Investing In Bonds
For years, investors were told that stocks were the best vehicle for long-term savings, and that sentiment persists today even in the wake of two market crashes thus far in the millennium. But those who downplay the role of bonds may be missing out on significant opportunities. In fact, bonds are as important today as ever.
While most investments provide some form of income, bonds tend to offer the highest and most reliable streams of income. Even at times when prevailing rates are low, there are still plenty of options, such as high-yield or property bonds, that investors can use to construct a portfolio that will meet their income needs. ProInvest look at multiple bond opportunities and only choose the best for our clients. We have bonds available for various durations, from 1 to 10 years, each with a number of benefits and payout options.
Types Of Bonds
While stocks can experience huge volatility in a short period – such as the financial crisis of 2008 – a diversified bond portfolio is much less likely to suffer large losses in a short period. The type of bonds ProInvest Solutions offers can be devided into five categories each with their own strengths and weaknesses:
Asset-backed securities, called ABS, are bonds or notes backed by financial assets. Typically these assets consist of receivables other than mortgage loans, such as credit card receivables, auto loans, manufactured-housing contracts and home-equity loans. ABS differ from most other kinds of bonds in that their creditworthiness (which is at the triple-A level for more than 90% of outstanding issues) derives from sources other than the paying ability of the originator of the underlying assets.
Mortgage-backed securities, called MBS, are bonds secured by home and other real estate loans. Unlike a traditional fixed-income bond, most MBS bondholders receive monthly—not semiannual— interest payments. There's a good reason for this. Homeowners (whose mortgages make up the underlying collateral for the MBS) pay their mortgages monthly, not twice a year. These mortgage payments are what ultimately find their way to MBS investors.
Corporate bonds are simply bonds that are issued by corporations to fund their operations. A company that wants to raise cash can either sell a share of itself by issuing stock, or it can take on debt by issuing bonds. Investors purchase corporate bonds because they typically offer higher yields than are available in government issued bonds. Corporate bonds in general have experienced a very low incidence of default over time. Higher-rated bonds, in particular, have a very low chance of default.
When you buy a Government bond, you are, in essence lending money to the Government that has issued that bond. In return for that loan, the Government provides you with a bond and promises to repay the value of the bond when it matures, along with a specified rate of interest on the money you have invested.
Emerging Market Bonds
EMBs refer to bonds issued by governments and companies in developing markets. Often they offer very attractive yields, but do pose special risks such as political/institutional instability and currency fluctuations. Their yields higher in general due to the higher risk involved.