If you’re in or near retirement and consider safety, or reduced risk, a priority, you can buy a bond. Corporate bonds are sold in increments of $1,000, and municipal bonds (tax-free) in increments of $5,000.
Before you buy a bond, determine how long you want to hold the bond, which tells you what maturity date you’re after; how safe the bond you want to own must be; and how much interest (yield) you need.
Short-term U.S. government bonds are the safest, but highly rated municipal bonds and corporate bonds can be almost as safe. To determine if the extra risk is warranted, compare the rates paid by the bonds you’re considering with the rates paid by treasury bills. Because Treasury bills are the safest investment, if other bonds aren’t paying much more, there may be little reason to take on the additional risk. If you’re not sure, comparison-shop. If a bond isn’t issued by the U.S. government, check the issuer’s financial position by its quality rating with Moody’s or Standard & Poors.
Can a bond issuer meet its bond and other debt obligations on time, in full? That’s the question that is analyzed closely by rating agencies such as Standard & Poors and Moody’s Investors Service. Before buying a bond, checking a bond’s rating should become a routine part of any purchase. Ask the broker or bank you’re buying from to see the rating. The consensus, especially for beginning investors, is to steer clear of anything not rated A or above by Standard & Poors or Moody’s.
Be sure to find out how low the bonds or underlying bond investments have dipped in terms of performance over the years. You can then gauge your own exposure, although if you hold a bond until maturity, the mountains and valleys of performance don’t matter.
If you’re buying a government bond or bond fund, you may also want to consider whether you want taxable or nontaxable investments. This decision depends on your tax bracket and your perspective regarding how much you plan to invest and earn over the years.
Before you buy a bond, determine how long you want to hold the bond, which tells you what maturity date you’re after; how safe the bond you want to own must be; and how much interest (yield) you need.
Short-term U.S. government bonds are the safest, but highly rated municipal bonds and corporate bonds can be almost as safe. To determine if the extra risk is warranted, compare the rates paid by the bonds you’re considering with the rates paid by treasury bills. Because Treasury bills are the safest investment, if other bonds aren’t paying much more, there may be little reason to take on the additional risk. If you’re not sure, comparison-shop. If a bond isn’t issued by the U.S. government, check the issuer’s financial position by its quality rating with Moody’s or Standard & Poors.
Can a bond issuer meet its bond and other debt obligations on time, in full? That’s the question that is analyzed closely by rating agencies such as Standard & Poors and Moody’s Investors Service. Before buying a bond, checking a bond’s rating should become a routine part of any purchase. Ask the broker or bank you’re buying from to see the rating. The consensus, especially for beginning investors, is to steer clear of anything not rated A or above by Standard & Poors or Moody’s.
Be sure to find out how low the bonds or underlying bond investments have dipped in terms of performance over the years. You can then gauge your own exposure, although if you hold a bond until maturity, the mountains and valleys of performance don’t matter.
If you’re buying a government bond or bond fund, you may also want to consider whether you want taxable or nontaxable investments. This decision depends on your tax bracket and your perspective regarding how much you plan to invest and earn over the years.
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