Why Seniors Should Take Advantage of Bond Investing
Bond investing is a unique way to gain capital, especially for seniors. Essentially, bonds are a loan you give to companies and governments. After a certain period of time, that money is paid back to you along with accumulated interest. This low-risk investment is something worth looking into if you’re a senior wanting to earn money towards your future. There are different types of bonds to invest in, which you can learn more about by searching online.
Seniors can feel more comfortable investing in bonds compared to more volatile types of assets. Bonds can also offer important diversification and give your retirement investments more balance. Search online to find out about how bonds can benefit your portfolio.
Here’s why seniors should take advantage of bond investing.
Bonds Don’t Require High Investments
You don’t have to spend a ton of money to invest in bonds. In fact, you or someone you know may have encountered a bond investment as low as $50. This might be the case if you have given or received a bond as a birthday present to a kid.
For a small amount of money, you can invest in a bond that’ll grow over a period of years. In 10 or 20 years, your bond could accumulate a wealth of earnings via interest.
Keep in mind there are transaction costs you might encounter when buying a bond. However little you decide to put into a bond, there is a chance for it to grow. It’s important to know the low risk of bonds means there will be a lower reward compared to if you invested in stocks. But anything higher than your principal investment is a gain.
Some Bonds Can Be Redeemed Anytime
There are different types of bonds. Some of them can be redeemed for cash at any time. If your bond is freely-callable, then you can redeem its value whenever you want. But deciding to redeem before saving bonds before a certain time frame means you might not receive the full cash value of the bond. There is reason to hold out and wait to redeem your investment until it matures.
CNN Money reports you could end up with a five to six percent return on a long term government bond. Having a longer bond term can result in a higher interest rate, giving you a better return. The good news is the Bloomberg Barclays Aggregate Bond Index has been up in almost every year since 1976, which includes many periods of rising interest rates. This means your bonds are likely to see interest that increases over time.
You Can Get the Principal Amount Back
While stocks and mutual funds are more vulnerable to big jumps and falls in the market, bonds are a lot more stable. You’re likely to get your principal amount — plus the interest payments — back on individual bonds by holding them to maturity.
One way your bond can potentially lose money is if there are rising interest rates, which causes the price of bonds to fall. This isn’t a good scenario for fixed-income investments. Investors could then pull their money out of the fund and be forced to sell their bonds at a lower price, leaving you with a lower return.
You can avoid this by purchasing bonds at different maturities — also known as a laddered portfolio. For retirees, this is an excellent strategy. It allows you to reinvest a matured bond with a similar maturity to capture the higher yield if interest rates are rising. Not only does it provide a steady income, but it also further stabilizes an already pretty safe investment.
Bonds Diversify Your Portfolio
Diversifying your portfolio is a smart investment strategy. By allocating your money into different components, you’ll reduce the risk of volatility. If one of your investments dips in value, you can feel better by having other assets to back it up.
Most bonds provide regular interest income and are less likely to lose money than stocks are. They’re a good cushion to have, especially if your other investments are more vulnerable. Of course, bonds are still an investment. There are different types of bonds that pose risk, which is why it’s important to research the best ones for you.
Learn More About Bond Investing Online
Bonds are an excellent way for seniors to diversify and stabilize their investment portfolios. It’s a low-risk method of earning money over time, and worth looking into if you’re determined not to lose your principal investment.
Consider investing in multiple bonds with different maturities to broaden your portfolio. To start investing in bonds, start a search online. You’ll be able to learn more about how they can help you financially and the different types of bonds that are available to invest in.