What are bonds? When should you consider them? Are they good investments during broad market weakness. Traditionally, bonds earn lower rates of returns than stocks. Investors typically buy bonds for:
1) Diversification. Bonds are usually less volatile than stocks and can stabilize your portfolio's value during lackluster performance of the stock market. By combining both forms of investments over the long-term, one can often outperform riskier undiversified speculative investments. 2) Stability. Some people need to know they can access large sums of money in the near future and stock market risk is an undesired option. Since most of the return on bonds comes from interest (coupon) payments, fluctuations in the price of a bond will have little impact on the value of the investment. 3) Consistent Income. Unlike stock dividends, coupon payments are consistently distributed at regular intervals. Individuals wanting this consistent income find bonds a better alternative than the dividend payments some stocks offer. 4) Taxes. Payments from some bonds are exempt from federal taxes, and high income earners see them as an excellent portfolio option. Definition of a Bond: A bond is a certificate where the issuer promises to pay the holder aspecified interest rate for a specified period of time, and that document binds the issuer to repay the loan on its maturity date. Assets are pledged as security for the loan, except in the case of government bonds. Bonds are issued by corporations and by federal, provincial and municipal governments. For more on the definition, visit https://www.bmoinvestorline.com/EducationCentre/b.html After you decide to invest in bonds, you then need to decide what kinds of bond investments are right for you. Most people do not realize it, but the bond market offers investors a lot more choices than the stock market. Depending on your goals, your tax situation and your risk tolerance, you can choose from municipal, government, corporate, mortgage-backed or asset-backed securities and international bonds. Within each broad bond market sector you will find securities with different issuers, credit ratings, coupon rates, maturities, yields and other features. Each one offers its own balance of risk and reward. Speak to your broker or investment advisor about how you can purchase bonds. Use the Google search box with keywords like "trade bonds" to find a bond broker and any other information.