Bonds are debt securities. When you buy a bond, you are “lending” to the company. For the use of your money, the company is obliged to regularly pay you interest (coupons), and at the end of the term it will refund the initial amount that you lent to the company.
Bonds may be issued by companies, as well as by national governments or city authorities. Goal: to raise funds to implement projects.
Bonds have a “life”, a period of time during which you can receive interest payments. Afterwards, repayment occurs, and you are paid the entire debt.
What is difference between bonds and stocks?
1. Unlike stocks, bonds may be issued not only by joint stock companies (JSC), but also by limited liability partnerships (LLP).
2. Bond yields are on average lower than equities. However, they may be higher than bank deposits.
3. Bond risk is also traditionally lower: their price fluctuates less on the stock market. Plus, if the bonds are held by the end of their term, the investor will get back the full amount of the investments, even if the market price of the bonds by that time falls. Bonds are therefore considered a defensive instrument. They should be added to the investment portfolio to increase its reliability - especially in troubled periods in the market.
4. The result of investing in bonds is more predictable, because even before the purchase, you can know many factors: maturity, fixed interest rate, yield.
5. The minimum investment amount in bonds is sometimes much higher than for stocks. This is not always the case, but in some cases, you need a minimum of $200,000 to buy bonds. Although many bonds are also quite affordable for retail investors.
You can view "Investment Ideas for Bonds" by following the link.
