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Exploring Bonds as Investment Opportunities

Exploring Bonds as Investment Opportunities

Dow Takes Giant Leap as Bailouts Snap Gloom
Image by YoTuT via Flickr

After the stock market tanked in 2007, many investors got cold feet and started pulling their money out of volatile markets. This action, of course, made the market even more precarious, which quickly revealed how unstable stock markets really were. In response, many people started to look for other ways to invest their money.

Bonds were a natural choice for many investors. Bonds have been used throughout history to help governments accumulate cash reserves. War bonds, treasury bonds, and municipal bonds are all popular options. There are, however, different types of bonds and you can buy a bond online. When exploring bond sellers, you should know the differences between these options. Knowing your options will help you make smarter long-term investment plans.

Municipal bonds are issued by territories, states, or city governments instead of the federal government. The interest rate attached to them can vary greatly depending on the bond, so be sure that you understand the specific terms of municipal bonds before purchasing them. One of the advantages of municipal bonds is that you don’t usually have to pay city, state, or federal taxes on them. Some municipal bonds, however, do not benefit from this exemption.

Fixed bonds have set rates that will not change. This means that investors who purchase them are protected from financial loss. Their ability to make money from the bonds, however, is limited. There is little risk with fixed rate bonds, but there is also little money-making potential.

Floating rate notes, however, have interest rates that vary. This makes them riskier, but also provides an opportunity to make more money than one could get from fixed bonds. The variable rate is usually linked to a specific index. Most floating rate notes accumulate money over time, usually with quarterly payments. This lessens the risk associated with variable interest rates but can also have a limiting effect on investment returns.

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