A bond is a financial instrument where you can invest money and receive a return in the form of cash. The market value of a bond depends on the state of the economy and the business of the company that issued it. Bondholders receive their principal back on a set date known as the maturity date. After this date, they do not receive any more interest payments. This interest is known as the yield to maturity and is calculated as a percentage of the bond’s value.
Another form of bond investment is TIPS, which is an inflation-indexed bond. Earlier known as Treasury Inflation-Protected Securities, TIPS bonds are tied to the Consumer Price Index. They are designed as a defensive measure against inflation, which erodes the real yield on conventional bonds. Inflation-indexed bonds can benefit from falling yields of traditional Treasuries.
If you are considering investing in bonds, you should evaluate your risk tolerance. There are a number of factors that you should consider, including the interest rate, duration, and type of bond. Remember that a bond can be beneficial or disastrous for you, depending on your situation and goals. Consider talking with a financial planner or financial advisor to determine the best option for you.
Another factor that affects the yield on a bond is the price paid. In order to maximize the yield, you should shop around for the lowest price. Although this may be difficult to do, it will allow you to get more return on your bond without taking the risk of investing more money than you’re willing to lose. When buying bonds, you should also consider the financial viability of the company that issued them.
