Bonds and The Bond Market Essay -- essays papers

Bonds and The Bond Market Given today's uncertain economy, many people are taking time to examine various options for their financial future. Different types of investments are investigated and bonds are one of the more popular choices considered. Many of the same people who talk about investing in bonds, however, do not fully understand them nor where they place in the economy. Many individuals believe that they should simply buy a bond and wait until it matures before cashing it in. These people fail to realize that they may be losing a lot of money due to the fluctuation of bond prices. At some point it may be more profitable for them to sell their bond than to keep it until the payment date is reached. There are many people who do not understand what bonds really are. A bond is an agreement between two separate entities. One of these bodies gives, to the other, use of their money for a period of time and, in return, may receive a "bond". The bond issuer agrees to a fixed rate of return which he will pay the supporting person or business. This fixed rate of return is an amount, in percentages, which is paid at regular intervals until some future specified time ( the "maturity date"). Upon reaching the maturity date, one's original investment is returned to them. As previously mentioned, bonds are one of the more popular types of financial investment in today's economy. There are many reasons why people invest in bonds. For example, if one chooses a stable and profitable bond, it will provide a steady source of income through interest payments during the lifetime of the bond. As well, the risk when investing in a bond is considerably less than for most other forms of investment. The bond does not, for instance, experience the volatility of a stock on the stock market, like many other forms of investment do. Also, in instances where the issuer fails to pay the principal amount back to the bond holder, legal recourse is available. Furthermore, in cases of bankruptcy within large corporations with stock holders, bond holders take priority and are ... ...onsequently the prices of previously purchased bonds decrease. If you are able to hold onto your bond until the maturity date is reached, temporary changes in interest rates will not affect your financial investment; however, if you need to sell the bond before the marked maturity date, you might have to accept LESS than what you paid for it. This volatility can work to your advantage too, because it is possible that your bond could be worth more at the time you decide to sell. This is why it is important to keep up to date on bond prices. You may be able to make money by simply selling your bond before it's maturity date. In conclusion, I would suggest that bonds are a wise venue for anybody wanting to financially invest in different corporations or governments. I would caution, however that when selecting a bond, one should seek the guidance of an experienced investor. By choosing a bond that is right for you and your lifestyle, you have the potential of increasing your profits greatly and going home wealthier and happier.