What are They?

A bond is a contract to load an amount of money for a percentage return. The loan is paid back with interest after the agreed term.

Choosing a Bond Criteria

Criteria for choosing a bond:

• ** Credit Worthiness
• Yield

Determining Credit Worthiness

You can determine the company's credit worthiness by checking their credit rating. You can query various rating agencies to determine worthiness.

Bond Rating Agencies

• Moody's
• Standard and Poor's
• Fitch

Choose a bond who's rating is BBB and up.

Buying Bonds

You can buy bonds either by buying:

• bond funds
  • multiple bonds in a fund
  • safety in numbers
• individual bonds
  • admin fee
  • minimum $ requirement

Bond Prices vs Interest Rates

Example

• Company A
  • $1000
  • 2 Year Maturity
  • yield - 10%/year
  • paid semi annually

So, say in 12 months, the interest rate goes up and now the bond pays 15%.

If you go to sell your bond before maturity, then you obviously can't sell it for the same value because the yield is now 15% not 10%.

References