Why Invest In Bonds?
Investors choose bonds for several reasons, including their ability to help manage risk in a portfolio, provide a predictable stream of income, and preserve capital.
Diversify Your Portfolio
Bonds are generally a less risky investment than stocks so adding them to a portfolio that contains stocks can help lower the portfolio’s overall risk.
Bonds typically pay a specified rate of interest on a set schedule, making them a good choice for investors who want a predictable stream of income. Individual bonds usually pay interest twice a year while bond funds usually pass along interest to investors every month. Keep in mind that the amount of interest from a bond fund will fluctuate from month to month as the fund’s holdings change.
If you hold an individual bond until maturity, you will be paid the bond’s face value, barring a default. This feature makes individual bonds attractive to investors seeking to preserve capital they invest. Bond funds, however, generally do not have a maturity date. A bond fund’s share price will fluctuate over time, and the amount you receive when you sell your shares may be higher or lower than the price you paid for them.
Tax-Exempt Income From Certain Bonds
The interest from U.S. Treasury securities and tax-exempt municipal bonds receive preferential tax treatments as long as the bonds are held in a taxable account. With U.S. Treasuries, the interest payments are exempt from state and local taxes. With tax-exempt municipal bonds, the interest payments are exempt from federal income tax and may also be exempt from state and local taxes if the bonds were issues in your state. Tax-exempt interest payments make municipal bonds especially attractive to high-income individuals who stand to benefit the most from the tax exemption.
Please talk to us for more specific advice about investing and what makes sense for you and your situation. With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. Our approach is to provide clarity and calm amidst the chaos. Where there is uncertainty we look for facts. We call our approach evidence-based investing. Call us today at 877-974-5341 to schedule a strategy session and begin building your road map to financial success.
Article published in January 2021 edition of Eye on Money. If you would like to be added to our mail list please email email@example.com.