A Quick Guide To Bonds

By Author: Lecia Selbo
Total Articles: 49
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Since the stock market endured turbulent times during 2008 and 2009, many investors looked towards buying bonds to escape the volatility. In uncertain periods, bonds can be a more sturdy investment than the stock market, which can sometimes be turbulent.

Bonds are loans issued by the government or companies. If you buy a bond, then you are providing a loan to whoever issued it. A bond usually has a fixed rate of interest, and the sum which you''ve paid into the bond will usually be paid back to you at the end of the term. This article introduces you to bonds.

Corporate Bonds - Companies issue corporate bonds as a means of raising money that they can reinvest in their business. They have a nominal value (normally ?100), which will be returned to the investor on a future date. They also pay a stated rate of interest annually, which is usually fixed.

As corporate bonds can be traded on a stock exchange, their value can rise as well as fall. If you would like to invest in corporate bonds, or if you''d like to know more, then take a look at Legal and General.

Gilts (Government Bonds) - The government issues ...
... government bonds or gilts. They pay a fixed rate of interest twice annually, and because the government is unlikely to go bust, they are considered very safe investments.

Although they are very safe, you are not guaranteed to get all of your investment back. Like corporate bonds, gilts can be traded on a stock exchange, so they''re price goes up or down. You can buy gilts through a broker, high street banks or through the government at the Debt Management Office.

Bond Funds - Bond funds invest in a diversified portfolio of bonds (including corporate bonds and gilts), which will often have different interest rates and maturity dates. This reduces the risk to your capital because you will have invested in a range of companies rather than just a few.

As bond funds contain a mixture of bonds, they don''t guarantee a fixed return. Instead, they aim for a ''target'' return. Used alongside a diversified stock portfolio, bond funds are very useful to long term investors. Lecia Selbo opened his own corporate bonds with Legal