What are Bonds?
A bond is a debt security, similar to an I.O.U. When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity known as the issuer. In return for the loan, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it “matures,” or comes due.
Among the types of bonds you can choose from are: U.S. government securities, municipal bonds, corporate bonds, mortgage and asset-backed securities, federal agency securities and foreign government bonds.
Why Invest in Bonds?
Most personal financial advisors recommend that investors maintain a diversified investment portfolio consisting of bonds, stocks and cash in varying percentages, depending upon individual circumstances and objectives. Because bonds typically have a predictable stream of payments and repayment of principal, many people invest in them to preserve and to increase their capital or to receive dependable interest income. Whatever the purpose-saving for your children’s college education or a new home, increasing retirement income or any of a number of other worthy financial goals-investing in bonds can help achieve your objectives.
That’s especially true for retirement planning. During the past decade, the traditional fixed-benefit retirement plans have increasingly been replaced by defined contribution programs, such as 401(k) plans. While these plans offer greater individual freedom in selecting from a range of investment options, investors must also be increasingly self-reliant in securing their retirement lifestyles.
The diversity of fixed-income securities present investors with a wide variety of choices to tailor investments to their individual financial objectives. Whatever your goals, your investment representative can help explain the numerous investment options available to help you reach them, taking into account your income needs and tolerance for risk.