Appreciation vs Preservation Pt.2: Bonds

As promised this is the continuation of my introducing you all to Appreciation(Stocks) and Preservation(Bonds). This blog will be completely about the Bonds. But in addition the next several parts will also feature Bonds and how they operate. The Bond market is so complex I didn’t want to do a disservice by cramming all the info in one long blog. Thus, I will be breaking it up in several manageable parts.

Bonds are part of a completely different asset class than Stocks. Like the stock market, the bond market is heavily influenced by global economic and political trends-but to a much higher degree. In fact, the world bond market is considerably larger and more influential than the stock market, and much of the world economy depend on the international bond trading.

Bonds are marketable securities that represent a loan to a company, a municipality, the federal government, or a foreign government with the expectation that loan will be paid back at a set date in the future, better know as “Bond Maturity Date”. Bonds also come with an interest component, which can involve periodic payments over the life of the bond or single payments at maturity. Bonds can be bought directly as new from the entity mentioned before or from bond traders, brokers, or dealers on a secondary market.

  • Bonds are sold in discrete increments( typical multiples of $1,000) known as their par value or face value. Bonds maturities and interest rates vary:
    • Short-term bonds mature in five years
      Intermediate generally mature 7-10years
      Long-term bonds usually 20-30years

    The longer the maturity rate the higher the interest rates usually averaging about 6% over the last 20 years than shorter term ones. Bonds value often move in the opposite direction of the stock market, bonds can help you diversify your portfolio, hence reducing risk or market downturns. Also as stated before bonds are no substitute for stocks but they are a nice complement. Especially because they can provide a steady interest income.

    Jamaal W Vetose

    President

    Todd Capital Investment

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