Bonds are interest-bearing investment vehicles that require the issuer to pay a pre-determined sum of money (called a “Coupon rate”), periodically to the bond holder.
If you are a new bonds investor and learning about bonds (Bonds 101), there are some key concepts you should know.
Investing in Bonds for Beginners
Bonds have an issue date and a maturity date, and upon maturity the issuer is obliged to pay back the principal to the holder.
There are also “zero coupons” bonds, which pay a lump-sum interest along with the returned principal at maturity.
Bond prices however move on an inverse trajectory to interest rates. When interest rates rise, the price of the bonds will decline.
Bonds 101 – Stability
Bonds also “balance” a portfolio by adding stability to its volatility. When things aren’t going so well in the stock market, investors find safe havens in bonds.
As in the case of other investment vehicles available, there are various types of bonds too, including Fixed Rate bonds and Floating (or Variable) Rate bonds.
While the interest rates for the bonds you invest in will never change, the rates on variable rate bonds fluctuate, and are determined by market forces.
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