Bonds are one of the safest methods to invest money. Still, they come with their cons, which have to be handled smartly. For that reason, you should know about the troubles and convenience you get after buying a new government or corporate bond.
The benefits of bond investing
Unlike any other investment, scheme bonds carry little to no risk as the promissory note is signed by the government. However, in case of the bond defaults, you lose your entire investment. Nonetheless, the chances of a mishap are as low as negligible, and people who are not confident about their risk-taking abilities are in great profit.
You help the country
Apart from playing it safe, you also get a chance to give something back to the community. Again, investment in treasury bonds is more or less the same feeling when you invest your money to fund a project most vital for your country’s growth. Meanwhile, investment in corporate bonds is no different for you are funding a product you believe in. Thus, investment in bonds is a mature way of serving your people.
You safeguard your financial standpoint
Bonds provide confirmed stability to your income stream. It happens because you are bound to get interesting payments twice every year. Not only it makes budgeting easy but also allows creating a long term plan for achieving your monetary goals.
They are easily manageable
In case you do not partner with a financial advisor then rolling in the stock market can be a risky venture. You will never know what to buy, what to sell what to hoard? However, you can invest in a bond without a professional’s guidance. Buy the bonds you like and forget about them till they mature. It is easier as you do not need to pay someone for keeping track of your investment’s performance.
The drawbacks of bond investing
Risk still stays
As stated above, bonds do carry a slight amount of risk in case the issuer defaults on its promise. Either you will lose the principal investment or won’t gain interest at all; both are also possible. You lose a fair amount of interest if other platforms are paying higher interests to investors. Finally, if the interest rate is not inflation compatible, then you will lose money.
You don’t earn much
It’s a no brainer; low risk equals to low profit. With bonds, you will feel safe and steady but won’t be making much money. In comparison to stocks, the growth in bonds is sluggish and uninspiring. Since 1926, government bonds have earned five to six percent of annual returns, whereas stocks have provided ten percent returns.
Your money gets stuck
Normally, bonds are long term investments, and your money gets stranded with nothing much to do. Also, you are not able to use that in emergencies like a savings account. Thus, you have to wait until the bond gets matured to get your money back. You should invest in amounts without which your life will be no different.