With all the talks about saving the financial sector of Wall Street, people are wondering where to put there money for the time being while the markets stabilize. Typically when the market go through this kind of turmoil, the safest place would most likely be in bonds. Of course with the bailout plan this could cause the bonds to drop in price. You need to know the difference between one bond from another.
In laymen terms, a bond is a loan, not a loan for you, but one for you to be the lender. You lend money to either a government, a governmental agency or a corporation. In return the entities plan to pay you back the money with interest. The loan is paid back to you in installments, also known as the yield.
Bonds are usually bought in increments of $1000. Recently Treasury bonds were offering a yield of 3.85%, do if you were to buy a 10 year bond for $2000, the U.S. government would pay you back the $2000 in 10 years. During those 10 years you would receive annual payments of $77 in interest, which is 3.85% of the principal.
The idea of investing in bonds is for capitol preservation during the slow economics periods when stocks are correcting themselves. They are considered fixed-income. They are also good for investments later in your life when you are nearing retirement to help prevent drastic shifts in the markets. When you're older you're not as willing to take higher risks than you would in your younger years. There are other ways that bonds can make you even more money than it's own yield, but more on that at a later time.
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