Tips for Investing in Bonds

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Tips for Investing in Bonds

If you are considering investing in bonds; the first thing you need to do is understand what a bond is. Bonds need to be purchased at the right maturity date. If you don’t know what a bond is then you may make a bad investment.

When investing in a bond you must always look into the par value, the maturity date and the coupon rate of the bond.

A bonds par value is the total amount of returns that you will receive when the bond has reached its maturity date. This should be the total amount that you have invested in the original bond.

A bonds maturity date is the exact time that the bond reaches its complete value. At this time you will have regained you full investment plus whatever interest the bond has collected.

A bonds coupon rate is the interest rate that is accumulates up until its maturity date. This percentage is calculated and divided by the initial value of the bond (also called the “par value”). For example, a bond that has a par value of $1000 dollars and a coupon rate of 5%, this bond will collect $50 dollars a year, every year, until it reaches its maturity date.

Unlike federal bonds, state, corporate and government bonds can be cashed in before they reach their maturity date. If you cash in on these bonds, you will be returned your initial investment money plus any interest that the bond has gained until that date.

Now that you understand what a bond is; how do you invest in one? It can be confusing when looking to buy a bond. You wont find them laying around the stock market nor are they issued by banks. You have one of to options when looking to buy a bond. Your first option is to buy a bond through a brokerage firm. The firm will take care of all the details and give you everything you need to know about the bonds in writing. This will cost you a fee of course. If you do use a firm, don’t just go with the first one that you come across. There are many firms out there. Look at a few of them and go with the one that will charge you the least.

Your second option is to buy your bonds directly from the government. It is actually a lot easier then people think. You can buy bonds directly from the government through a program called “Treasury Direct”. A simple Google search for the program will guide you to the links you need. Through this program you can buy bonds and they will put all you bonds into an account for you. You can access this account freely. This way is free and you won’t have to pay anyone to buy the bonds for you.

Bonds can be an easy, simple and safe way to invest. Just make sure you check the par value, maturity date and coupon rate. Add those 3 factors up and calculate what you will make off the bonds. If you do this you can’t go wrong!