Bonds are considered to be a type of loan or a debt security, much like an I.O.U, that is lent to a corporation, federal agency or another entity also known as the "issuer". Bonds are used to raise money from investors for a certain period of time. When you buy bonds, the issuer guarantees to pay a stated interest rate for the life of the bonds and to pay back the principal of the bonds when it comes due after a certain amount of time. Investors may buy bonds to give a company an income that is predictable and help balance exposure to volatile stocks. Bonds can also be issued to help finance debt and further assist with operating cash for a company.
There are many types of bonds to consider when you are trying to find what is best for your investment needs. These types of bonds are U.S Treasury bonds, Municipal bonds, Corporate bonds, and High yield bonds. The interest from some types of bonds can be exempt from federal income tax and also from state and local taxes depending on where the bonds have been issued. As in all investments, bonds do have some risks associated with them. These risks could include a credit risk,interest rate risk, inflation risk, liquidity risk, and a call risk. Bonds are usually used by investors who want to offset some of the risks in their own portfolio. Bonds remain fairly stable, in the long run, compared to stocks and by owning bonds you have the ability to lessen some of the risk by having a steady income that bonds can bring to your portfolio. You will want to contact United Retirement Advisors Group to help you decide what is best for your retirement needs.