9 Keys to Investing in bonds

The bonds can help you balance your investment portfolio, especially in times of market volatility. The benefits of this investment are varied enough to be considered as a good option to ensure an improvement in the way of your finances.

On the one hand, the bonds can complement investments in the stock market because they have a different behavior in market movements. Furthermore, investments in bonds are generally less volatile than the stock market but have a lower rate of profit. Finally, interest payments are regular and thus can ensure extra income.

Good to know well how this financial instrument works and know all the keys to investing optimally. This is what I will explain below:

1. When you buy a bond, you are giving a loan to the issuer. It can be a company or government, agrees to repay the loan with interest, within a specified period of time.

2. Bonds pay interest at a rate set by the issuer. Typically, the issuer agrees to pay interest at regular intervals, ie, quarterly or semiannually. The bond yield, which is the amount of money the investor receives for it, is calculated by dividing the annual amount won on price.

3. Consider that the bond price can fluctuate, which can affect performance, although the percentage gain is the same.

4. Investments can also diversify from bonds, as there are several types of different risk factors. Generally, high risks are what give better returns.

5. Risk factors for this type of investment are: maturity of the bond, this bond will be subject to fluctuations in interest; credit risk, the issuer may fail to pay interest; inflation risk, as with any investment, inflation can affect bond yields.

6. Before the bond reaches maturity, you can sell or buy on the market. If changes hands prior to maturity, the price may fluctuate and that depends on the interest at that time.

7. The interest paid by bonds may be fixed or variable (linked to an index like the DTF, LIBOR, etc.). The time period for payment is different. They can be paid monthly, quarterly, semiannually or annually. These are the most common forms of payment.

8. The price paid for a bond is based on a set of variables, including interest rates, supply, and demand, credit quality, maturity and fees.

9. Newly issued bonds are traded in the primary market and usually traded at a price close to its face value (which came on the market). The bonds in the secondary market fluctuate.