Exploring The Benefits of Buying Bonds
A bond is a financial instrument that represents a loan from an investor to a borrower, such as a company or government. The borrower uses the money to fund its operations, and the investor receives interest on the investment.
Here are some key things to know about bonds:
- Fixed income
Bonds are considered fixed-income investments because they provide a steady stream of income over the life of the bond.
- Maturity date
Bonds have a maturity date, when the issuer must pay back the principal to the investor.
- Credit rating
Bonds are rated by independent agencies based on the issuer’s financial strength and ability to pay interest and principal on time. AAA is the highest rating and indicates the highest safety.
- Types of bonds
There are several types of bonds, including corporate bonds, municipal bonds, and U.S. Treasuries.
- Benefits
Bonds can help diversify an investment portfolio and offset the risk of more volatile investments like stocks. They can also provide a steady income during retirement.
- Callable bonds
- Some bonds, called callable bonds, can be redeemed by the issuer before the maturity date if interest rates drop. This allows the company to reissue the debt at a lower rate.
