Top Five Types of Bonds

February 7, 2016 - mediadealer - Business - 2,094 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)