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What You Must Be Aware Of Right Before You Invest In Bonds
There are certain things you must recognize about bonds before you begin investing in them. Not understanding these things may cause you to purchase the wrong bonds, at the wrong maturity date.
The three most important things that must be considered when purchasing a bond consist of the par value, the maturity date, and the coupon rate.
The par value of a bond pertains to the amount of money you will receive when the bond reaches its maturity date. In other words, you will obtain your initial investment back when the bond actually reaches maturity.
The maturity date is of course the date that the bond will reach its full value. On this date, you will receive your initial investment, plus the interest that your money has earned.
Corporate, State and Local Government bonds could be 'called' before they reach their maturity. At this point, the corporation or issuing Government will return your initial investment, along with the interest that it has earned thus far. Federal bonds cannot be 'called.'
The coupon rate is the interest that you will receive when the bond reaches maturity. This quantity is written as a percentage. You must use other info to find out what the interest will be.
A bond that has a par value of $2000, with a coupon rate of 5% would earn $100 per year until it reaches maturity.
Because bonds aren't issued by banks, many men and women don't understand how to go about buying one. There are two ways this can be done.
It is possible to use a broker or brokerage firm to make the purchase for you or you'll be able to go directly to the Government. Purchasing directly through the Government isn't nearly as hard as it once was.
There is a program called Treasury Direct which will allow you to purchase bonds. All your bonds will be held in one account that you'll have easy access to.
If you use a brokerage firm, you will more than likely be charged a commission fee. If you want to use a broker, your best bet in finding the lowest commissions is by looking up keywords such as: reverse mergers, merger company, or reverse merger.
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