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Why invest in bonds when there are so many other options?

comparative Essay
2428 words
2428 words
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Why invest in bonds when there are so many other options?

Since 1999, the economy has been in a downward trend. The majority of people who had invested in the stock market now known as the great stock bubble or fraud bubble were given a false sense of security and they felt the market would just keep climbing. Were there signs that investors could have looked for to predict the economic downturn? If investors had looked for the signs, maybe they could have changed their direction of investment. This paper will investigate the characteristics of bonds and see if the bond market has proven to be a safe haven for those who were wise enough to invest in it. When the economy is in a downward trend why should more people invest in bonds? A good investment is a timely investment in which people change direction of their portfolio at the beginning of economic swings.

The economists monitor timely reports and determine the direction of the economy by tracking ten economic indicators through a select group of economic categories: employment, consumer spending, industrial production and inflation (Updegrave, Ten Indicators). Key items of the Employment Situation Summary focus in on unemployment rate, number of new jobs and help-wanted index. An increase in the number of new jobs and help wanted advertisements suggest a growing or stable economy. Unemployment rate tells the economists where the economy has been, whereas the number of new jobs predicts where the economy is going (Updegrave, p. 2). One important factor in the unemployment rate is that it tells the analyst that the economy has already changed. For example, an increase in the number of unemployed indicates that employers will not meet earnings or expect reduced earnin...

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...Strategies. Third Edition. Prentice Hall, NJ, 1996.

Noddings, Thomas. The Investor’s Guide to Convertible Bonds. Dow Jones Irwin, Illinois, 1982.

Bibliography

Belkaoui, Ahmed. Industrial Bonds and the Rating Process. Quorum Books, Westport, Connecticut, 1983.

Fabozzi, Frank. Bond Markets, Analysis and Strategies. Third Edition. Prentice Hall, NJ, 1996.

Noddings, Thomas. The Investor’s Guide to Convertible Bonds. Dow Jones Irwin, Illinois, 1982.

Updegrave, Walter. “The Economy: Ten Indicators.” CNN Money November 22, 2002 <http://money.cnn.com/pf/investing/features/ten_indicators/>

Veale, Stuart R. Bond Yield Analysis: A Guide to Predicting Bond Returns. Prentice Hall, New York Institute of Finance, 1988.

CNBC money. Questions and Answers, November 22, 2002. <http://moneycentral.msn.com/quickref/quickref.asp?Cat=10&SelCat=3&RefTy

In this essay, the author

  • Explains consumer confidence is a poll of 5,000 people asking how they feel about current and future business conditions for the job market and their income prospect for six months.
  • Recommends investing in a short-term, low-risk, convertible type bond in poor economic times. the federal reserve and its agencies lend the face value of the bond to the issuer.
  • Explains that treasury bills are the safest investment because maturities are short and there is little risk of the interest rate increasing.
  • Explains that corporate bonds are fixed income, therefore less risky than many other options. the call option allows the issuer to buy back the bond before the scheduled maturity date and replace an old bond issue with a lower-interest cost issue if interest rates decline.
  • Explains that convertible bonds are good investments because they allow people to convert a corporate bond directly into company stock. however, they can be risky since the issuer has the right to buy back the bond if interest rates continue falling.
  • Explains that investors focus on bonds during a slow economy to reduce the risk on the investment and to save their existing portfolio from losses.
  • Concludes that bonds are a safe haven during poor economic times and quickly convertible to other options on the upswing.
  • Explains veale, stuart r. bond yield analysis: a guide to predicting bond returns.
  • Explains that investors were given a false sense of security when investing in the stock market. they will investigate the characteristics of bonds and see if the bond market has proven to be safe haven for those who were wise enough to invest in it.
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