Bond Price Fluctuations
There are two primary factors that affect bond prices — interest rate changes and credit rating changes. Interest rate changes will typically cause a bond’s value to fluctuate more than will credit rating changes.
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July 11, 2008
June 13, 2008
Treasury Inflation Protected Securities (TIPS)
Treasury Inflation Protected Securities (TIPS) were created in 1997 to provide bond investors with inflation protection by periodically adjusting the bond’s face value based on the increase in the Consumer Price Index for All Urban Consumers (CPI-U). The bond’s interest rate is determined at auction and does not change during the bond’s life, but the principal is adjusted every six months. Thus, subsequent interest payments are based on the increased principal amount.
Continue reading "Treasury Inflation Protected Securities (TIPS)" »
June 6, 2008
Bond Swaps
A passive approach to bond investing typically involves purchasing a bond and holding it to maturity. With that approach, you receive your entire bond principal and do not have to worry about the effects of interest rate changes on the price of your bond. However, as the interest rate environment changes, there may be opportunities to use more active strategies for your bond investments, such as Bond Swaps.
June 4, 2008
Bond Strategies Over Your Lifetime
A common misconception regarding bonds is that they are only appropriate for older or more conservative investors. However, bonds should be considered by all investors as part of a well-diversified portfolio, even though their role may change over your lifetime.
February 1, 2008
Bond Ladders
While bonds are subject to several types of risk, two of the main types are interest rate risk, or the risk that interest rate changes will change your bond’s value, and reinvestment risk, or the risk that interest and principal cannot be reinvested at the current bond’s interest rate. It is difficult to simultaneously reduce both risks since a rise in interest rates reduces reinvestment risk and increases interest rate risk. Thus, you need to find a balance between the two risks.
November 9, 2007
Zero-Coupon Bonds
Zero-coupon bonds do not pay interest during the bond’s life. Since most investors purchase bonds to receive periodic interest income, this may seem like a contradiction. However, some investors desire the fixed return without the periodic receipt of interest payments. Zero-coupon bonds were designed to meet that need.
August 15, 2007
Tips for Investing in Municipal Bonds
Whether you’re just investigating municipal bonds or are reviewing your current muni bond portfolio, consider the following guidelines:
August 6, 2007
Why You Should Consider Bonds in Your Portfolio
Why should you consider bonds for your investment portfolio? Although diversification and periodic interest income are often noted as the primary reasons to add bonds to your portfolio, there are some other reasons you may want to consider also:
Continue reading "Why You Should Consider Bonds in Your Portfolio" »
June 4, 2007
Measuring Your Investment Risk
How has your portfolio performed compared to the major indexes? Has it experienced sharper or milder fluctuations? The answer to these questions will help you determine your portfolio’s risk. Different measures of risk exist for stocks versus bonds.
October 1, 2006
Fidelity Investments Makes Buying Bonds More Transparent
Fidelity Investments, the Boston-based money management giant, is making it easier for online investors who buy bonds to be more comfortable they are getting a good deal. When most people think of online trading, stocks are the first thing that come to mind. However, the Bond Market - U.S. Treasury Bonds, Corporate Bonds, and Municipal Bonds, - is actually bigger in dollar terms than the Stock Market.
Continue reading "Fidelity Investments Makes Buying Bonds More Transparent" »
August 15, 2006
Why Do Bond Prices Fluctuate
If you hold a bond to maturity, you will receive the full principal amount. However, if you want to sell before maturity, your bond will probably sell at a premium or discount to that amount. Why do bond prices fluctuate? There are two primary reasons: credit rating changes, or interest rate changes.
June 2, 2006
Back to Basics with Bonds
With the future direction of interest rates uncertain, you may wonder whether now is a good time to invest in bonds. If you are reassessing your bond investments, consider the following:
October 12, 2005
Bond Investing Misconceptions
There are several misconceptions regarding bond investing. Four common misconceptions about bond investing, include the following:
August 13, 2005
The Basics of Treasury Inflation Protection Securities (TIPS)
Treasury Inflation Protection Securities (TIPS), issued by the U.S. Treasury, are similar to other Treasury bonds in a number of respects:
Continue reading "The Basics of Treasury Inflation Protection Securities (TIPS)" »
Assessing a Bond's Credit Risk
Credit risk is the risk that the issuer’s credit rating will be downgraded, which could decrease the bond’s value. Lower credit ratings also are an indicator that a bond may be subject to default risk, or the risk that the issuer will not be able to pay interest and/or principal. When investing in bonds, be sure to assess these risks.
Are Municipal Bonds Appropriate for You?
No investment, including municipal bonds, is appropriate for every investor. Before purchasing, consider their advantages and disadvantages to see if they are appropriate for your portfolio.
Continue reading "Are Municipal Bonds Appropriate for You?" »
Bond Strategies for Various Financial Goals
The strategies used for bond investing will depend on the financial objectives you are pursuing. Consider these financial objectives and bond strategies:
Continue reading "Bond Strategies for Various Financial Goals" »
September 12, 2004
Interest Rates and the Yield Curve
A yield curve is a graph plotting interest rates for the same type of bond for a series of maturities, typically
ranging from three months to over 25 years. Although yield curves can be plotted for any type of bond, they are most commonly seen for Treasury securities.
A Checklist for Bond Investors
Investments in bonds should be tailored
to your investment objectives, risk tolerance, and other personal
circumstances. Answering some fundamental questions will help
you determine the role bonds should have in your portfolio:
Managing Bond Risks - Interest Rate Risk & More
All investments are subject to risk, although
the types of risk can vary. While you can't totally eliminate
these risks, you can develop strategies to reduce them. For bonds,
consider these strategies:
Continue reading "Managing Bond Risks - Interest Rate Risk & More" »
Dealing with Current Rising Interest Rates & Interest Rate Risk
With interest rates still at historically
low levels and the economy picking up steam, the Fed has started
to raise interest rates. The question now is by how much and how
quickly the Fed will increase interest rates. The answer is especially
pertinent to bond investors who will find their bond values decreasing
as interest rates increase. But don't totally abandon bonds just
because their values may decrease in the near term. There are
still valid reasons to hold bonds in your portfolio.
Continue reading "Dealing with Current Rising Interest Rates & Interest Rate Risk" »
July 14, 2004
Bonds and Interest Rate Changes
With interest rates at such low levels, you might be wondering what could
happen to your bond portfolio if interest rates rise. Basically, interest rate
changes affect bond prices as follows:
December 1, 2003
Convertible Bonds - Part Bond, Part Stock
Convertible bonds are a hybrid investment, combining features of both stocks and bonds. Like all bonds, convertibles pay a fixed interest rate for the bond’s life, with the principal returned at the end of the bond’s term. However, convertible bonds can also be exchanged for a specific number of shares of the issuing company’s common stock.
Continue reading "Convertible Bonds - Part Bond, Part Stock" »
November 1, 2003
Take a Look at Treasury Inflation Protection Securities (TIPS)
Treasury Inflation Protection Securities (TIPS) are bonds issued by the U.S. Treasury that pay a real rate of return above increases in inflation. The designated interest rate is determined at auction, with interest paid on the principal value every six months. The principal value is adjusted for inflation based on the increase in the Consumer Price Index for All Urban Consumers (CPI-U). Thus, although the interest rate does not change, the principal grows every six months so that subsequent interest payments are based on the increased principal amount.
Continue reading "Take a Look at Treasury Inflation Protection Securities (TIPS)" »
All About Zero-Coupon Bonds
Zero-coupon bonds do not pay interest during the bond’s life. Since most bond investors choose bonds for the periodic interest, this may seem like a contradiction. However, some investors don’t need the income, but still desire an investment with a fixed return on their principal. The zero-coupon bond does that.
Keep These Bond Tips in Mind
Interest in bonds has grown due to declines in the stock market, but the current low interest rate environment means investors need to carefully devise investment strategies for bonds. Consider the following tips if bonds are part of your investment portfolio:
February 1, 2003
Deciding on a Bond Maturity Date
Bond yields typically increase as maturity date lengthens, since more risk is assumed when holding a bond for a longer time. When interest rates are low, it is tempting to lock in higher yields by selecting bonds with longer maturity dates. However, use that strategy with care. If you purchase a long-term bond knowing you’ll need to sell it before maturity, interest rate changes can significantly affect your bond’s market value. Two fundamental concepts about bond investing apply:
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Recent Posts
- Bond Price Fluctuations
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- Bond Swaps
- Bond Strategies Over Your Lifetime
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- Zero-Coupon Bonds
- Tips for Investing in Municipal Bonds
- Why You Should Consider Bonds in Your Portfolio
- Measuring Your Investment Risk
- Fidelity Investments Makes Buying Bonds More Transparent
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