InvestmentGradeBonds.net

Many people think there is no risk involved in investing in bonds, but that’s just not true. Buying a bond is like making a loan. If you extend the loan to the wrong entity, there is a chance you won’t be paid back. However, it is still considered as a low risk investments.

If you are worried about the safety of your investment, and you should be, then you may want to avoid junk bonds and invest mostly in investment-grade bonds. These are bonds that are issued by companies that are very solid and have very little risk of default, and those that are issued by governments.

When you purchase low-risk bonds, ideally you will want to buy bonds that have a relatively long maturity. Since there is little risk of default, you will make a lot more money on your investment if you choose bonds with longer maturities, because you will get a higher interest rate, and you will have more time to receive those payments.

If you buy a $1,000 20-year bond that yields 6% interest, you would receive $60 per year for 20 years, or $1,200 return on your investment. But if you bought a $1,000 10-year bond that yields only 4% interest, you would receive $40 per year for ten years, for a total of only $400 return on your investment.

So it is doubly beneficial to buy bonds with longer maturities, because you not only receive money for a longer period, but you also get a higher interest rate during that time. It’s not advisable to invest in a lot of long-term junk bonds. When buying junk bonds, you want shorter maturities to minimize your risk. But when buying investment-grade bonds, you can safely buy longer maturity bonds with minimal risk.

Remember, there is always some risk involved when buying bonds.  Although government bonds are considered low risk investments, there is still a slight risk that something could go wrong. If you have to sell early, you aren’t likely to get back your full investment, and you’re only insured up to $100,000 per account.