Bonds represent one of the many public investment tools that one can use to make money. They are long-term fixed instruments issued by governments or corporates to secure loans from investors. Bonds are classified into two main categories namely corporate bonds and government treasuries, although there are different other classifications. It is important to understand which ones will best suit your investment needs before you commit your funds.
Each type of bonds has their pros and cons, which is why you need an in-depth understanding so that you can decide which ones to go with. Your decision will ultimately depend on the level of risk that you are willing to stomach.
Corporate bonds
These are debt instruments that corporates use to raise capital for corporate purposes. They can be issued by public or private companies and are open to the public for purchase, allowing people to potentially earn interest once the bond period expires. You can thus invest in corporate bonds and earn back your money plus interest upon expiry, but they also carry a significant degree of risk. For example, they might lose some value if you decide to sell them during an economic downturn.
The higher risk profile is the main disadvantage of corporate bonds. There is also a notable upside which is the fact that corporate bonds tend to offer higher yields. They are therefore suitable for any investor that is interested in maximizing his/her returns from investing in bonds. They are ideal for the investor that is looking to invest for a few years of relative stability, for example, the recovery period right after an economic crisis.
Government treasuries
They are also known as government bonds in some countries and they allow governments to supplement their financial needs while providing investment opportunities for local investors. One of the main advantages of government treasuries is that they are usually guaranteed, and so they have a lower risk profile. This makes them suitable for anyone interested in investments with the lowest risk. The downside is that they offer significantly lower annual returns. They are ideal for anyone looking for a long-term investment.
Note that it is always a good idea to analyze the market and determine whether the environment is ripe for investment.
