When you buy a bond, you are loaning money to a government or corporation. You simply lend the company capital, and they repay you at the maturity date with added interest depending on the length of the loan. Bonds are fairly secure and aren’t a very risky investment, making it ideal for novice investors.
The first step when you are thinking about investing in bonds, is to decide where you want to invest and the strategy you want to use. There are a variety of different options to think about when you are investing in bonds, so you need to carefully research and determine which strategy best fits your lifestyle. You also want to make sure you are paying close attention to your finances so you can get a good idea of where you are at. Always be organizing your finances.
Individual bonds are the basic types of bonds that you want to start out with. Bonds sold in the over the counter market are usually sold in $5,000 denominations. Bonds sold in the secondary market are typically include a markup, which includes the dealers profits and costs as well. If the bond isn’t in the inventory, there could be additional costs because the dealer has to try and find these specific bonds.
Bond funds are very similar to individual bonds, but your portfolio is professionally managed. The investor can then choose to diversify their bond investments and widen the variety. Bond funds don’t typically have a maturity date because the investor is continually adding and eliminating bonds from their investment portfolio.
Bond Unit Investment Trusts
Bond unit investment trusts include a fixed portfolio of investments in municipal, mortgage-backed, government, and also corporate bonds that are professionally chosen and remain consistent throughout the life of the bond. The portfolio remains stable which is a major advantage of a unit trust. This also allows you to know how much you are able to attain throughout the investment.
Money Market Funds
Money market funds are short term pooled investments. They are highly liquid as well. Money market funds include short-term municipal bonds, U.S. Treasuries, certificates of deposit, and also commercial paper. As a result of investors being able to withdraw their money at any time, this type of investment offers convenient liquidity. The minimum investment for a money market fund is around $1,000 to $10,000.