Investing in bonds

Investors that are looking for a safe investment normally tend to gravitate toward bond investments. A bond is simply lending money to a company, the government, or another organization in exchange for a debt security. The debt security is issued by the company or the government and it basically states that they will re-pay this money plus interest by a designated date.

Smart investors choose to invest in bonds because it adds diversity to their portfolio. The other nice thing is that it is guaranteed income. Companies that agree to bonds must pay-back the money they borrow, even if they declare bankruptcy. Although you won't make a fortune on bond investing, you will at least make something which is more than you can say for some of the stock market investment strategies. A good investment portfolio will include at least one bond in it because it is like having insurance for your portfolio. The bond will protect you from losing everything if your entire portfolio fails. Bonds also provide a predictable stream of income and repayment of the principle, so it's easy to figure out how much money you will have during certain times. There are numerous types of bonds you can choose from; here is a brief list of them:

• Municipal bonds


• Zero coupon bonds


• Corporate bonds


• High-yield bonds


• U.S. Treasury securities


• Mortgage securities

Municipal bonds are issued by counties, cities, and states. They are normally used to finance a government or public project. The interest money you make will be paid semi-annually to the investors. Most people prefer municipal bonds over other types of bonds because they have a solid track record of timely payments. The zero-coupon bonds are sold at a discount from their face value. The investor will then receive the full face value when the bond matures. Depending upon the company that is selling the bond, you can make a decent income from it, but then again, you could only make a few hundred dollars.

Corporate bonds are issued by public and private corporations. The interest paid to the investor will be paid semi-annually and you normally have to purchase at least $1,000 worth of bonds in order to invest. Corporate bonds are often used to expand the company or for other growth. High-yield bonds are the riskiest type of bond. These bonds are issued from companies that to not qualify for investment-grade ratings. This means the company could default on their bonds. This means the investors won't receive timely payments and interest like they would with other bonds. In order to get people to buy the bonds, they will offer higher interest rates, but they don't always promise to pay them.

U.S. Treasury securities are issued by the U.S. government. War bonds, bills, and notes are some of the most-popular U.S. Treasury securities. When you purchase a U.S. Treasury security, you are giving money to the federal government. Since the money is backed by the government, they are considered the safest investment out there. The interest and repayment periods are guaranteed by the federal government. Since they are safer from other investments, they tend to have the lowest interest rate available. If you don't like risk, this is still a good bargain because you know you will get your money back.

The last type of bond we will discuss are mortgage securities. Mortgage securities are an investment in mortgage loans made by banks and other lenders to finance the loan to purchase a home or other property. When the homeowner pays off their mortgage, the interest and principal payments are sent to the investors.