Bonds
Bonds can be an important piece of your overall portfolio. However, selecting bonds that are appropriate for your financial strategy can be a complex process. Whether or not you invest in bonds and how you choose which bond to invest in depends on a multitude of factors that your J.P. Turner financial advisor will review when helping you identify suitable bonds to complement your investment strategy. Bond values tend to decline as interest rates rise, and tend to rise as interest rates decline, so if a bond is sold prior to maturity its value may be more or less than the original purchase price.
What is a bond?
A bond is an interest-bearing certificate issued by a corporation, municipality or the Federal government or one of its agencies. Proceeds are typically used to fund projects or refinance existing obligations. Unlike stocks, which make you part owner of a company, owning bonds makes you a creditor because you have loaned money to a company or government.
Like most loans, the borrower (or issuer) pays interest to the lender (you). A bondholder can receive regular interest payments from the issuer of the bonds, typically every six months (the major exception to this schedule would be mortgage backed securities which pay monthly). Unlike stock dividend payments, which fluctuate with earnings, bond interest payments, based on the interest rate set at issuance, are usually fixed. Some bonds are callable. A call feature gives the issuer the right to retire a bond before maturity at a predetermined price.
Why should I consider adding bonds to my investment strategy?
Individuals and institutions purchase bonds with four goals in mind—income, preservation of capital, total return (income and capital gains) and liquidity. Demand for these investment benefits and a wide range of choices has made the U.S. government, municipal and corporate bond market the largest (over $12 trillion) marketplace in the world.
Talk to your J.P. Turner financial advisor to determine if investing in bonds makes sense for you.
