Financial Advice for All Life's Creeks

Month: August 2020

Bond Investment Basics: Mortgage-Backed Bonds

Investing for the future is important for anyone. Whether your financial goal is to eventually retire, purchase a home, or to simply improve your financial position, considering all of your investment options is very important. One form of investment that you should consider are mortgage backed bonds.  
A mortgage backed bond is a unique form of investment that provides many advantages to investors. A mortgage backed bond is formed when a mortgage lender originates many different mortgages to people all over the country. They then are able to package these mortgages together and sell the loans back to a pool of investors.  
When you buy into one of these bonds, you are essentially buying a share of a pool of these mortgages. Investors are able to choose between a variety of different structures and pools of these bonds. The pools are structured based on the typical credit profile of the underlying mortgage. 
The mortgage-backed bonds provide a variety of unique advantages to investors. One of the advantages of these bonds is that it provides a rather low-risk investment option. While there were challenges with these bonds in the past, the nationwide mortgage default rate is rather low today. Plus, your investment is allocated across hundreds or thousands of loans, which diversifies your investment and offers an attractive risk profile. 
Another advantage of mortgage-backed bonds is that they offer a good investment return. Compared to other forms of bonds, the rates on a mortgage-backed security is higher and more attractive. This can make it a good addition to any investment portfolio. 

Bond Investment Basics: Foreign/International Bonds

Bonds and the yields that an investor gets from them are impacted by risk factors associated with those bonds. This is why the savviest investors look to foreign bonds as part of their portfolio. The foreign bonds allow them to diversify their portfolio and make the greatest return while at the same time minimizing the risk associated.  
International bonds come from companies overseas that need to raise money for some reason. Most companies in the world find themselves in need of capital at some point, and plenty of them turn to the public markets to get the capital they require. The fact that US investors might decide to buy some foreign bonds just make sense.  
Right now, the rates that one can get from US Treasury Bonds is not all that impressive. There are a lot of better rates out in the world of foreign bonds. The world is currently very unstable with a lot going on all at the same time. It is pretty advisable to try to grab some investments that can pay out some guaranteed rates during these questioning times. Bonds from overseas can be the perfect solution to the problem.  
The best thing to do at any time with a portfolio is to keep it diversified. This allows it to withstand the ups and downs of any market condition. The most successful investors have always spread their money out throughout the world. Bonds from another country are a key element to making it happen for the average US investor. 

Bond Investment Basics: High-Yield Corporate “Junk” Bonds

Michael Milken, known as the “Junk Bond King”, did some serious damage to the reputation of high-yield corporate bonds as an asset class. The investing public saw the collapse of a star like that as a sign that they should steer clear of this asset class entirely. While it is absolutely the case that no one should invest in high yield corporate bonds without excellent knowledge of what they are doing, it is not fair to say that they must always be avoided under all circumstances. That is just not accurate.  
Higher yield bonds pay a larger percentage rate in interest because they have a higher default rate than the average bond. In other words, they are higher risk but also higher reward. This is how investing works across the board. The individual who puts his or her money into high-yield corporate bonds is taking a chance on a company that has a spotty credit record from the past.  
Keep in mind the fact that a company offering a high-yield bond is not necessarily a company that is being poorly managed. Virtually all companies run into some financial difficulties at some point in time. A company issuing a high-yield bond may simply need to raise cash during a particularly difficult point in the cycle of the business. In that event, it is offering investors the opportunity of their lifetime to make some serious returns on their money.  
Every single person who invests in any asset should do their proper research and perhaps even consult with a financial adviser before making any moves. 

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