Thursday, 19 Sep 2013
Bonds might not be popular with every type of investor, mostly because the yield is normally quite small. Those who purchase bonds are not after a huge return on investment, but are more concerned about protecting their money and receiving a small return on their investment. Despite the fact that you are unlikely to receive a huge return, there are a number of reasons why you should consider purchasing some bonds to add to your portfolio.
Who Should Take Advantage of Bonds
Generally, bonds are a good option for anyone who is concerned about market volatility. The stock market is always moving and in some cases, you could lose 50 percent of your portfolio very quickly. If you are young enough, you can be fairly confident that the market will correct itself and you will eventually get your money back. If you are not comfortable with the peaks and valleys of the stock market, however, bonds are a good choice.
Even those who are heavily involved in the stock market should consider buying some bonds because they can keep investors afloat during a bear market. When the stock market goes through a down period, it causes some people to panic. These individuals start selling off stocks to avoid losing everything. At the same time, bond prices increase during this period.
Those who find their bonds increasing in value can easily sell them during a bear market and purchase stocks. Then, when the market corrects itself, they stand to make a great deal of money.
About Series I Saving Bonds
Perhaps the best bonds to purchase are called I Bonds, as they are issued by the United States Treasury. This means that these bonds are backed by the United States government, making them an incredibly safe method of investment. As long as the United States government is around, they will honor your bond.
Every United States citizen is able to purchase $10,000 worth of I Bonds per year, although you can purchase an additional $5,000 worth by using your tax return.
The reason why these bonds can keep your money safe during troubling economic times is that they are indexed to inflation. This means that the money that you invest is guaranteed to have the same purchasing power when you sell the bond.
You can choose between a fixed interest rate and a variable rate, depending on your preferences. The bond will pay interest for 30 years and it will never drop to a negative rate. Therefore, you never run the risk of losing any money by investing in bonds.
It is always a good idea to have some safe investments in your portfolio, just in case a major economic downturn occurs. While you might see this as a wasted opportunity, especially if your other investments are making you more money, keeping some money in a more predictable location does have its benefits.
I Bonds are protected from inflation, are backed by the government and provide a better interest rate than any savings account, making it one of the top options for a low-risk, low-yield investment.
Aaron Walker is a financial writer who blogs about saving more and spending less to help people build up their savings, get rid of debt, and live more enjoyable (and profitable!) lives. Whether you are saving to afford college or attend 12PalmsRehab.com, he wants you to get there with change to spare.