As you well know, there are different types of bonds out there, but what are the main differences between them? And which ones should you invest in, and which should you avoid? And besides, how do you go about investing in the good ones? Well, here are some answers to these questions, and hopefully, these will tell you more about what bonds to invest in.
First of all, you need to know that there are four basic types of bonds. There are bonds that are issued by the Government, bonds that are issued by corporations, bonds that are issued by state and local governments, and foreign governments.
The United States sells treasury bonds through the treasury department, with the maturity dates ranging from thirty years to three months. These bonds include treasury bills, treasury notes, and actual treasury bonds. All of these are actually backed by the government of the united states, and so they are very sure with a very small to nonexistent level of risk.
Corporate bonds are bonds that are actually sold through public securities markets. A bond like this basically represents debt of the company. These types of bonds are a bit risky, but they have a high interest rate and a good profit margin should the company do well. If the company does not do well, however, then you could end up losing all of your money, with the bond ending up worthless.
Bonds issued by state and/or local governments are risky, even though they are technically government bonds. This is because local governments, unlike the federal government, can go bankrupt. For this reason, the interest on these bonds is usually higher.
Buying foreign bonds is actually very difficult, and is usually not done unless you buy them as part of a mutual fund. These are risky (depending on what country they are from), and some are not considered as safe as those of the United States government.