Investing in Bonds and Bond Funds: How to Earn High Rates of Return Safely
Bonds have long been a stalwart of investment. More than $100 billion was invested in municipal bonds alone in 2006. Now, with the economy a little less certain than it has been in recent decades, the demand for a secure place to invest money has lead to resurgence in interest in the use of bonds for many investors. Because there are many peculiarities in bond investment, you must have a basic understanding of the market, the bond issuer, how to measure rates of return and how to maximize...
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Bonds have long been a stalwart of investment. More than $100 billion was invested in municipal bonds alone in 2006. Now, with the economy a little less certain than it has been in recent decades, the demand for a secure place to invest money has lead to resurgence in interest in the use of bonds for many investors. Because there are many peculiarities in bond investment, you must have a basic understanding of the market, the bond issuer, how to measure rates of return and how to maximize those rates. This book provides anyone who has never invested in bonds before the ideal handbook to start investing in and earning massive returns from bonds. You will learn everything the savvy investor needs to effectively turn a high risk portfolio into a constantly growing, steadily developing source of wealth. You will learn how bonds operate on a very basic level, including the numerous different kinds of bonds and how bond funds can be a highly lucrative option. You will learn the fundamental differences between government, municipal, and corporate bonds and how much of a return you can expect from each.You will learn the basic methods of valuation and yield that bonds are measured by and how you can evaluate bonds with three basic steps. You will be guided through determining the face value, coupon rate, and sale price of a bond, as well as the ratings, insurance, maturity, callability, and taxes that might be associated with it. The importance of interest rates, inflation, and supply and demand in affecting the yield of your bonds will be detailed as well to ensure you make a careful investment. In addition to a comprehensive guide on the many options and methods of investing in bonds, dozens of interviews with financial gurus from around the nation have been conducted to provide critical, real world advice on how to successfully invest your money into bonds. You will be shown the risk free methods by which to invest in bonds, making low interest returns on U.S. government bonds, as well as the higher risk methods that will allow you to make great returns by investing in industrial and corporate bonds. You will learn how to look overseas for even more lucrative options and how to measure the risk of your bonds based on the debt in which you are investing and the callability of any one bond issuer. You will be shown how to effectively balance your portfolio to include bonds without ignoring the necessity and place for other investments. For any investor who has been agonizing over how to safely invest money for a high return, this book is for you, guiding you through the complex, but rewarding, world of bond investments.
Foreword 11Preface 15Introduction 19Section 1 Understanding Bonds 21The Concept of the Bond 23Chapter 1 The History of Bonds and Bond Investing 23United States 24Civil War 25Federal Reserve System 26U.S. Savings Bonds 26Late Twentieth Century 28Chapter 2 Why Bonds? 31Inverse Relationship to the Stock Market 31Lower Volatility 32Steady Source of Income 32Expected Appreciation 33Preservation of Capital 33Terminology 35Chapter 3 The Fundamentals of Bond Investing 35Types of Bonds 40How Are Bonds Issued? 43Bond Credit Ratings 46Calculating Yield 49The Primary Market 61Chapter 4 The Basics of Buying and Selling Bonds 61The Secondary Market 64Chapter 5 Corporate Bonds 67How Are Corporate Bonds Secured? 70Other Types of Corporate Bonds 72Credit Ratings 77Corporate Bonds in Your Portfolio 78Corporate Bonds and Your Taxes 80Chapter 6 U.S. Treasury Securities, Agency Bonds, and U.S. Savings Bonds 81U.S. Treasury Notes and Bonds 82U.S. Treasury Bills 84Strips 85Tips 87U.S. Savings Bonds 89I Bonds 90Series EE Bonds 92Series HH/H Bonds 93U.S. Agency Bonds 95Supranational and International Government Bonds 99Chapter 7 Municipal Bonds 101Tax Advantages 102Categories of Municipal Bonds 104Types of Municipal Bonds 106Who Issues Revenue Bonds? 107Types of Revenue Bonds 110Short-Term Notes 123Pre-Refunded or Escrowed Bonds 125Call Provisions 125Sinking Funds 126Risks Associated with Municipal Bonds 127Insurance 129Municipal Bond Credit Ratings 131Chapter 8 International Bonds 135Additional Risks Associated with International Bonds135Chapter 9 Mortgage-Backed Bonds 139How Mortgage-Backed Bonds Work 140Fannie Mae, Freddie Mac, and Ginnie Mae 142How Mortgage-Backed Bonds Differ from Other Bonds 144Prepayment and Average Life 145Advantages of Mortgage-Backed Bonds 147Disadvantages of Mortgage-Backed Bonds 148Mortgage Bonds and Taxes 150Mortgage-backed Bonds in Your Portfolio 151Chapter 10 Bond Mutual Funds 153How Are Bond Mutual Funds Different from Bonds? 154Benefits of Bond Mutual Funds 154Disadvantages of Bond Mutual Funds 156Unit Investment Trusts 159Closed-End Bond Funds 160Open-end Bond Mutual Funds 164Understanding Bond Mutual Fund Expenses 168Share Classes 170Net Asset Value (NAV) 173Yield and Total Return 174Actively and Passively Managed Bond Funds 176Bond Indexes 179Bond Mutual Funds 180Chapter 11 Exchange Traded Bond Funds 195]What is an Exchange Traded Fund? 195Advantages of Bond ETFs 196Bond ETFs 202Section 2 Creating Your Bond Investment Strategy 209Define Your Financial Goals and Requirements 211Chapter 12 Choosing a Strategy 211Chapter 13 Understanding the Risks of Bond Investing 219Predicting the Future 227Chapter 14 Evaluating a Bond Investment 227Your Taxes 231Chapter 15 Doing the Research 241Where to Find Information 242Government Agencies 242Professional Associations 244Brokerage and Financial Sites 246Prospectuses and Sales Literature 248Planning Your Strategy 251Chapter 16 Building Your Bond Portfolio 251Rebalance Your Portfolio Regularly 256Protecting Yourself from Risk 257Bond Strategies 259Retirement 263Chapter 17 Bonds as a Source of Steady Income 263Building a Fixed-Income Portfolio 264Chapter 18 Bonds as Savings 269Saving for Education 270Education Savings Bond Program 277Tax-Free and Tax-Deferred Retirement Savings Accounts 279401 (k)s, Solo 401(k)s, and Roth 401(k)s 280IRAs and Roth IRAs 281Taxable and Tax-advantaged Accounts 283Bonds and Estate Planning 284Choosing a Brokerage 287Chapter 19 Buying and Selling Bonds 287Buying Bonds 290]Making the Most of Your Bond Portfolio 291]When to Sell Your Bonds 293Active Trading with Bond Funds and Bond ETFs 295Chapter 20 What Is on the Horizon 291New Investment Offerings 298Globalization 298Increased Transparency and Regulation 299More Participation by Individual Investors 301New Methods of Bond Trading 302Demographic Changes 303New Technologies 305Passage of Time 306Keeping Informed 307Appendix A Glossary 309Web sites 329Bibliography 329Biography 333Index 335
