If you are new to investing perhaps you are not familiar with bonds. Before you get started, you need to understand some of the risks associated with bond investing. Most people assume that all interest-bearing securities are completely risk free, but this is not the case. Even if you know a lot about investing, you may not be aware of some of the risk characteristics associated with bonds.
There’s no question stocks get a lot more press. The average investor may never have bought a bond, even after dabbling in Exchange Traded Funds, Futures or even more esoteric investments.
Because of some fixed characteristics - par (face value, repaid at maturity), coupon (interest rate, percentage paid in semi-annual payments on the par) and maturity (date principal is repaid) - predicting bond values and risk with some confidence is as much science as art.
Nowhere else in the investing world can the interested investor get more helpful information than that available from the various bond rating agencies
Few investors trade in order to lose money. For those seeking to make a profit, comparing the potential returns over different time spans of different instruments is essential. In that effort, calculating yield is central.
It’s often said that government bonds represent one of the lowest possible risks for an investor. In general, true - but much depends on which government issues them and which investor is buying.
Ah, if only the world would stand still - just for a little while. But, in the world of investing (as elsewhere) it’s never so.
Forecasts made on purchasing day have to be adjusted tomorrow in light of changing circumstances and new discoveries. Keeping up with those changes - or, better still, anticipating them, is what bond trading strategy is all about.
