Your Free Guide to The Basics of Investing in Bonds

If you have questions on the Bond Investing Basics Guide along the way, feel free to leave a comment at the bottom of the lesson itself, or in our ask a question forum.

Lesson 1: Types of Bonds - Investing in bonds can seem confusing at first.  Once you understand that there are only 4 primary categories of bonds however, things become a lot simpler.  Get an introduction to each type of bond here.

  To see a list of high yielding CDs go here.  

Lesson 2: How Changes in Interest Rates Affect Bond Prices - One of the biggest things that cause bond prices to move is changes in interest rates.  Let us teach you how bond prices and interest rates have an inverse relationship and things will make a lot more sense.

Lesson 3: Duration and Interest Rate Risk – Since interest rates affect bond prices, one of the biggest risks when investing in bonds is that interest rates will move higher, causing the value of your bonds to lose value.  Here’s what you need to know to understand and protect your bond investments.

Lesson 4: Yield to Maturity - There are several different ways to measure the return that you can expect when holding a bond.  If you are planning to hold a bond to maturity, then Yield to Maturity is the metric that you care about.  Here’s what it is and how it works.

Lesson 5: The Yield Curve – The yield that you earn on a bond is based partially on how long that bond has until it matures.  By looking at the yields on bonds with different maturities you can get a picture of how much extra you can earn.  Let us also show you how the yield curve is not just useful for investing in bonds, but provides clues as to the direction the economy and stock market is headed as well.

Lesson 6: How Inflation is Measured – Inflation is the enemy of all investors, and that is especially true with bond investors.  In this lesson we will show you how understanding how inflation is measured can give you an edge over other investors.

Lesson 7: How the Fed Influences Interest Rates – As you learned from the lessons above interest rates are extremely important to bond investors.  The biggest influencer of interest rates is the Federal Reserve, so they are also very important.  Learn how it works in this lesson.

Lesson 8: Credit Ratings - The other major risk that bond investors face is credit risk.  Luckily for us there are companies that specialize in analyzing the credit risk of bonds.  Learn how they work here.

Lesson 9: Credit Spreads - Bond investors look at the difference in yield between a treasury bond and any other type of bond as one measure of credit risk.   Like the yield curve, an understanding of credit spreads can uncover value and give you a reading on where markets and the economy may be headed.  Let us show you how.

Lesson 10: Bond Indexes - Just like the stock market has the S&P 500 and the Dow Jones Industrial Average, the bond market has its own set of indexes.  Here’s how they work and why they are important.

Lesson 11: Individual Bonds vs. Bond Funds – Don’t assume that investing in individual bonds and bond funds is basically the same thing.  There are some very clear advantages and disadvantages to both which we explain here.

Lesson 12: Measuring Investment Performance – There are many metrics that investors can look at to see where their performance is coming from.  At the end of the day however its one number that matters, and that’s total return.  Here’s what it is and how to calculate it.

Did we miss something that you would like to learn about?  Let us know in the comments section below, or in our ask a question forum here.

For more free guides go here.

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Comments

  1. Joe Mackenzie says

    I understand bond prices are driven by the long end of the rate curve more importantly than the short end which the Central bank influences through the overnight bank rate. My question is how to determine what factors drive the long end because by being educated about the direction of the long end seems to be the key skill in trading bonds?

    • David Waring says

      Hi Joe,

      Great question. The long end of the curve when talking about US Treasury bonds is all about inflation expectations. If traders feel that the Fed has inflation under control and that current and future policies are not likely to spark high inflation, then long term interest rates will be low. If traders feel that the Fed is keeping interest rates too low for too long and/or the economy is heating up too quickly and inflation is coming, then longer term interest rates will rise. Hope that helps. Let us know if you have any other questions. Best Regards, Dave

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