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Investing The Smart Way

By Expert Author: Shawn Michels

Here is some of the valuable information that should be kept in mind when planning to invest in bonds or bond funds.

Defining the objectives: For what are you investing? Is the investment for the child’s college education? Or, is it for your plans to retirement? If this were so, how comfortably would you like to live? Lay out all the plans and be precise of them as much as you can. Remember, it is very important to be aware of where you are going, because if you are not, you will never arrive.

The second step is to assess the risk profile of the investments. All the bonds and bond funds like the stock and stock funds will come with their own risk profiles. It is important to be aware of all the associated risks before investing. Write them down, so that they are always there in plain sight.

The third step is all about doing your homework correctly. If all the above steps are complete, then you are to a good start. It is important to keep proceeding. Read books and articles about the bond investing from the library of the internet. It is imperative to follow the fixed income commentary in financial shows and articles on finance to familiarize oneself with the math of the bond. The offering statement should be thoroughly read. This is where all the different characteristics and features of the bond will be found. These characteristics will include yield to the bond’s call schedule.

The fourth step is if you are considering purchasing a bond fund, read the available prospectus carefully. All the personal finance blogs will suggest you to pay attention to the parts that discuss which bonds are in the fund. For example, not all the bonds in the government bonds are actually government bonds. Pay attention to the fees. All the individual bonds will come with their respective prospectus. This will derive information about the bond’s indenture, which is the legal document defining the agreement between the bond buyer and the seller. The broker should be asked for a copy of the prospectus or indenture to read it in details.

If you are planning to buy individual bonds, it is important to locate the firm and professionals dealing in the similar bonds. Converse with a number of brokers to ensure the best one is hired. Ensure that broker is aware of your individualistic objectives and risk tolerances.

Next step is to ask the broker about the time, cost and when was the bond last traded. This will provide with an insight into the liquidity of the bond. Remember an illiquid bond may not be traded in days or even weeks. The pricing competitiveness should also be inquired about.

It is imperative to comprehend all the associated costs about buying and selling of the bond. Ask upfront about the process by which the brokerage firm and brokers are being compensated for the transaction including the commissions, mark downs and mark ups.

It is important not to try to time the market. As difficult it is to time the stock market, it is harder to time the bond market. It is best that all speculations about the interest rates are kept at bay. People would often base their decisions on where the rate has been than where the rate can go.

Articles of Finance will provide the necessary details on the smart investment moves. Follow and read the personal finance blogs to understand better about the investments in bonds and stock.

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