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Top Five Types of Bonds

February 7, 2016 - mediadealer - Business - 461 views




Adding a mix of bonds to your portfolio is a smart way to develop the fixed income securities portion of your portfolio. There are five different types of bonds to consider when purchasing fixed income securities:

Types of bonds Pros Cons

Government bonds

  • Safe option since you are purchasing a portion of the country’s debt.
  • Three options with maturity dates ranging from one to ten years (bills, notes, and bonds).
  • Low yields compared to other options.

Foreign government bonds

  • Good way to diversify if you already hold U.S. bonds.
  • Safe investments as long as you choose bonds issued by stable countries.
  • There are risks with developing countries since countries can default on payments.

Municipal bonds

  • The yields are fairly low due to the tax advantages offered.
  • It is possible for a city to go bankrupt.

Corporate bonds

  • No federal taxes on profits.
  • Some cities do not tax returns for residents.
  • Higher yields.
  • Possibility to find bonds with maturity dates ranging from five to twelve years.
  • Low risks if the company has a good credit rating.
  • Payouts are fairly low if a company has a good credit rating.
  • Higher risks than other types of bonds since companies often go bankrupt.

Zero coupon bonds (corporate or municipal)

  • Sold at a discounted par value.
  • Can be redeemed for a much higher value on the maturity date.

• No regular payouts like with other types of bonds.


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