Investing in Bonds

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Most investments in this section can get a better return that bonds however in the long run, bonds have several advantages that the other investments simply can't match and they should be included in all balanced portfolios.

Capital preservation.

A bondholder investing in government backed bonds can be almost completely certain that they will receive the amount they originally invested.

Stocks, for example, which are considered safe are actually far riskier and investors have no guarantee that they will get back funds initially invested.

Even the biggest companies can go bust and do!

Bond investing gives peace of mind and this is particularly important for investors as they get older and need income to live on and their capital preserved.

Bonds pay interest

At set intervals of time, which can provide valuable income for retired couples, individuals, or those who need the cash flow.

For instance, if someone owned $100,000 worth of bonds that paid 10% interest annually would be $10,000.

This interest would be sent to the bondholder either monthly or quarterly, giving them money to live spend or invest as they wish.

Bonds can also have large tax advantage for some groups of people.

When a government or municipality issues various types of bonds to raise money to build bridges, airports roads, etc., the interest that is earned can be tax exempt.

This can be advantageous for those who are retired or want to minimize their total tax liability.

More complicated Bond Strategies

Can involve investing in different countries and rather than holding bonds buying and selling them quickly to take advantage of the future direction of interest rates.

Bonds have a place in any investor's portfolio.

They may not be as exciting as hedge funds but they provide the solid foundation of any portfolio and they are particularly useful for risk adverse investors such as the elderly that rely on income and are looking for capital preservation.