Bonds?

[swaymonae]

Can someone explain to me what they are, and the pro's and cons please?

[sweeps]

A bond is a promise from a government organization or company that if you give them money now, they will pay it back later with interest. Note there are all kinds of bonds with all kinds of features, so I'm only speaking in general:

Government bonds are usually considered pretty "safe" because rarely do government entities go bankrupt. Company bonds are usually considered safer than company stocks because (a) bondholders get claims to assets before stockholders do if a company goes bankrupt and (b) companies don't want to default on their loans because it makes it very difficult for them to get future loans.

On the other hand, your reward is typically lower than if you hold a share of stock because it's predetermined how much money you're going to make on a bond. When you hold stock, the sky is the limit.

[swaymonae]

Where do you acquire gov't bonds?
Is it like a CD in the sense that it's unavailable for a certain amount of time?
What are the interest rates like?
Are there usually minimums?

[financialnut]

You are locked for a certain period of time usually. Because if you think about it, you're saying to the government or a company that needs your money right now, "Hey- I've got $10,000 right now. You can use it for the next 3 years, and all I want is 4% of it back, plus the initial loan."

So- in other words, you're allowing them to use your 10k for 3 years, as long as you get $1,200 back when the note comes due.

That's the way I understand it anyway.

I don't think you'll ever get much over 4%.

Anyway- just some thoughts. That's what I understand about bonds at this point. The bonds I purchase are through Fidelity, which is the investment group I've been using for awhile now.

[sweeps]

Federal bonds can be bought online at treasurydirect.gov. State and local government bonds and company bonds are typically bought through a broker.

Yes, you can think of it as your principal is not available until the bond matures. However, there is a market for bonds, so you can usually sell your bond at any time to someone else. The market price fluctuates so you may sell at either a discount or a premium.

Interest rates are all over the map depending on the type of bond. Short-term federal bonds which are considered ultra-safe don't pay much. High-yield company bonds ("junk bonds") pay a lot more but are a lot riskier.

Yes, there is typically a minimum purchase. $1,000 or $10,000 for example.

[financialnut]

Great information, Sweeps. Thanks for clarifying. I didn't know you could buy them at that location. You learn something new everyday!

By the way (and I know this is off-topic), but where do you edit your signature? I can't manage to find it anywhere!

[Phatphoeater]

Another consideration before investing your money in anything that isn't FDIC insured is you should understand what you're putting your money into. I see you are doing due diligence. If you haven't read up on basic personal finance there are some great resources. They will answer alot of these questions and guide you through making important decisions.

The Bogleheads wiki is a wealth of information - Category:Investing - Bogleheads

I'm also trying to dig up a personal finance blog that is basically a condensed book on getting started for retirement saving.

edit: found it - Investment Guide

[swaymonae]

By the way (and I know this is off-topic), but where do you edit your signature? I can't manage to find it anywhere!

Quick links at the top right of the page, in the "blue bar", next to "log out"

[swaymonae]

Thanks all, this is very helpful info!