All and sundry love to chit chat about investing in bonds, but very few actually go ahead and invest in them. In fact, for most people, they believe that investing in bonds is extremely risky. However, smart investors know that failing to invest in bonds is missing out on a great opportunity.
That being said, here are some beneficial reasons as to why you should start to invest in bonds today.
- Diversification
Bonds are great especially if an investor is thinking about increasing their financial safety. For starters, one of the things it does is diversify one’s portfolio, because as is the norm, stocks tend to be prone to volatile while bonds, on the other hand, are much more stable.
To invest in bonds as well as stocks as part of one’s financial arsenal that will mean that they are not putting all their eggs in one basket. Because as much as stocks can go up, they also have the risk of going down as well.
This is how it works.
While stocks are a representation of an investor’s ownership in a company, a bond, on the other hand, is a loan.
In fact, companies, governments, and utilities issue and sell bonds whenever they plan to borrow money.
So when an investor buys a bond, it essentially means that one is lending money to the given institution.
However, one has to realize that the values of the given investment is based on a myriad of factors.
For example, during times of uncertainty, most investors will flee from stocks and buy high-quality, safe bonds.
On the other hand, during the time of economic growth, investors will normally buy stocks because the increasing interest rates can push bonds down.
- Steady Income
Bonds normally provide a consistent source of income, especially for the retirees. In fact, investors will be paid their bonds around twice a year unless the borrower decides to default.
On the other hand, when it comes to stocks, companies have no obligation to pay the stock owners the dividend.
Liquidity
Quite a large number of bonds, especially those of massive corporate companies, readily offer liquidity. Hence, they can easily be converted to cash.
That being said, bonds can easily be sold, especially if the investor is aiming to utilize the cash for other purposes.
Legal Protections
Bondholders have a higher chance of getting their money back if a company is on the verge of bankruptcy, or goes bankrupt.
In fact, in a bankrupt court, bond investors tend to have a much higher priority in claims over the shareholders when it comes to the company’s assets.
In most cases, structured bonds have a higher priority over subordinate or unsecured bonds.
Tax Benefits
For some governments, they provide tax benefits that are especially lucrative for high-income earners, more specifically in states that have high-income taxes.
Moreover, the interest that is gotten from municipal bonds is normally not subject to federal taxes.
That being said, investors do not pay any local taxes or any interests from municipal bonds in their given state.
Conclusively, if one would like to get more pertinent facts about how to invest their finances, visit States Chronicle News for the latest in business and marketing trends.
by Simon Hopes, Negosentro
