Download All About Bonds and Bond Mutual Funds: The Easy Way to Get by Esme Faerber PDF

By Esme Faerber

The typical source of revenue investor does not wish or have to get slowed down in technical discussions of rates of interest and time. So All approximately Bonds and Bond Mutual money supplies them what they want­­a uncomplicated but complete therapy of bonds and bond cash. in addition to up to date bond details, this revised variation additionally contains new fabric on: * Bond mutual money * Tax-free municipal bonds * foreign bonds and bond cash

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For example, instead of investing everything in savings accounts currently yielding around 2 percent, some money can be invested in 3-month Treasury bills or money CHAPTER 2 36 market mutual funds, both of which are yielding around 5 percent. S. Treasury bills or money market mutual funds, which still fall within acceptable risk levels, enhances the overall value for the investor. 00) for each $1000 of principal invested. The optimal approach is to ladder your investments in terms of yields and maturities.

The coupon rate. ■ Frequency of interest payments (annual or semiannual). ■ Maturity date. ■ Call provision, if any. This provision allows the issuer of the bonds to call them in and repay them before maturity. ■ Refunding provision, if any. This provision allows the issuer to obtain the proceeds with which to repay the bondholders when the issue matures by issuing new securities. ■ Sinking fund provision, if any. This provision offers bondholders greater security in that the issuer sets aside earnings to retire the issue.

To get higher returns, you have to accept greater risk. As was pointed out earlier, extending the maturities on your investments without regard for your financial needs can result in a loss in principal due to interest rate risk. The other extreme is just as bad: investing every cent of one’s savings in short-term bank accounts and money market funds. This approach ensures the safety of principal but produces low yields. Currently, the spread between short- and long-term interest rates is low, less than 1 percent between 30-year Treasury bonds and 3-month Treasury bills (Table 2-2).

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