THE PROSPECT of building an investment portfolio can be very intimidating, especially when money is tight! However, don’t let anything deter you; even when you have a lot of debt, you should still put aside a little to build your portfolio. Start small, save 10 per cent every month, and if you can’t manage that, then just do what you can handle. Open a US dollar savings account and convert your savings to US dollars. After it has grown a little bit, look out for investment options with small minimums, such as stocks, then work your way up to bonds.
A bond is a way for a company, a country or an entity to borrow money. It really is no different from a loan, but in the case of bonds, many small investors and institutions lend to the company, country or entity. The difference between this and Yanique Leiba-Ebanks a loan is that if a company went to the bank, it would be attempting to borrow all the funds from one bank, whereas the risk is spread across different investors (people lending the money to these companies).
Investors like bonds because they know exactly
how much they are going to earn. At the start, you are told what interest rate is paid (the coupon), and you know what price (per 100) you will pay for the bond. Your investment adviser will give you the schedule of your interest payments. Most bonds pay twice a year, and when it matures you get back your principal. If you love having lots of choices, you will enjoy investing in bonds. You can invest in bonds issued all over the world, in different currencies, in different maturities, different interest rates, different payment dates, some even pay back some of the principal (your original investment) before the maturity date. There are literally thousands of choices and, currently, the US bond market is 1.5 times bigger than the US stock market.
Buying a bond directly will give you a higher interest than a bank account or similar investment, and will exceed the interest rate on a bond fund, too. The only difference is that you may not be very diversified and will be taking on the direct risk of holding a bond.
However, if you choose wisely, you would invest in a very liquid bond, which means that you can sell it easily if you need the money, and the price will not change as dramatically (less volatile) as stocks. It is an easy way to grow your money and supplement your income with a high degree of predictability.
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