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Today, the Good and the Bad Sides of Bonds.
Most people consider bond safe, but be careful they’re more complicated than you may think. Hi! Welcome to Tonka Beans, I’m Zina Spezakis. A bond is basically an IOU, a company or government needs cash and you the investor lends it to them. Then they have to pay you periodically usually every six months or so, a cool down payment for the use of the money that you’ve lend them this payments are for the life of the bind or until it matures, at the end of the bonds life when it reaches maturity the borrower pays you in additional payment called the face value for the bond. This represents the original loan amount but it’s usually not the exact same price that you’ve paid for it. There are basically four types of bonds, Government Bonds, Government Agency Bonds, Corporate Bonds, and municipals, the ones that are issued by State and Local Government. Almost all investors who buy bonds do so, because they’re generally safe for investment and provide more of study income than stocks or cash.
Now for the dark side, you may not realize it the most bonds carry the potential risks of default. No matter how remote that risks might be, I say most because a Federal Government bonds are guaranteed by the US Government but that’s about it. Any other bond, it wasn’t insured whether it’s a high yield corporate bond, the bond sold by the State of Virginia or bond sold to you by the Russian Government always carries the risks that the entity that barrowed the money will not be able to make it interest payments or pay you back. But there is even a darker side to buying individual bonds, especially if you are small potatoes investor. First, you’re probably not getting a great deal and wish you have a lot of money to invest will pay more for that bond and you should. Bond dealers mark off of there purchase prices for small investors. That’s how they make there money so, how much do you have invest to get a good deal? We’re talking several of hundreds of thousands of dollars to start of her well diversified portfolio. That’s how to reach for most of us.
Second, you maybe pay more than you realize base on the bonds quantity. The quantity means how easy the bonds are to buy your self, highly liquid bond so fast at low commissions. Bonds with low liquidity maybe tuft to buy your self and you can pay high transaction cause as a result. Do you have the expertise the know the different? Third, because you had to have a huge amount of money to buy individual bonds its tuft to affectively diversify your bond portfolio. So, who do you add bonds to your portfolio? Prone mutual funds, the great thing about buying bonds from mutual funds is that you can invest small amount. Sometimes as little as $25, but most importantly mutual funds achieve instant diversification. Since a mutual fund can own thousands of bonds from hundred of insures. Plus, since bond managers are usually trading in larger numbers and you in icon they can negotiate better prices on bonds. Talk about being a smart shopper, in the bond world it’s the best way to go. For more information, please visit us at tonkabeans.com. We also want to hear from you so please join our community and become one of our opinion makers. I’m Zina Spezakis, this is been Tonka Beans and thanks for watching.
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