Buy Bonds and Make Money
Buy Bonds and Make Money
A bond is a debt obligation and is considered borrowing money. You need to repay the money in the bond (also called a loan) to the issuer of the loan. And just like a loan, you pay interest. Most bonds are purchased by lenders. A lender could be you. The issuer could be the federal government.
The reason to buy a bond is to lend money to be able to fund your venture/business. You may have your government sell a bond and use the money to fund government ventures such as building businesses, funding a conference or building street lights. A business may sell you a bond as well to create an investor in their business. The sold bonds represent an interest in the business creating an investor. With so many investors they then have enough capital invested in the business that they can do what they had proposed to do.
Why do companies issue bonds for you to buy?
The bond allows the business or governmental agency obtain more money than a bank may offer a loan. Just like a loan, you will receive periodic payments called interest payments which are paid to the lender. Those payments are considered to be the cost of using the bond money. When all the money is due it is the full amount of the bond or if you will the loan and that date is called the maturity date. A bond is a fixed amount of money. If the holder of the bond that was bought goes bankrupt or loses the money if the money is due then that amount it was sold for is due in its entirety to the lender.
You aren’t stuck with the bond once you buy it
Due to the fact that a bond price may change, you yourself can sell the bond that you bought. However, selling it yourself means unlike the fixed rate bond sold by the government or a business you sell it on the open market where the money’s value actually fluctuates. So if you were to sell your bond on the open market the warning is that you are at the mercy of the market but if you hold the bond until the date its due, you are entitled to the full amount including interest of the bond on the date it is due. It may not be the same as the original amount. It could be more or less depending on the dollar value on Wall Street that date.
There are different types of bonds and these bonds when held until maturity may give you a cash boost that you can definitely use. Those bonds are as follows:
- Treasury bills: short bonds that come due in 13 weeks, 26 weeks and one year.
- Treasury notes: bonds that last from two to ten years.
- Treasury bonds: bonds that come due in ten years.
- Zero-coupon bonds: bonds that come due from six months to 30 years.
- Inflation-interest treasures: Date due depends.
- Mortgage back securities: bond through mortgage lending programs such as Fannie Mae.
- Corporate bonds: bonds that come due in 20 years.
- Municipal bonds: bonds that come due from 30 to 40 years.
It pays both you and the government needed money to accomplish the tasks set out before it in one fiscal year to the next and as such it is a reason to buy a bond.