Buying Bonds: Tips For Your Success When Buying Bonds
Stock market veteran André Kostolany already knew: “If you want to eat well, buy stocks. But if you want to rest your nerves, invest in bonds.” What you should consider when buying fixed-income securities and how you can use bonds cleverly for your investment success.
What Makes Bonds Special
André Kostolany was right: unlike equity investors, bond buyers can usually sit back, relax and enjoy their interest payments. But what characterizes a bond?
Bonds are debt securities. Some also speak of interest-bearing securities or bonds. Don’t let the variety of terms confuse you. The important thing is how the paper works: When you buy a bond, you give the issuer of the bond a loan. In return, you receive interest and, if everything goes well, your capital back at the end of the term (redemption). Depending on who issued the promissory note, one speaks of a government bond or a corporate bond. And depending on the issuer’s ability to pay (creditworthiness), there are secure bonds, bonds for opportunity-oriented investors, and even highly speculative bonds that promise the investor equally high returns.
Incidentally, you do not necessarily have to take care of the selection of suitable pensions yourself. When you buy a bond fund, you delegate the selection of your bonds to a fund manager. Advantage: With a bond or pension fund, you invest in many bonds with one security, thereby eliminating the individual value risk and reducing your investment risk.
The Same Applies To Bonds: The Profit Lies In The Purchase
Regardless of whether you, as a fund saver, rely on bond funds or buy individual bonds yourself: The tried-and-tested business rule applies to bonds in particular: “The profit lies in the purchase.” Since the return is usually lower compared to equity investments, you should pay even more attention to your transaction and Pay attention to order costs. So when buying premium bonds, make sure to look at the costs of your order, the fees involved such as the trading fees and others.
For Whom Is The Bonds Purchase Suitable?
In principle, a bond is a very safe investment. Price changes are usually much more moderate than for stocks. One reason why conservative investors in particular often buy bonds. Unlike fixed-income securities, investors can also part with a bond before maturity/end of term by simply selling the bond on the stock exchange. Bonds from reputable debtors, in particular, can therefore be a good alternative to fixed-term deposits. In the case of speculative bonds with higher yields, which are issued by borrowers with a lower credit rating, however, opportunity-oriented investors also get their money’s worth.
Government Bonds or Corporate Bonds?
It is precisely here, when choosing the debtor (also known as the issuer), that things get exciting. For example, if you lend your capital to a solvent country like the Federal Republic of Austria, you will usually get rather low-interest rates. Federal bonds, as Austrian government bonds are called, are therefore particularly suitable for security-oriented investors or people who want to park money in the short term.
The broad field of corporate bonds is much more profitable. Depending on the creditworthiness of the company, the so-called “corporate bonds” offer returns that can be many times that of a federal bond with manageable risk. But as a bond buyer, how do you assess the opportunities and risks of a corporate bond?
Read also: What Is Operational External Financing? How Will Your Business Benefit?
Assess Fixed-Income Securities With Confidence
Bonds are easier to understand than layman thinks. Even basic key figures allow you a confident insight into the opportunities and risks of the bond. Below you will find an overview of the most important key figures that you should study before buying a bond.