The Importance Of Bonds In Personal Finance

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Stocks and bonds can play an important role in personal finance as a way to diversify a portfolio. While bonds are much safer than stocks they still carry risk, albeit typically much less. Before any person invests they should have an emergency fund and be able to meet all current financial obligations, it is not advisable to borrow money to invest with, especially using credit cards considering typically high interest rates. Bonds are generally safer due to having a maturity date, paying interest and are payable upon an institutions failure before stocks are repaid. Bonds can default, as was the case for more than 100 companies in 2016 alone (Cox, 2016). More than 100 companies defaulting on bonds may be worrisome for a new investor or …show more content…

Having bonds that pay interest every six months, which is typical of most bonds, and checking whether or not the bonds are callable can save some headaches down the road (Kapoor, Dlabay, Hughes 2016). US treasury bonds are sold in increments of $100 with a minimum purchase of $100. While the US credit rating has been decreased recently this is still the safest investment around, rarely defaulting or paying debt late. The only time I would recommend purchasing a US Treasury bond is if I could commit to a 20 year purchase that would effectively double my money. Using an inflation calculator I would come out around $500 dollars ahead over the life of the bond using the specific EE bond that guarantees to double my money if the rate doesn’t keep pace with doubling my investment (Prosser, …show more content…

Guarantees are few and far between and losses are plenty. There are techniques and tips by the hundreds from equally as many experts. Knowing and leveraging your risks with the willingness to prepare for your future and making smart investments will carry you into retirement and beyond. Proper diversification and research will go a long way in ensuring that you don’t rush into a decision that could cost you much more than a few dollars. If anybody were to inquire about personal finance from me in regards to investment I would have some pretty solid advice for them. Focus on the long game, you simply cannot get rich quick unless you win the lottery or have an exorbitant amount of time to play the market, or possibly receive an inheritance. For us mere mortal folks we need to focus more on saving than spending. Investments for your future will pay huge dividends when you can comfortably retire and not have to work in your golden years or

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