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Bonds Investing

What are the Benefits and Risks of Bonds Investing?

Bonds investing is a great alternative for investors needing income. You can also gain income from dividend paying stocks, but the bonds investor will experience more principle stability and most of the time, more income.

Bonds investing can give you great income, but as interest rates fluctuate, so will the value of your bonds. When interest rates are going lower, your bonds will go up in value. Conversely, when interest rates are going higher, your bonds will be going down in value. The shorter the maturity of the bond, the less the value will be affected. Long maturity bonds can suffer greatly when interest rates are rising.

There are also many different kinds of bonds available for purchase. Additionally, you can purchase either individual bonds, bond Mutual Funds, or Unit Trusts. Depending on what kind of vehicle and type you choose for bonds investing, you can control the risks involved.

Mutual Funds are a simple and convenient way to buy bonds. You get professional selection and management, as well as monthly income checks. You can also reinvest the interest income in additional mutual fund shares if you do not immediately need the income. Units Trusts combine a small number of bonds which are picked by professionals, so you are buying a package of bonds instead of a single issue.

With bonds investing there are several types of risks involved. As discussed above, there is principle fluctuation risk due to interest rate fluctuations. Also, there is default risk with Corporate Bonds, Municipal Bonds, and GNMA Bonds, but not with US Treasuries.

When the economy is slowing, the default rate of the Corporate Bonds can rise, lowering the price of these bonds. GMNA Bonds are how mortgages are financed. When you own a GNMA, you are effectively the lender of a mortgage. When people default on paying their mortgage, the value of your GNMA can be negatively affected and can go down in value. However, since these bonds are backed by quasi government agencies, the risk is limited in nature. US Treasuries are considered the safest investments, since they are back by the full faith and credit of the United States of America.

The rate of interest you will get by bonds investing is determined by many factors. Generally the more risk you take, the higher the interest rate.

Contact a professional financial advisor so you can be assured you are buying the right one for your particular needs.

Please choose from the list of topics for additional information:

401K Rollover Annuities Bonds Investing
Corporate Bonds Forex Trading Futures Trading
Investment Advice IRA Investing Mutual Funds
Mutual Funds Comparison Options Trading REIT
Roth 401K Roth IRA Tax Liens
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