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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