Author: David Waring

Why People Invest in Bonds

investing in bondsUltimately the reason people invest in anything is to earn a return on their investment, and bonds are no exception.  Bonds as an asset class offer several unique attributes that make them attractive to a wide variety of individuals.

To earn a predictable stream of income

While there are exceptions, bonds pay a fixed rate of interest, at regular intervals, and on pre determined dates.  The income stream that you earn when buying a bond is predictable.  Come rain or shine, as long as the issuer of your bond doesn’t go bankrupt, you get your interest payment.  Generally interest is paid every 6 months but there are variations depending on the type of bond you buy.

To diversify their portfolio

Find a Financial AdviserBond prices and stock prices tend to move in opposite directions. When bond prices are rising, often the stock market is performing poorly, and vice versa.  Because of this “lack of correlation” many investors who hold a lot of stocks in their portfolio, will add some bonds into the mix to cushion the blow if the stock market does poorly.

Tax Savings

As we discuss in greater detail in our article on bonds and taxes, certain bonds, such as Treasury and Municipals,  offer some unique tax benefits which include not having to pay federal, state, and or local government taxes.

Interest Rate Speculation

As we discuss in greater detail in our lesson on interest rates, one of the largest factors that affects the price of a bond is movement in interest rates.  As many types of bonds are very sensitive to changes in interest rates, often times individuals find them a good instrument to speculate on the future direction of interest rates.

Users should remember that all trading carries risks and users should only invest in regulated firms. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.

David Waring was the founder of LearnBonds.com and has been a major contributor to the extensive library of investing news and information available on the site. Until the launch of Learnbonds.com in late 2011 there was no single site on the internet catering exclusively to the individual bond investor. This was true even though more individuals own stocks than bonds. Learn Bonds was launched to fill that gap.

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