5 Facts Everyone Should Know About the U.S. Bond Market

As you begin to fine-tune your investment portfolio, do not forget about the power of bonds (finanseiendom.no). Many people seem to be lured by the attraction of big money commonly associated with the big stock market runs that inevitably occur from time to time, but bonds provide many opportunities to grow your nest egg as well, with less risk overall. With that in mind, there are some things you need to know about investing in the bond market, and the 5 facts below are a great place to get started.

  1. The Bond Market is Bigger Than the Stock Market – While the yields contained in the bond market might be lowered, it seems that everyone from corporations to local and state governments are getting in on the action (https://www.finanseiendom.no/hva-skjer-nar-boligen-din-blir-tvangssolgt/). As such, the trading volume in the bond market is substantially higher than that found in the stock market. You can find something that appeals to your comfortable risk level, so consider looking into your local bond market today.
  2. Bond Prices Can Fluctuate Quickly – While bonds can certainly be viewed as a safer investment than other options, particularly when compared to stocks, it is important to remember that bond prices can be volatile. When interest rates do change, there can be huge fluctuations in bond prices, so keep that in mind as you begin adding this component to your investment portfolio.

3. Some Bonds Do Have an Equity Kicker Attached – You have probably heard that many bonds are structured in such a way that the debt to the investor will be paid at some point in the future, say 10 years. Along the way, predetermined interest payments will be paid to the investor, and these two functions combine to make bonds an appealing option to structure your portfolio around. At the same time, some issuers do offer what is referred to as a convertible bond. This does allow, under certain circumstances, for investors to trade in those bonds for stock in the company. If the stock performs well, great, but if it doesn’t, then the investor will still get back their original principle at the time that the bond comes to maturity.

4. Pay Attention to Bond Ratings – Bonds do contain some risk, and this is usually reflected in the bond rating for a particular investment you might be looking at. A bond rating reflects the belief in how likely it is that the borrower (the entity issuing the bond) will actually be able to repay the debt. An AAA rating is usually the highest bond rating, which makes it the least risky (https://www.finanseiendom.no/refinansiering/). Ratings generally go down to D, which would be the riskiest bond investment.

5. Bonds from the Same Company Can Be Different – The most difficult part of investing in the bond market is determining which bonds to actually purchase. Do not make this more difficult than it has to be, however, and focus on companies or government entities that you are familiar with and feel comfortable loaning your money to for a number of years.

Understanding these five facts will give you the knowledge you need to begin a successful entry into the bond market.

5 Facts Everyone Should Know About the U.S. Bond Market