Investing in Bonds
Many investors maintain a diversified investment portfolio consisting of bonds, stocks and cash in varying percentages depending upon their individual circumstances and objectives. Because bonds typically have a predictable stream of income and repay principal at maturity, many invest in them to preserve and increase their capital or to receive dependable interest income. Whatever your goal – saving for a new home, your children’s education or retirement – Scottrade offers products to help you reach your investment objectives. Contact a stock and bond broker today for more information.
Benefits of Online Bond Investing at Scottrade
- Consolidate your entire portfolio into one account at Scottrade to greatly simplify your end-of-year tax reporting.
- Our bond search tools allow you to screen thousands of corporate bonds and treasury bonds in a wide variety of industries and maturities and select the bond that meets your objectives.
- Scottrade has 500 branches to assist you with your fixed income questions, transactions or inquiries regarding your account.
- Scottrade does not hold any bond inventory and does not promote any particular bond or type of bond.
- Choose from the inventory of over 150 dealers.
Bond Diversity and Balance Risks
An investment portfolio is subject to many risks. Stocks, options and mutual funds are subject to market volatility and the chance that they may lose value. Bonds are subject to changes in interest rates, risk of defaults by the issuer, and the loss of purchasing power due to inflation.
While such a strategy does not guarantee a profit or against loss, a diversified portfolio can minimize these risks because the risk is distributed over a variety of investments. In a well-balanced investment portfolio, some holdings may be negatively affected by market changes, while others may have a positive reaction, thus balancing the portfolio.
Assessing Bond Risks
Virtually all investments have some degree of risk. When investing in bonds, it’s important to remember that an investment’s return is linked to its risk. Riskier investments generally offer the potential for higher returns. Conversely, relatively safe instruments such as insured CDs and U.S. Treasuries offer relatively lower returns.
Risks common to most all bonds include:
- Credit Risk – financial risk that the issuer will not be able to repay the principal upon maturity as promised
- Call Risk – longer-term bonds are usually callable. The bonds may be called before the maturity date if interest rates decrease
- Market Risk – if the bond must be sold before the maturity date, the bond may be worth more or less than the face value depending on interest rate movements.
- Inflation Risk – recognizes the value of assets or of income will be eroded as inflation shrinks the value of a country’s currency.
- Liquidity Risk – some securities are very hard to sell if there is a thin trading market or if the bond is relatively unknown.