Kievgid

Those who find stocks volatile may find that bond investments are safer in contrast. They believe that it is so safe; in fact, that many people decide to invest in without fully understanding how it works. Those wanting to maximize their yield in bonds would do well to take notice of these five tips that I have penned for them:

1. Know your key terms. Are you comfortable enough with explaining to a person what a bond’s par value, coupon rate and maturity rate mean? If you can comfortably talk about it with someone, then that means you understand them.

2. Calculate the yield. Do the number crunching and then compare it with other potential investments that interest you. This is easy to compute; get the interest that the bond pays in a year and divide it by it’s current price, and voila! You have just computed the yield.

3. Check out the bond’s rating. These ratings indicate the stability of the bond issuer’s finances. Always review the bond’s rating before you decide to invest. The standard is; the higher the rating, the better the bond’s quality will be.

4. Know your interest rate risk. If your interest rate turns left, then chances are your bond price will turn right. Basically, interest rate risk is the term that describes the risk that a bond’s price will change as the interest rates fluctuate. Be careful of this when dealing with long-term bonds, those are the ones more susceptible to interest rate risk.

5. Always think before you sell. Prices don’t change if you hold the bond until it matures, but you can make or lose money on bonds if you buy or sell before they mature. This amount depends on the bond’s maturity rate, transaction costs and interest rates. If you’re thinking about selling before the maturity, examine the bond market to determine if doing so would be easy or difficult.