Your Questions About Investing In Bonds

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Steven asks…

How do u start investing in bonds/stocks besides opening an account?

financi4 answers:

You can start with DRIP’s, known as Direct investment plans. Most of the major companies offer them. The dividends are reinvested automatically and the fees are small or none at all. You will need to contact the company to see if its being offered or goto http://www.dripcentral.com/ for more detail on other companies.

William asks…

How safe is investing in bonds, the Vanguard BND fund specifically?

With the stock market ups and downs and the unstable economy I am a bit worried about throwing a large sum of money into anything.

financi4 answers:

Since the time of the bible the real exchange of currency is gold

John asks…

What are some risks investors may face when investing in bonds?

What can an investor do to reduce the risks?

financi4 answers:

In my opinion bonds are actually more risky than a well balanced portfolio of stocks. Bond investors suffer from two primary risks. 1. The risk that interest rates will rise. Bond investors who bought bonds in the mid 70s saw the value of their bonds drop to 1/3 what they paid for them as inflation ran ramped. 2. The risk the the issurer will default on the bonds or that the bond rating might be down graded. Either will cause the investor to loose money, perhaps the whole amount of the investment as the investors in Washington Public Power bonds found out on their AAA rated bonds.

There is another problem with investing in taxable bonds as opposed to investing in equities. Bond interest is taxed at the full amount. Equity dividends and captial gains are taxed at very favorable rates and so long as you do not sell your sound equity investments there is no tax due at all.

Robert asks…

Why is investing in bonds issued by banks considered less riskier to corporate bonds?

financi4 answers:

Simply because Banks who use OPM(Other Peoples Money) more efficiently are supposed to have stringent regulations, hence more prudent risk management practices in place – rather than a corporate whose core business usually is to deal with the REAL ECONOMY, eg, to conceptualize -technically innovate, and engineer a real need in the economy. Hence in real terms the yield of a bond issued by a Bank should be less than that of a AAA Corporate, when the vice versa is true,
Corporate could seek cheaper alternative sources of capital (!)

James asks…

Short term investing, bonds, Cds……please read on?

My savings bonds are worth about $500. They have 3 years left to mature. In about 2 and a half years I intend to buy a house. In order to accumulate as much money as I can for a down payment, would it be beneficial for me to cash in the bonds and combined with some additional cash (possibly a total of $1000), put the money into CDs? Also, I will regularly have money to add.

financi4 answers:

You may want to save that $500 to become a small emergency fund in the future. You don’t want to overextend yourself by trying to pay off debt, and keep little cash on hand unless your future cash flow stream is favorable compared to your future outflow of cash (to debt.)

Michael asks…

What do i need to know if I am investing in bonds? How do you interpret the bond market information?

financi4 answers:

Yahoo has some great, easy to understand information on bonds. Go to:
http://finance.yahoo.com/education/bond

Stocker gave some great advice!

Joseph asks…

Investing in bonds of troubled European economies?

I read that Spain just issued new 5 year bonds that are paying 4.75%. What do you think about the failing European economies, are the bonds in them secure? Also, do you think that the European (or American) inflation will be so severe that it will influence the return significantly? Any ideas?

financi4 answers:

As an individual investor, you will not be able to do much on your own. Not only are the issues obscure to most US brokerage houses, but settling them can be a problem.

The best way for you to do this is invest in a fund that does this sort of thing. You can look over the lists of funds and find one that specializes in European debt, see what it owns, and make a decision.

Chris asks…

What are the risks involved with investing in bonds? What can one do to minimize risk when investing in bonds?

financi4 answers:

For U.S. Bonds, prepayment risk, default risk and interest-rate (market) risk are the main ones. The safest bonds are treasury bonds, next munis, next investment-grade commercial bonds and riskiest are “junk” bonds. Morningstar.com has a good tutorial on bonds.

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