Exactly What You Need To Understand Before You Invest In Bonds
There are specific things you need to recognize about bonds before you start investing in them. Not understanding these things may cause you to purchase the wrong bonds, at the wrong maturity date.
The 3 most important things that need to be considered when buying a bond consist of the par value, the maturity date, and the coupon rate.
The par value of a bond refers to the amount of money you will obtain when the bond reaches its maturity date. This means that, you'll obtain your initial investment back when the bond reaches maturity.
The maturity date is of course the date that the bond will reach its full value. On this date, you will obtain your initial investment, plus the interest that your cash earned.
Corporate, State and Local Government bonds could be 'called' before they reach their maturity. At this time, the corporation or issuing Government will return your initial investment, along with the interest that it has earned thus far. Federal bonds can't be 'called.'
The coupon rate is the interest that you will obtain when the bond actually reaches maturity. This quantity is written as a percentage. You must use other information to find out what the interest will be.
A bond that has a par value of $2000, with a coupon rate of 5% would generate $100 per year until it actually reaches maturity.
Since bonds aren't issued by banks, a lot of people don't understand how you can go about purchasing one. There are two ways this could be carried out.
It is possible to use a broker or brokerage firm to make the purchase for you or you can go directly to the Government. Purchasing directly through the Government isn't nearly as tough as it once was.
There's a program called Treasury Direct which will permit you to buy bonds. All your bonds will be held in one account that you will have easy access to.
If you use a brokerage firm, you will more than likely be charged a commission fee. When you want to use a broker, your best bet in finding the lowest commissions is by looking up keywords like: reverse mergers, merger company, or reverse merger.
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