Did you know the global bond market is worth $128.3 trillion? That’s an unfathomable number of investments from personal, business, and government alike. But what exactly are bonds?
Bonds are a great way for investors to diversify their portfolios. Investors can do so by investing in businesses and other monetary funds.
They offer the potential for higher returns than stocks. That said, they also come with some risks that can be difficult to predict and manage.
That’s why it pays to know the different types of bonds to invest in right now. Here is our list:
Short-Term Treasury Bonds
These government bonds track the performance of short-term U.S. government debt securities. It offers an attractive yield with low volatility compared to other fixed investments.
The best part? You don’t have to worry about managing your portfolio’s duration risk.
That’s because this type of bond fund adjusts its exposure to interest rate changes by itself. It does this as rates rise and fall.
The downside is that these bonds are more volatile than longer-term bonds. That’s because they follow treasury yields. That means if rates go up, so does the value of your investment.
Intermediate-Term Corporate Bonds
These bonds are company bonds rather than governments. Some examples of companies include General Motors or Procter & Gamble. Because these bonds tend to mature over longer periods, they pay lower yields.
The difference between stocks and bonds is these provide better growth prospects. That’s because corporations reinvest most of their earnings into growing businesses. In stocks and shares, investors prefer to have dividends.
Long Term Municipal Bonds
Unlike corporate bonds backed by the issuing company, municipal bonds don’t have guarantees. Instead, local governments issue them to raise money through taxes.
They aren’t considered one of the safest asset classes. But they do offer more stability than many other investment options. That’s because municipal bond yields tend to be lower and less volatile.
Municipals can also provide a steady income stream that is tax-free if you live outside their jurisdiction. Plus, there are no transaction costs associated with buying these investments. You need to find an issuer willing to sell its bonds at a discount.
Different Types of Bonds to Invest In
There are other types of bonds available on the market today. Here are some examples:
- Convertible Bonds
- Preferred Shares
- Real Estate Securities
- Collateralized Loans
- Emerging Markets
Each of these different types of bonds comes with unique benefits and drawbacks. For example, RMBS may give you access to high-yielding loans. Yet, CLO can help protect against rising interest rates.
Learn more here about other types of bonds that are worth your investment.
Bonds Diversify Your Portfolio
Suppose you’re looking for ways to add value to your portfolio without taking on too much risk. Consider looking at the different kinds of bonds to invest in we’ve mentioned above.
Soon enough, you’ll learn that the best types of bonds allow a diverse portfolio. What’s more, you can earn a passive income with minimal effort!
These three main types of investment will help you achieve your financial goals in no time!