Investing in Bonds
As an investor, you may have heard that bonds are a safe place to put your money, even if you aren’t entirely sure what a bond is. A bond is a form of debt, but you serve as the bank. You loan money to a company or a public entity, such as a city or the government, and the borrower promises to pay you back in full, plus interest. A city might sell a bond to raise money to fix roads, or the federal government might do the same to finance debts.
The Advantages of Investing in Bonds
Bonds are generally perceived as a safe source of steady income, as opposed to the fluctuating stock market. But not all bonds are created equally. Some are considered to be very safe, while others can be extremely risky. Depending on your risk tolerance as an investor, you may be more willing to invest in bonds depending on your age and goals.
The Disadvantages of Investing in Bonds
Bonds are not always a sure thing, and many come with greater risks. Higher-risk bonds usually come with higher interest payments to compensate you for the greater risk that you are taking. The risk of bonds often is based on the “creditworthiness” of the borrower, i.e., the bond issuer, which means the likelihood that the borrower will be able to make the interest payments to you and repay the principal that you have loaned to the borrower. This is why bonds with the highest risks are known as “high yield” or even “junk” bonds. On the other end of the investment spectrum are “investment-grade” bonds, known for their relative safety.
Call a Los Angeles Stock Attorney Today
If you have had a problem collecting payment on a bond or believe you have been deceived regarding the creditworthiness of a bond issuer, contact a Los Angeles bond and stock attorney today for a consultation to discuss your legal rights.