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What is the risk in bonds and how to buy them?

Waiting asked:


Are bonds 100% if held until maturity? how can i buy them online?

This entry was posted on Wednesday, February 28th, 2007 at 7:49 am and is filed under Bonds. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

3 Responses to “What is the risk in bonds and how to buy them?”

  1. Bonds can be virtually NO risk, or quite risky. Think of US government bonds as No risk (so long as the government stands) S&P rates cooperate bonds from AAA (safest) to D (company is in Default (can’t pay)

    You have to assess what level of risk you are comfortable with, Some C rated bonds can sell for $.25 on the dollar, pay interest, and recover to full value. If I knew WHICH bonds, I wouldn’t be writing here,

  2. When you buy a bond, what you are doing is lending money to a specific entity at a certain interest rate for a certain amount of time.

    What are your risks? Well, one is that the entity won’t be able to pay you back. The US Government is very safe. Joe’s New Software Company might not be so safe.
    The second risk is that inflation will go higher than the rate you are getting paid. If inflation is 6% and you are earning 5 1/2% interest, you are losing 1/2% purchasing power per year on your money.

    Also, historically bonds underperform stocks because stocks have more risk (also called volatility). With more risk comes more reward. Bonds have less risk, but also less reward.

  3. alcaholicrage on March 4th, 2007 at 6:40 am

    There are three major risks to bonds:
    Credit risk - you might not get your money back. The most credit worthy bond is a us govt bond. The least is a “high yeild/or “junk” bond. The lower the credit rating, the higher rate of return (yield) you are promised. (remember, promises can be broken)
    Inflation Risk. You get a fixed coupon. If higher inflation occurs, it means your purchasing power decreases.
    Interest rate risk (or time risk). The longer your bond’s maturity, the more you lose the opportunity to invest that money at a higher rate if interest rates increase.
    I would tell you only to use the web to contact a investment professional who specialises in bonds. Any major bank or investment company will have them.
    There are many different types. US federal goverment bonds, Municipal (state & local govt) bonds, corporates, asset backed (mortgages, leases), etc. All have varying levels of risk and yield.

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