Corporate bonds are a form of interest-bearing security in much the same way treasury bonds are. Bonds of a corporate nature belong in every investment strategy and are not just for the rich. They are offered by both public as well as private corporations and comprise various risks and return profiles. The risks and returns also have to do with the financial condition of the company that issues them to an investor.
Investing in bonds is a smart and wise investment move if you want to see your money grow. The interest paid out to you will earn interest which will earn yet more interest and on and on it goes. On a long-term basis corporate bonds are an excellent means of building up your savings. However every investment comes with its risks and bonds of this kind are no different. Let us look at some things worth considering before you start purchasing bonds.
Chasing bonds on the open market is not recommended, especially for new investors. Instead what you want to do when it comes to investing corporate bonds is to work with a brokerage firm. You can find one online or deal with one in your city or local area. Look for a firm that can offer to you a broad selection of either controlled bonds or company-owned bonds which can be bought at a net price from the daily generated lists that they have at their disposal.
It is important to deal exclusively with bonds that come from major public companies. Your best bet is to choose those that are listed on the New York Stock Exchange (NYSE).
The bonds you choose should have maturity dates that range from two years to five years. While longer-term bonds have lower interest attached to them, when you choose shorter-term bonds you are better protected from fluctuations that occur as a result of changing interest rates. Another reason that shorter-term bonds are preferable is because when the bonds take a shorter duration of time to mature you save money on a commission because you do not need to market through a stockbroker.
When buying corporate bonds do not invest in corporate bond funds. As long as you choose your bonds with utmost care there is no need to buy a fund. Do not let the brokerage firm you are dealing with talk you into a corporate fund. The reason that brokerage firms prefer bond funds over individual bonds when it comes to your investing in corporate bonds is because the commission they receive for every dollar invested is greater. Buy individual corporate bonds instead.