Bonds: what are they and why should you invest in them?

Looking for a relatively safe investment? Then, consider bonds.

07:21 07 August 2013

There are so many ways to invest your money these days. Depending on your investment goal and risk tolerance, you can try the stock market or invest in real estate. However, if you’re looking to diversify your portfolio or if you’re looking for a type of investment that isn’t too risky, bonds maybe perfect for you.

A bond is basically an investment where an investor (you) loans the money to a corporation or government institution for a defined period of time in exchange of fixed interest rate. If you’re investing with the aim to preserve your capital and earn interest, bonds are your best options.

There are different types of bonds that you can choose from and they are mainly classified into two categories: High risk and low risk bonds.

• High risk bonds are those that are offered by organizations or corporations that are either starting up or are facing the risk of closing down. As they are considered high risk, they offer higher interest rate.

 

• Low risk bonds are those that are offered by established companies or government institutions. Although there is no 100per cent guarantee in the world of investing, these bonds are usually very safe. Because of this, they offer lower interest rate.