your bond increases in value.

While stocks and equity mutual funds will be more lucrative in the long run, bonds are more dependable for capital preservation. Typically, unless a company goes bankrupt, your initial investment is safe. And you’ll know if a company is in trouble because corporate (as well as municipal) bonds are rated based on the dependability of the company to pay back the loan. Government bonds are the safest of all investments, backed by the full faith and credit of the U.S. government.