Bonds are, in essence, a type of investment that allows a business to generate enough cash to pay for the supplies, equipment, etc., necessary to keep the company growing. When a business decides to issue bonds, it is borrowing money from investors and agreeing to pay them back interest at set intervals for a certain amount of time. You can liken bonds to a loan, but in this instance, you (the investor) are the loaning bank. While stocks and mutual funds can be more lucrative, bond investing carries with it a number of attractive qualities that differentiate it from the rest of the investment crowd.
For instance, bonds offer capital preservation because, unless the company you invested in goes bankrupt, you can be certain that you will receive the money back that you originally invested. Other investments, like stocks, simply cannot offer similar financial protection. Investing in bonds also ensures that you will be receiving interest at set intervals, which can provide a decent amount of income monthly or quarterly. Bond investments also offer a tax advantage because the interest that is earned can be tax exempt, which can generate more profit for you in the long run. In fact, many consider bonds to be one of the best investments if you’re interested in finding a simple way to live off the profits of your investments.
Investing in Bonds: Different Types
There are a few different types of bonds and ways for you to invest in them. In regard to types of bonds, there are municipal, U.S. Savings, Series EE Savings, among others. Municipal bonds (or “munis”) are issued by city, county and state governments, and are geared toward raising money for community projects like highways, schools and hospitals. The interest paid to the owner of munis is federal tax exempt, and it can even be state tax exempt if the investor is a resident of the state in which the bond was issued. U.S. Savings bonds were introduced in 1935, as a way to fund the war effort. They were designed to provide the Bureau of Public Debt a way to pay for the government’s operations and paved the way for many types of bonds today. Series EE Savings bonds are a product of this time, debuting in 1980, and are unique in that you are lending money directly to the Treasury Department. Bond investing can fluctuate in value, but Series EE Savings bonds provide the assurance that your bond’s value won’t change and you can sell them back at full value plus any interest.
It’s easy to see that there are many different types of bonds you can purchase depending on where you want your money to go and how much money you’re willing to put into a bond. InvestorPlace offers a number of expert articles and opinions regarding bond investment. Check out our latest news today to see what you can expect from bond investing!