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Considering Buying Bonds? Personal Finance Advices for the Beginners

By Charles Hopkins Published 09/19/2006 | Finance

Considering Buying Bonds? Personal Finance Advices for the Beginners

There is no doubt, we are going through one of the most peaceful phases of the human history and that it is getting reflected in the bustling commerce all over the world. The globalized economy and growth of e-commerce has further contributed to this feel good economic atmosphere. We are open to multiple investment options as never before and the market is yielding well too. The demands for more high-risk-high-gain investments like stocks, bonds or mutual funds are going through their all time high. However, the bonds are the safest and most conventional tool of investment among these three types.

If you are just a beginner in the world of investment, you might want to know what bonds actually are. Bonds are the means through which the companies and even government agencies borrow money from the public for a specific period of time. On the maturity of the bond, you get back the principle along with the interests for making the purchase of the bond. Depending on the market situation, bonds can be purchased at face value or at a discounted price. It can also be bought on a premium. The value of the bonds vary with the changes in interest rates. As the interest rates rise above the rate of your bond, the value of the bonds falls down. Your bonds yield profit as general interest rates fall below the rate of the bond.

Are you looking for a way to add a steady flow of income to your usual salary earnings? Bonds are the best tools for achieving that. By investing in bonds, you will be entitled to interest earnings at regular intervals. This cash will create an additional source of income for you.

It is true that stocks and equity can give you unbelievable profit. But if you are looking for a safer mode of investment, you can find no better means of capital preservation than with the bonds. With bonds your initial investment is safe except in the most unlikely cases of a company going bankrupt. But you can always avoid the companies in trouble and whether a company is dependable can be known from the corporate rating. However, for utmost safe playing, consider investing in Government bonds supported by the full faith and credit of the Federal government.

As you purchase the bond, you agree to keep your money with the bond issuer for a specified period that may span over decades. But how can you make sure that you get the assured interests over this specified period? For that you have to take the help of the credit ratings. It is the duty of the rating agencies to assign ratings to bonds and a keep a track of their financial performances. It is also possible to know from the securities firm or banks about the financial status of the bond issuing companies, as these financial institutions for their own benefit carry on researches on the performances of the various firms. The investment advisor can also provide you information on the company performance, as well as, the character of the bonds. As a beginner, you should always put your money on the bonds with a good rating. The bonds with lower rating are purchases solely for speculative purposes.

You should always keep yourself informed about the changes in the bond rating and their valuation and take actions accordingly. You can make inquiries at the information desks of the rating agencies. The reports are also available in most of the local libraries. But the best way of remaining informed is through online rating information through the rating agency websites.