Okay if you’ve not heard about bond investment, I’ll be using this article on understanding the meaning of bonds or bond investment to show what they really are and how you can maximize the benefits of your investment if you start investing in bonds.
You may get your fingers burnt if you don’t give yourself the opportunity to understand what bonds are. You may make the mistake of buying into the wrong bonds at the wrong maturity date.
If you want to purchase bonds, you need to take the following three factors into consideration.
- The Par value
- The maturity date
- The coupon rate.
Okay I know all these are still strange and are like music in your hears at the moment. don’t worry I’ll get you through everything soon. Just read on.
Now number one thing to know in bond investment:
The par value of a bond refers to the amount of money you will receive when the bond reaches its maturity date. In other words, you will receive your initial investment back when the bond reaches maturity.
Now to the meaning of second factor:
The maturity date is of course the date that the bond will reach its full value. On this maturity date, you’ll be expected to receive your initial investment, including the interest that your money has earned.
Number three factor in bond investment means:
The coupon rate is the interest that you’ll receive when the bond reaches maturity. This is usually written as a percentage, and you must use other information to find out what the interest will be. For example, let us assume a bond has a par value of $5000, with a coupon rate of 10%. It will earn $500 per year until it reaches maturity.
I want you to understand something at this stage. Some types of bonds can be called before their date of maturity. For example, Corporate, State and Local Government bonds can be ‘called’ before they reach their maturity.
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If you do this, the issuing Government or organisation will return your initial investment and also pay you the interest that it has earned thus far.
Usually, Federal bonds cannot be called before maturity.
I believe a question that may be popping up in your mind at this moment is: ‘I want to start investing in bonds, How and where do I purchase bonds?”.
I’ll show you how to go about purchasing bonds if you want to start investing in bonds.Okay if you've not heard about bond investment, I'll be using this article on understanding the meaning of bonds or bond investmentClick To Tweet
Through a Brokerage Firm:
Yes you read that right. A broker or brokerage firm can make the purchase for you. This is to me the easiest way to purchase bonds. There are brokers in your country that will be ready to do this for you. The broker I use in my country sends me alert when these types of bonds are available. I only show my interest , pay into their account and fill some forms and the deal is done.
I have included a sample of the types of emails I receive anytime a bond is available for purchase from my broker.
You should find out accredited brokerage firms in your country. You should also ensure you find out the commission they will be charging you.
Oh yes, they charge commissions. they do this to cover their own expenses. I don’t think that’s bad. What I think is bad is when the commission they are charging is above industry standards in your country. I must tell you if you don’t carry out your due diligence, you may fall into shylock brokerage firms who will do everything to swindle extra money out of your pocket in the form of commission.
You can also go directly to the Government. I don’t know what the practice is in your country. But it’s also a practice in some countries for you to purchase binds directly through the government.
It used to be very hard buying directly from the government in those days but this is no more the stone age. It’s the age of technology, internet and civilization. Anyway I don’t know what the situation is in your country and just as I wrote earlier, you should find out.