How To Invest In Corporate Bonds
If you are looking for an investment that has both safety and attractive yield, then you should know how to invest in corporate bond. Investing in corporate bond has substantially less risks than invest in company stocks. Corporate bond are debt securities that are issued by companies, usually with a guarantee to repay with future income or company assets. Compared to a government bond, a corporate bond usually offers higher yield, because it is considered riskier than government bond. Corporate bonds can be a good investment for people who are not willing to take too much risk, but at the same time want a yield that is attractive enough.
- Do your homework. You need to know the rules and terms in the bond market. Luckily, there are numerous websites dedicated to educating people who want to invest in corporate bond.
- Find a broker that provides a good selection of corporate bonds. Not all brokers are equal; some have very limited bond selection.
- Ratings do matter. Rating agencies provide a very valuable service to investors. Rating agencies evaluate corporate bonds based on many factors, including company credit history and its repayment ability at the time of maturity. The safety factors, which are rating agency’s responsible to evaluate, directly impact the interest rate of the corporate bonds.
- Diversify your corporate bond portfolio. Yes, even in corporate bond, you can still diversify your portfolio to reduce risks. Consider investing in large companies that have cross sector businesses rather than sector specific small companies.
- The junk bond is not for everybody. Junk bonds are bonds that have a high risk of defaulting, which means companies must offer higher interest rate to investors. While high profile investors, like Warren Buffet, make hefty profits on these investments, you can potentially lose your principle by investing in these bonds.
- Risk is part of investing. While it can be minimized and reduced, it cannot be eliminate entirely. Investors should take caution in investing corporate bonds.