Beginner's Guide to Bonds
Corporate bonds are generally considered less risky
Hi, my name is Jon, and I'm an independent investor from Kansas City and I'm going to share with you a beginner's guide to bonds on About.com.Bond's are essentially and I.O.U issued to you by companies or the government to raise capital. Investors buy this debt and in return, the issuer promises to pay a certain amount of interest every year, plus the capital or the principal of your original investment. at a set date in the future, which is referred to as the maturity date. Bonds are also known as fixed income and fixed interest because they pay a fixed amount. There are two main types of bonds. Government bonds and corporate bonds. For example, say you purchase a bond for $10,000, which is the principal amount with a fixed interest rate of 5%. At the end of the year, when the bond matures, you will get your original investment of $10,000, plus $500 in interest. Government bonds are safer than corporate bonds as the government is less likely to go under. Corporate bonds however are generally considered to be less risky than stocks. So they can provide a safer form of income to your portfolio. Also, some corporate bonds may be more risky than others and this depends and this depends on the strength of the company that issued the bond.For example, a company like exxon mobile is more stable and less likely to default on it's debt and in return may only pay 7% interest, while a less stable start up company may pay 10% in interest. Bonds tend to be low risk investments which means that your returns are not going to be as high, but because of their stable stream of income they can continue to add wealth to your portfolio over the long term. The relative stability of bonds can be a big plus for investors who tend to be conservative or are okay with some moderate risk. Thanks for watching and for more information on stocks and investing, be sure to check us out on the web at About.com.