The coronavirus pandemic has triggered a surge in online trading and investment around the world. Bonds may seem overly complex to beginners, but purchasing them is easier than you may think. The key principle — lending money to a corporation or government — is relatively simple. Bonds are different from stocks, which provide a stake in a business.
Bonds are a great option for portfolio expansion. Many financial advisors and risk-averse investors praise these instruments for their stability. They are safer than cryptocurrencies and even shares. Market data providers like https://cbonds.com/ help their users gain profit from diversified portfolios.
How to Get Started
There are three ways to purchase bonds — through a broker, an exchange-traded fund (ETF), or directly from the issuer (government or corporation). With online brokers, this process is hassle-free, and you can also get a discount off the face value. ETFs are great for diversified trading, as they offer packages of bonds representing particular markets or industries.
Bond investors need access to a wide choice of assets and cutting-edge data platforms. To make informed decisions, they use pricing sources from both the OTC market and global stock exchanges. Like online trading, investing in bonds requires a user-friendly and intuitive digital environment. Popular platforms work on any screen.
How to Choose Bonds
The biggest risk with bonds is that the borrower may be unable to pay the principal back with interest. Investors use ratings by such agencies as Moody’s, Standard & Poor’s, and Fitch to assess creditworthiness of companies and governments. The highest rating is AAA.
In case of corporate bonds, another way to evaluate safety is to compare the interest to the company’s income. If it does not have enough capital to support the payments, do not invest. Assessing government-issued bonds is more difficult, but they are generally safer. For example, bonds issued by the US government have AAA status.
Finally, there are bonds issued by municipalities. They are not as safe as government-issued securities and typically require more research. Buyers should consider the credit rating of the issuing government and check if it faced any financial issues in the recent past.
When to Buy
You may presume that buying bonds is preferable when their prices are the lowest while interest rates are the highest — i.e., during boom periods. As the economy cools, bonds become more expensive, while the interest rates plunge. However, this logic does not always work.
Timing the market is a bad idea. Instead, focus on building a diversified portfolio. Purchase different bonds with different maturity periods. As some of them bring profit, you can use it to invest again. This is known as the “ladder” approach.