Your Questions About How To Invest In Bonds

Lisa asks…

What type of bond mutual funds should I have in my portfolio?

I am a retired teacher. For years I invested mainly in stocks and put a small percentage of money in a total bond fund. Through the years as I increased the percentage of money I put in my bond funds, I diversified into intermediate corporate, intermediate government and i-bonds. I have recently retired and am looking to diversify my bond holdings even more. Should I invest in corporate bonds, government bonds, long, short intermediate, i-bonds, junk bonds, international bonds or all of the above.

John answers:

I agree with the others that you should probably avoid (or at least cut back on) long bonds at this point, as interest rates are historically very low, and will probably rise in the next 10 years. Other than that, I like your “all of the above” strategy. Be sure at least 20-30% is in international bonds, as this is a good currency hedge (if the dollar loses value, international bond shares rise).

Linda asks…

what Municipal bonds are good to invest?

I am interesting in investing in bonds, like gmac or others.

John answers:

Perhaps none. Municipalities are not in too great of financial shape. They too are good at wasting money and not too good at raising taxes. They sort of mirror the trend of the federal government.

James asks…

How does a bond holder make money from investing in bonds?

Why would a corpration issue callable bonds?

how are debentures different from mortgage bonds?

how do state or local governments pay off the principal and interest of municaple bonds issued?

why do municipal bonds pay lower interest rates than corporate bonds?

how do investors make money on zero-coupon bonds?

what is “treasury direct”?

why should you be concerned about a bond’s rateing before you buy it?

why would anyone buy junk bonds?

how do interest rates affect the price (value) of bonds?

John answers:

Going to have agree with Angry Bird… Plopping all of your homework questions at once on here is probably going to yield you little.

I’ll answer a couple for you, though:

“why should you be concerned about a bond’s rating before you buy it?”
A bond rating tells you how much risk there is in holding a bond with that given entity; therefore, it would be wise to keep a low rated bond.

“why would anyone buy junk bonds?”
People buy junk bonds because they yield high return — they are, however, higher risk.

“why do municipal bonds pay lower interest rates than corporate bonds?”
Municipal bonds pay lower interest rates because their pay-off to you is tax free.

David asks…

How do you make profit from investing in the stock market?

Okay so I know how you make profit in other forms of investing (Real Estate, Bonds, etc.) but how do you actually make money off the stock market, assuming no dividend payouts. Is it like a slot machine and you just cash out or what?

John answers:

To make a profit, you have to sell your shares of stock at a price higher than what you bought them for. For example, let’s say you buy stock in XYZ today, you buy 1 share for $50. After a year, XYZ is worth $100. If you sell, you make a profit of $50 (not counting commissions/fees).

When talking about investing in stocks, the only way to get a profit/loss is to sell your stock and take the cash to your hand. Let’s take the same example above. Say you don’t sell your stock. Then you haven’t made any profit. If you bought the stock for $50 and it goes up to $100 and don’t sell, your gain is only on paper. I think of those kinds of gains not as profits but as growth of money.

I know it’s nice to take a profit but the thing is, the longer you keep your money in a growing investment, the more your money can grow.

Charles asks…

Online Stock Market Game, What stocks to invest?

So my teacher introduced us to the online stock market game, we started of with 100,000 currency he didn’t not say much about it. My question is what stocks to invest, bonds, and mutual funds? I tried a couple of websites for example, wall street journal and etc.. I would really appreciate any information, anything would be helpful and useful.

John answers:

It’s great that you are playing an online stock game. I am playing two different ones myself and i have done very well. I suggest researching and investing in companies of interest to you. Companies like BestBuy, Apple, McDonald’s, HomeDepot, etc. I actually highly recommend McDonald’s and HomeDepot stock. Just take a look at their stock charts sometime. Be sure to diversify your portfolio and don’t just buy a lot of one or two stocks, but buy a variety of stocks. Most online stock games limit your purchases anyway to promote this. Have fun with it!

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