The greatest thing about bonds is that you will get your initial
investment back. This makes bonds the perfect investment vehicle for
those who are new to investing, or for those who have a low risk
tolerance.
The United States Government sells Treasury
Bonds through the
Treasury Department. You can purchase Treasury Bonds with maturity
dates ranging from three months to thirty years.
Treasury bonds include Treasury Notes
(T-Notes), Treasury
Bills (T-Bills), and Treasury Bonds. All Treasury bonds are backed by
the United States Government, and tax is only charged on the interest
that the bonds earn.
Corporate bonds are sold through public
securities markets. A
corporate bond is essentially a company selling its debt. Corporate
bonds usually have high interest rates, but they are a bit risky. If
the company goes belly-up, the bond is worthless.
State and local Governments also sell bonds.
Unlike bonds
issued by the federal government, these bonds usually have higher
interest rates. This is because State and Local Governments can indeed
go bankrupt - unlike the federal government.
State and Local Government bonds are free
from income taxes -
even on the interest. State and local taxes may also be waived.
Tax-free Municipal Bonds are common State and Local Government Bonds.
Purchasing foreign bonds is actually very
difficult, and is
often done as part of a mutual fund. It is often very risky to invest
in foreign countries. The safest type of bond to buy is one that is
issued by the US Government.
The interest may be a bit lower, but again,
there is little
or no risk involved. For best results, when a bond reaches maturity,
reinvest it into another bond.
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