When someone invests his hard-earned income in the money markets, he does so with one thing in mind. And that is to gain rewards by earning extra cash on top of his investment.
It is what all the investors want, but this is certainly not what all investors get. The investment world fluctuates as consistently as a bird’s wings when it flies, you may find the comparison odd, but it is how the markets are. One day you are earning a wholesome, and the next your share’s price is the lowest in the market.
The surprising thing is
- despite the volatility,
- despite knowing that they might end up in losses,
- despite inclining that they might lose way more than they will earn,
Hundreds and thousands of people invest every day. It is because even the slightest of the chance to make their wealth mushroom is the only enticement that the investors need. Perhaps that is why the money markets are always flush with investors.
Aside from stocks and mutual funds, which are too risky, there is an option of investment that can help the investor earn a reward without risking too much. In addition, this option is that of bonds. Let us find out whether the bond market is safe or not.
THE MEANING BEHIND BONDS
In the simpler sense, a bond is financial instrument that acts as a loan to the issuer from the bondholder.
Let us take an example, imagine I have a company and I want to expand it by opening a new branch. The idea is great, but it also needs even greater investment. For that I will issue bonds, each of these would have a price. Anyone who will buy it would give me his money as a loan.
Now, as a loan goes, I would have to provide the lender or in this case, the bondholder and interest on top of the principal amount. That interest will be the income of the holder and liability for me as the borrower.
In a bond the issuer and the holder sign a formal agreement that highlights
- the amount of time for the bond agreement, it can range from a few months to a decade or more,
- The way the interest will be paid, quarterly, bi-annually, annually or in a lump sum at the time of maturity.
Consequently, there is minimal risk for the investor in this investment.
WHY IS A BOND ADVANTAGEOUS TO THE INVESTOR?
A bond boasts numerous benefits, both for the borrower and the investor. The top five are;
- PROVIDES STABILITY
Amongst all the investment tools that offer a higher reward, a bond is the only one that will guarantee you a constant income. An economic recession can also not cause you to not get that reward’s cheque at the time you were promised to.
- THE GOVERNMENT SEAL OF APPROVAL
Bonds are also the only form of investment that is issued by the government. The government gets the need to raise funds for its diversified operations. After all, building 7-lane highways is not cheap by any means. So, to increase the needed money, the state issue various kinds of bonds, they usually tend to be long term. Since it is the government, your money is going to be as safe as it can be.
- HIGHER LIQUIDITY
By liquidity, I mean that bonds can be converted into cash very quickly. Because they are the safer option of investment, the line of buyers trying to get their hands on them is pretty long. It is even longer for government bonds.
If at any point of your bond agreement, you feel that you cannot continue any longer and need the funds that were invested, you can sell the bond. You can do it yourself or get a broker to do it for you.
- SECURES YOUR PORTFOLIO
Every investor has a portfolio that encompasses varying categories of investment tools, from shares to bonds to real estate. And everybody knows that shares are the most volatile of them all. They can make you a fortune and lose the same for you.
However, bonds are like a 180° change. They offer a regular paycheck. So, if the shares make you lose some of your money, the income from bonds will balance it. This will ensure that your overall portfolio is earning an income rather than incurring losses.
And these are reasons enough for you to make the call of investment in bonds.
In the end, I will say this for the hundredth time that bonds are indeed the safest bet in the investment markets. Along with this, you don’t need that much of financial knowledge to invest in them. You can try to do so yourself, or if that seems too much, you can partner up with an investment giant, like The Irish Capital, to invest in you.
However, you may decide, you cannot enter or leave the investment world without tasting the fruits that a bond is bound to give you.