Invest But Don't Forget Your Bonds
Those who find stocks volatile may find that bond investments are safer in contrast. They believe that it is so safe; in fact, that many people decide to invest in without fully understanding how it works. Those wanting to maximize their yield in bonds would do well to take notice of these five tips that I have penned for them:
1. Know your key terms. Are you comfortable enough with explaining to a person what a bond's par value, coupon rate and maturity rate mean? If you can comfortably talk about it with someone, then that means you understand them.
2. Compute the yield. Calculate the bond's yield and then compare it with the other investments that you're eyeing. It's easy to do; just get the amount of interest that the bond will pay in a year, and then divide it by its current price.
3. Know the rating of the bond. You will have an inkling of the bond issuer's financial stability through these ratings. Review these numbers before deciding to invest. The higher the rating is, the better the bond's quality will be.
4. Know the interest rate risk of the bond. Metaphorically, interest rate usually turns left when bond process turn right. Interest rate risk is the value that describes how the bond's price will change as the interest rates go up and down. Long-term bonds are the ones most likely to experience dangerous interest rate risk.
5. Above all, think before you sell. The price of a bond in an ideal situation does not change; it will only do so if you buy or sell it before it matures. Factors affecting this change are the bond's maturity rate, transaction costs and interest rates. Examine the bond markets carefully if you're thinking about selling before the maturity. It'll help you determine if doing so would be easy or difficult. - 23218
1. Know your key terms. Are you comfortable enough with explaining to a person what a bond's par value, coupon rate and maturity rate mean? If you can comfortably talk about it with someone, then that means you understand them.
2. Compute the yield. Calculate the bond's yield and then compare it with the other investments that you're eyeing. It's easy to do; just get the amount of interest that the bond will pay in a year, and then divide it by its current price.
3. Know the rating of the bond. You will have an inkling of the bond issuer's financial stability through these ratings. Review these numbers before deciding to invest. The higher the rating is, the better the bond's quality will be.
4. Know the interest rate risk of the bond. Metaphorically, interest rate usually turns left when bond process turn right. Interest rate risk is the value that describes how the bond's price will change as the interest rates go up and down. Long-term bonds are the ones most likely to experience dangerous interest rate risk.
5. Above all, think before you sell. The price of a bond in an ideal situation does not change; it will only do so if you buy or sell it before it matures. Factors affecting this change are the bond's maturity rate, transaction costs and interest rates. Examine the bond markets carefully if you're thinking about selling before the maturity. It'll help you determine if doing so would be easy or difficult. - 23218
About the Author:
The trading business carries no guarantee that you'll profit, and don't let anyone tell you otherwise. Rick Amorey instead suggests the comprehensive program of Emini Trading. Be an educated trader with the help of Emini Trading System, and watch your money grow like a carefully monitored seedling.
posted by X - Men @ 3:43 AM
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