Bonds and Fixed Income Investing

Suppose you business needs an influx of capital. You can borrow the funds is you can issues shares of stock. The third alternative, which many companies implement, is to issue corporate bonds. For investors looking to start investing in corporate bonds there are many options. It is important to understand how corporate bonds function.

How Do Corporate Bonds Work?

Some corporate bonds feature a provision that allows the company to pay back the principal before the bond reaches maturity. This is known as a call provision.

Some bonds, known as convertibles, can be converted into shares of common stock under certain circumstances. This is attractive to many investors depending on the price of the underlying stock. However most bonds corporate bonds are fixed-rate bonds. The interest rate the corporation pays is fixed until maturity and does not change..

How to Invest in Corporate Bonds

Certainly you have heard your portfolio should be a mixture of stocks and bonds. One only need to look at the way mutual fund managers, move from equities to bonds, depending on market conditions. Fund manager’s work reverently to maximize returns for their investors while preserving capital.

Individual investors can accomplish the same objective. Individual investors are likely best suited to investing in bonds funds as a component of their overall investment strategy. Corporate bonds can also be purchased from corporations

Corporate Bonds Versus Municipal Bonds

There are pros and cons when investing in corporate bonds when compared to investing in municipal bonds. Corporate bonds are not tax exempt like their municipal bonds counterparts, and that must be considered. Corporate bonds are inherently more risky compared to Munis.  Corporations are far more likely to fall on financial difficulties than local government entities. This makes investing in bond funds a more attractive option.

Corporate Bonds Ratings

No matter which method you choose to invest in bonds, you will need something more tangible that a companies good word for security. Moody’s rates corporations on credit worthiness. These ratings will clearly paint a picture of a corporation’s financial condition. The top ratings are as follows.
Aaa - Best quality, and have the least amount of investment risk.
Aa - High quality by all standards; together with the Aaa group they comprise what are generally known as high-grade bonds.

It would be wise not to look beyond these two rating for investing in corporate bonds, given the current economic conditions. As always consult your financial adviser when considering any type of investing

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With the market in such an unstable and flexible state, picking a safe and reliable investment like investing in treasury bills is often the way to go.  Treasury bills are usually related to the inflation rate so that you won’t lose money.  Keeping your money safe is a paramount goal to most these days.  Finding out how to invest in treasury bills is a good way to do that.

So How to Invest in Treasury Bills ? The very first thing you should do is contact your banking institution.  A lot of banks will limit the number of transactions.  It is very common to have the number of transactions you can use for treasury bills limited to six per month.  This is something you should know before investing in treasury bills.  Call your bank and ask them about the limits.

Setting up a treasury direct account is also a vital step in the process if you want to buy treasury bills online.  You can purchase them online through the Treasury Direct website.  They will ask you for your bank account information and your social security number.  Don’t be surprised by this, they need the information to pay you the interest on the bills.  Now you have to wait for the account to be finalized.  This can take anywhere from a few days to two weeks.  Until this is finished, you will not be able to invest in treasury bills with the account.  Be patient, it may take awhile but it will get done.

Once your account is finalized you can begin investing in treasury bills.  Sign in to your account on the Treasury Direct website and click the “Buy Direct” button.  From there you will be able to choose the purchase amount, length of term, banking source, and any investment schedule.  So should you want to invest $5,000 a month, you can set it up to automatically be taken from your account every month.

If you prefer to not buy treasury bills online, you do have two other options to take advantage of.  Investing in treasury bills can be done directly at any of the facilities of the Federal Reserve Bank.  There is a bug advantage in this since you won’t be charged and fees or commissions for using this method.

You can also buy new issue treasury bills indirectly through most banks and brokerage firms.  They will charge commissions or fees for their services.  Investing in treasury bills on the secondary market is also beneficial since you can buy and sell existing bills at these same banks and brokerage firms.

Investing in treasury bills is a fairly straightforward process.  It can be accomplished in a number of ways that make it very easy to decide exactly how you want to spend your money.  By setting it up automatically, you can also save yourself some time and energy.

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Investing in bonds is becoming popular again, One in every five Americans will purchase a savings bond.  There are advantages and disadvantages to choosing savings bonds over investing in the stock market.  But there are also distinctions between the different types of savings bonds themselves.  For the sake of this article, we will discuss the Series HH and the Series EE savings bonds.

The Series EE savings bond replaced the Series E bonds.  They accrue interest based on the current market rate and can be cashed after six months.  Series EE savings bonds are exempt from all state and local taxes.  Also, if they are used to pay for college expenses, they are exempt from federal taxes as well.  Series EE savings bonds are issues both on paper and electronically.  Keep in mind that only paper bonds are available at a discount from their face value.  Electronically purchased EE bonds are purchased only at face value.

Series HH savings bonds, unlike the EE series bond, do not increase in value.  You can only purchase the Series HH savings bond in exchange for Series EE or E and Savings Notes.  Once the HH savings bond is issued, with payment for the full face value, interest is paid every six months.  The interest can be paid directly into your checking or savings account.   The interest is paid at a fixed rate.  That rate is set the day the HH savings bond is purchased.  This rate is fixed for the first ten years of the bond.  After ten years that interest rate is reset.

Differences in the two start with the purchase amounts.  Series EE savings bonds are purchased at half the face value in a minimum increment of $25.  You are limited to buying $5,000 of face value bonds per calendar year.  Series HH savings bonds can only be purchased at face value in denominations from $500 to $10,000.  Unlike the Series EE there is no limit on how much can be purchased.

Another difference is the way in which these savings bonds mature.  When a savings bond matures you are paid the original amount of your investment and the interest.  Series EE bonds mature after 30 years.  They accumulate and pay interest, as well as increasing in value, for this amount of time.  This can substantially increase its value over the amount originally paid.   Series HH savings bonds mature after a period of 20 years.  They will only pay the face value plus the remaining interest at the end of that period.

Now knowing the differences and similarities between the Series EE and Series HH savings bonds, you will be better able to decide which is the best bond to invest your money in.  The institution that you are buying your savings bonds from should also be able to resolve and concerns you may have.  Investing in savings bonds is one of the most secure ways to protect your investments, and with the tax breaks you can get there is no reason to delay.

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When you are looking to invest your money, you have many different options of where to put your money.  During such crucial times everyone is more concerned than ever with their funds.  Everyone is looking for a way to keep their hard earned money safe and secure.  You can invest that money in the stock market or into any number of businesses instead, they will undoubtedly give you a higher return.  But it is also the highest risk.  In the long run you will lose money during a crisis of an increase in inflation.

With the financial market in it current state, letting your money remain stagnant in risky investments is not advisable.  This brings up the subject of investing in treasury bills.  A bond, or bill, is defined as an interest-bearing certificate issued by a government agency or business, that promises to pay the holder a certain amount at a specific date.  Treasury bills are considered very safe as the investment is completely backed by the government in case of a problem.  There is little risk for negligence and this is a secure way to keep your money.   Treasury bills generally earn more than a regular savings account and are very reliable.  Another perk of investing in treasury bills is that if the market takes a plunge the bills are usually minimally affected.

The government sells treasury securities, but they are also available on the open market.  The government issues treasury bills in very large denominations, upwards of a million dollars, and distributes these to banks.  The banks then break them up and sell them to you.  You can also buy them at auctions held a few times a year.  They are currently the second most popular short-term individual investments, second only to money market mutual funds.  Investing in treasury bills is further secured by the fact that they are transferable.  Should you need your funds ( money)  before the end of the term you can sell them.  While the minimum amount required to buy a treasury bill may seem a bit high at $1,000, the ability to sell this bill whenever you like can offset that.

Treasury bills are short-term securities that always mature in a year or less.  Not only that but you buy them for less than their face value.  When the treasury bill matures you get the full face value.  For example, in your investing in treasury bills for $5,000 and it matures in 26 weeks.  You may only pay $4,500 for the bill, when it matures the extra $500 is the interest you have earned.  And that interest is entirely free from state and local taxes

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Investing in municipal bonds are generally considered appropriate instruments when preservation of capital is a primary concern. Municipal Bonds are debt obligations issued buy governmental entities to generate capital to build, highways, schools, bridges and other infrastructure. Municipal bonds are issued in two varieties, general obligation bonds and revenue bonds.  Depending on the individual investors municipal bonds can be a supplement to investing in stocks or a more primary investment.

Who Buys Municipal Bonds
Everyone can municipal bonds although not everyone does. Municipal bonds are tax exempt from federal income tax and in many cases exempt from state and local taxes.
Investors seeking high yields sometime shy away from municipal bonds. However consider that municipal bonds that yield a 5 percent tax-free return is the equivalent of a 8 or 9 percent taxable return.

Are Municipal Bonds A Safe Investment

Municipal bonds are assessed by credit ratings similar to corporate bonds. Bonds rated ‘BBB’, ‘Baa’ or better are generally considered the safe instrument. As is the case with all investments, the higher the reward, the yield, the higher the risk. Eliminate government entities that are not thriving communities

Are Municipal Bonds Right For You

Generally investing in Municipal bonds is viewed as a conservative investment. Do not consider municipal bonds risk free. Risks in investing in municipal bonds include credit risk and price fluctuations. However a properly balanced portfolio should include a position on bonds, Investments in bonds should be fit your personal investment objectives. Municipal bonds are priced at $5,000 apiece and increase in increments of that same level  Municipal bonds may be purchased directly from the issuer at the date of issue or in the secondary market through a broker/dealer.

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