Watchlist

This Months “WatchList” is related to Bonds

The nitty gritty of bonds.

The financial services industry use the term bonds each and every day as many of the people involved with them feel that they inspire confidence. If we go into the technical terms involved with the word bonds it basically means that a bond is a loan in effect from various investors or other bodies to the company. In return for their loan the company agrees to pay a fixed amount of pre set interest on agreed dates and to repay another amount at a date in the future. Bonds can also be known as fixed interest or fixed interest investments as they provide a certain level or certainty to the investor. In investment you will generally find that cash is always the lowest risk in terms of return but we find bonds are the next best thing. Bonds though do involves a higher level of risk but many investors who weigh up the pros and cons find that they are more than beneficial due to the amount of return they can see on their investment.

With this in mind I should clarify that the above statement concerns real bonds issued by large banks or companies and not the super complex bonds sold by many financial advisors who base their forecasts on various tricky financial engineering tactics and Traders News.

A typical case of this is where investors were advised to invest in precipice bonds which cost many investors are their invested capital when they fell off the metaphoric cliff edge. Bonds are very similar to cash due to many reasons, for example if we imagine a company needs funds and you prepare a loan for ten thousand pounds and the company promise to pay a five percent interest over the financial year and issue dividends to you twice a year. This would mean you would receive five hundred pounds each period less the tax. In addition to this the company would also agree to repay the full ten thousand pounds at a date that you agree on in the future.

This method could be compared to a fixed rate mortgage as you again agree a fixed rate you will repay the capital you have borrowed with a fixed ending date where all borrowed money should have been repaid. In regards to company borrowings this is exactly the same method used. For the investor though bonds do have an extra dimension over traditional bank loans as bonds are traded on the open stock market. Companies do incur costs for using bonds but they are generally the same all the way through the bonds life but this is not the case for the investors as bond prices can rise at any time. Bond prices fluctuate all the time due to the economic changes and interest rate rises that we are face with from day to day. Also review The Register Facts as these offer more consice information regarding Property Investment Issues.

Bonds are frequently used by cautious investors who wish to avoid the ups and downs of the share markets, they are also seen as advantageous if you have a target aim for your funds such as paying college tuition fees or would like to present grandchildren with a lump sum on an important birthday and so on.

Another reason bonds are favored is if you have funds to invest so you are more secure in your retirement years if you are close to them. In some cases shares can gradually be changed into bonds, this type of arrangement is call `life styling` and helps as when dealing with shares you are always open to the drop in share prices so your money for your future may not be as much as you may have wished.

The final reason you may see bonds as the way forward for you is if you have recently been retired you may wish to earn a fixed amount each year on your capital and using bonds will do exactly this. In summary bonds can be a great long term or even short term investment for the right person and generate a healthy income over the given time period.

Additional Resources for reading are: Stock Trading | Trade Stocks and how to open Stock Trading Accounts online. We also recommend reading the Trade Law section for more indepth knowledge on the Legal Aspects of Global trading.