Understanding Bonds

Bonds are probably the safest investment opportunities available; of course when I say ‘safest’ I mean relatively, compared to investments on the stock or foreign currency markets. It can be a great investment opportunity standalone, and it can also be part of your overall investment portfolio and functions as additional earners as well as hedging for market fluctuations.

When you are thinking about buying bonds as an investment, you need to make sure you fully understand the concept of bonds before jumping in. There are several keywords you need to understand to help you get started. First, you need to know what ‘par value’ is. Par value is the actual worth of the bond, or simply the amount of money you are investing for the bonds. If the bond you are purchasing has a par value of $5,000, it will give you $5,000 when it matures.

Next, every bond comes with coupons. These coupons are actually interest rate the bond pays; the term coupons is used because bonds come with books of coupons and that you need to clip the coupon to claim your return or interest.

Of course, you would have to know about bonds’ maturity. Maturity is basically the bonds’ timeframe; when a bond is mature, the amount of money you invested will be returned to you in full.