- Bonds are a good way to diversify from stocks
- Bonds may sound a little boring
- Bonds can offer principal plus interest
What Does Investing In Bonds Even Mean?
As a fixed-income security, a bond provides an amount of income from regular interest payments, as well as the eventual return of the principal amount invested. Governments and municipalities often issue bonds to supplement funding received for public projects. The return is relatively low but so, then, is the risk. This can make it an attractive addition to a portfolio, as it can help diversification and lower the reliance on higher-yield/high risk areas.
What Are Rating Agencies?
When you’re investing in bonds you’re looking to make sure the foundation the bonds is building is a solid one. This means you may tend to get your advice from one of the rating agencies that assigns rankings to bonds. These agencies vary in size and rankings, but in general they look at the bond issued and confirm that there is reason to believe the government or corporation issuing said bond can pay it back, with interest, at the end of its life cycle. Bonds with lower ratings may return more, but there has to be knowledge of risks there.
Investing In Bonds For The Future
If you’re building a portfolio, and there’s stocks in it, you may consider bonds as a complimentary piece. Many invest in “boring” bonds as a way to cushion their portfolio in the event of a stock market dip or cryptocurrency plummet. Bonds can depreciate if things don’t go as planned. It pays to work with your financial advisor or Solo 401(k) provider and ask them any questions you may have.
Without question, building a successful investment portfolio can be difficult, and even feel overwhelming. But for serious investors, it’s important to have at least one foot on the ground when dealing with your money, your retirement savings potential, and your future.