Bond Bonding

close-up shot of a pen on chartBecause the markets have been quite volatile and aggressive investments tend to create fear in all those who felt the tremor in their portfolios in 2008, the trend is to invest in bonds as a conservative alternative.

Bonds don’t usually have the volatility of stocks but there are many types of bonds.  Bonds  could be loans  to corporations or governments whose debt is given a low rating. In other words there is not as much confidence they will pay their loan when it is due. The lower the rating of the bond, the higher the interest required since an investor will not take a chance on a low rated bond if there isn’t an extra reward for doing so.  During a financial crisis these types of bonds are not as likely to escape volatility.  If you want a more steady, usually lower return on your investment, you could put your money in bonds that loan to companies or governments for a short time.   There is more confidence of the entity’s ability to pay back the loan because the information on the company is fairly current and there should not be too many changes in the next 2-4 years.   The longer duration of a bond the less assurance there may be that the bond will be paid as promised.  Shorter durations will not have the added feature of paying a high interest rate because you are not taking as much risk.

If interest rates go up, your bond will pay more interest but the value of the bond or bond mutual fund is less if you want to sell it.  Usually a bond that is paying a low interest rate is of little interest to an investor if the new bonds pay higher interest rates.  Therefore, the value of the bond decreases.

Category: Investing · Tags:

Comments are closed.

Check the background of our Broker Dealer on FINRA’s BrokerCheck

Hansen’s Advisory Services is currently licensed in AZ, CA, CO, FL, IL, ME, MA, NJ, NM, NY, NC, OH, PA, RI, SC, VT, VA

Securities are offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Hansen’s Advisory Services, Inc. and Cadaret, Grant & Co., Inc. are separate entities.

Site Credits

Website by Lisa Goodlin Design

Solar-powered website hosting by AISO.