How to Invest in Bonds
A variety of bonds are available for investors to purchase for their portfolio, and the types are worth reviewing when optimizing how to invest in bonds. These include government or federal agency debt, municipal or corporate bonds, and mortgage or asset-backed securities.
Furthermore, two basic ways how to invest in bonds exist.
The second method involves purchasing shares in a bond fund, money market fund or unit investment trust where bond investments are pooled for diversification purposes. The bond funds typically charge a fee to professionally actively manage a portfolio of bonds, although some funds are passively managed to follow a particular bond index or market. Money market funds typically pool investments in very liquid securities with a short time until maturity that is often under three months.
Bond Unit Investment Trusts offer investors a portion of a set of professionally chosen bonds that remains constant for the trust’s duration. Typically, interest income is earned over time from the bonds and principal is returned as the bonds mature until the last bond has matured.
Determining how to invest in bonds to suit your portfolio will typically involve selecting between these different options according to your market view, income preferences, investment capital, and risk tolerance.
By InvestorGuide Staff