Many people today are turning to investment grade corporate bonds to help grow their money. Before investing in anything, there are a few things to keep in mind.
Understanding what you are investing in is important, especially if you really can not afford to lose your principal investment.
Types of Bonds
There are a few different types of investment grade corporate bonds available. For example, say a corporation wants to expand, but they do not want to go to a bank they can sell bonds to their investors to raise equity for expansion. They usually will offer a fixed rate for interest. These type of bonds are less risky than when you are buying bonds to cover a companies debts for money that cannot raise in any other way. The pay off for the higher risk, you got it, higher yields.
There are convertible bonds that can be converted to stock in the company. There are investment grade corporate bond vehicles that pay interest out yearly or even quarterly, while there are some that pay no interest until they mature at which point you collect your principal and interest. A good rule of thumb is to pick a investment grad corporate bond that matches your goals.
The Grading System
Of course all of this involves that faith that the investors have in the company that they are purchasing the bonds from. There is a grading system in place that is published by Standard and Poor’s Rating Services and other rating services that offer several ratings too show the likelihood that a company will pay interest payments and will be able to successfully repay their investors.