Your Questions About How To Invest In Bonds

Sandra asks…

Should I invest in bonds right now?

How exactly does the bond market work? If bonds prices are low, should you buy? Are prices low/high now, and would now be a good time to buy? I’m thinking of purchasing a mutual fund which heavily invests in TIPS; would this be a good idea now or not? Please let me know what you think!

John answers:

At this point in time, bonds aren’t the greatest idea simply because interest rates ought to rise at some point in the future meaning that bond prices will drop. However, if you’re looking to get a stream of income that’s a better rate of return than savings accounts or bank CDs, you might want to think about buying a bond of a strong company with a high rating. I’d stay away from anything below investment grade at this point in time.

When you buy a bond, you’re buying a company’s or municipality’s debt and the promise to repay that debt according to certain conditions. Those conditions are stipulated in the bond’s description – coupon or lump-sum, convertible or non-convertible, callable, etc. It’d be good for you to read up on these differences, and any recent edition textbook on finance will not only help you with the terms but also give you an idea on how prices are calculated.

A bond is an interest-bearing instrument, which means that the price of the bond varies as the interest rate does. Say you buy a bond that pays 5% because the risk-free Treasury rate is 1.5% and the risk premium for that company translates to 3.5%, that means if the Treasury rate falls to 1.25%, your bond is worth more because it’s providing a better rate of return than can be gotten from new issues for a given level of risk. If Treasury rates go up to 2%, then any new debt that company would issue would still have to have the 3.5% premium, and so the bond would pay 5.5%, meaning that your 5% bond loses value because it’s less attractive.

What doesn’t change, though, is the stream of payments you get from the bond. If you hold a $10,000 face value bond at 5% , regardless of what happens in the markets or to interest rates you’ll still receive your $50 annual payment and $10,000 at bond maturity.

Helen asks…

How many mathematics professors invested in stocks and bonds and certificates of deposit?

Most mathematics professors love to invest their hard earned money. A recent survey of 150 math professors revealed that

111 invested in stocks;
98 invested in bonds;
100 invested in certificates of deposit;
80 invested in stocks and bonds;
83 invested in bonds and certificates of deposit;
85 invested in stocks and certificates odeposit;
9 did not invest in any of the three.

John answers:

Use a Venn diagram to help solve this problem. Make 3 circles intersecting and fill in the spaces with numbers that satisfy the info that is given you. For example, you must have a total of 111 in the stocks circle, a total of 80 in the intersection of the stocks and bonds circles, etc. Good luck.

George asks…

How should I start investing in bonds, or buy company shares?

I’m planning to invest in bonds/stocks, and purchase company shares. Can anyone help me how can I get started. I want to invest in bonds that is 1 year or more. Thanks!

John answers:

Unless you are in need of current income, you should avoid bonds. They have two strikes against them right off the bat. 1. Interest is taxed at the full tax rate. 2. You are loosing 4 to 5% of your capital annually to inflation despite the fact that bonds currently pay only 5% interest more or less.

Although equity investments tend to fluctuate greatly in price at times, over the long term they tend to return 8 to 10% annually and that return is tax deferred until realized and when it is realized it is taxed about about 1/2 the regular tax rate. Oh yes, did I mention that many equities pay dividends which tend to increase over time and are currently taxed at a favorable tax rate.

Mary asks…

How can a student start investing in bonds and stocks?

I would like to start some investing. I have $100 to invest but I do not know where to get started.

Where are some places I can go to LEARN how to invest wisely. As well as learning the basics.

If you invest how much were your stocks when you first got them and how much are they know. Dont need to list names if you choose not to.

John answers:

There are many people just like you that are, or were looking to invest and those that did bought Mutual Funds and/or Exchange Traded Funds (ETFs). One purpose of mutual funds is to help investors like you, who are either just entering the investment world or who have no investing experience. Once you feel you at least have an understanding of investments you should look into ETFs which are similar to mutual funds but are traded on the exchanges.

Mutual Fund companies as well as ETFs have an entire array of products many will fit your needs. You can go to the MSN.Money website
http://moneycentral.msn.com/home.asp
http://articles.moneycentral.msn.com/Investing/MutualFunds_DC/MutualFunds.aspx
it has an entire section on mutual funds and Exchange Traded Funds. Read about the various products and in doing so you will be getting investment ideas and at the same time educating yourself about investing.

You could also contact the funds companies for more information. I have found that Vanguard (http://www.vanguard.com/) & Fidelity Investments (https://www.fidelity.com/)
can meet your needs for mutual funds. The service and information they provide is all free and you will find it helpful.

Get into the habit of making daily visits to some websites like MSN Money and Yahoo Finance. While at MSN following the strategy lab analysts to get a feel for what the pros are doing and why. This site has some basic information for beginners. If any site offers free information, take it.

Other website that can provide instructions and help with procedures and terminology are Investopedia – http://www.investopedia.com/ Stock Charts – http://stockcharts.com/, http://www.investorshub.com/ http://www.1source4stocks.com/, http://www.tradingstocksguide.com/tradin…

Attend all the free seminars you can, just be careful and don’t get pressured into anything you really don’t want or need. Most schools offer courses in finance and economics, but very few will have courses on the mechanics of the investment markets, if they do try taking the course. You may want to consider on-line courses, the New York Institute of Finance use to have such courses. Try to get some fee information from the stocks exchanges they all have (had) free booklets, SIAC and some of the regulators (FINRA SEC MSRB CBOE) may provide some free literature.

You at least have made the right decision to start investing, this is the first big step and it won’t be your last. Keep taking those steps forward and along the way never take the advice from people that are not in the market or try to tell you not to invest.

Good luck on your journey

Donald asks…

How does bonds or treasury bonds work?

If I have a 100 for example and I want to invest in bonds or tresury bonds im not sure which is it or there the same. But how long would it take for me to make money from that 100. When can I withdraw the money? Where do I go to get the money? How much money can I make from that 100? And your experiences or advice would help. How risky is it? Usually do people gain or lose money?

John answers:

The treasury bonds thus give you two different opportunities. If you are not interested in trading in the bond market, just hold on to your bond and quietly collect your coupon interest. If you are a bounty hunter, who wants more and is interested in trading, the bond market is open for you! I hope this article has given you some insight into how do treasury bonds work for you! Treasury bonds are the safest bet in recession times as the risk factor is very low. Thus if you are looking for a long term investment with modest but assured returns

Powered by Yahoo! Answers

This entry was posted in Uncategorized. Bookmark the permalink.

One Response to Your Questions About How To Invest In Bonds

  1. Pingback: Your Questions About How To Invest In Bonds « tradingsecrets1

Comments are closed.