BONDS AND
FIXED-INCOME INVESTMENTS

Want to know more about one of the largest investment markets in the world?
You’ve come to the right place.

So, let’s talk about bonds and fixed income.

Fixed income investments are securities that provide a steady stream of income, usually in the form of monthly interest payments. 

They can be a great option for investors who are looking for a more conservative way to invest their money as the returns are generally more predictable as opposed to stocks or other types of investments.

The most commonly known form of fixed income investment is through bonds.

But what is a bond?

A bond represents a cash loan that an individual provides to a government or corporation.

The bond issuer agrees to pay a predetermined amount of interest to the investor over a specific period, in exchange for the loan.

Upon the bond’s maturity, the investor receives their initial investment amount back. 

In general, bonds can provide stability and a reliable source of income, especially during high-rate environments. And it’s especially important for investors who are closer to retirement, or who are looking for a more conservative way to invest their money.

SO, here’s what’s important to consider when investing in bonds. 

Interest rate
Time horizon
And volatility

A bond’s interest rate is the annual interest paid by the issuer to the bond holder, expressed as a percent of the bond’s face value: the amount the issuer provides to the bond-holder.

A bond’s time horizon is the duration between the bond purchase and maturity.
Usually a longer duration will pay a higher coupon than a short duration.

A bond’s volatility refers to the fluctuations in bond prices in response to market conditions. 
The shorter the bond, the less volatile it is.

There are different types of bond, such as

Fixed income bonds, that offer a predetermined fixed amount of return
And bonds linked to the change in the Consumer Price Index (also known as CPI), which adjusts the interest rate in response to changes in the CPI.

Every bond has an issuer’s rating. 

An issuer’s rating is a measure of the creditworthiness of an organisation that issues financial securities, such as bonds or stocks.

This rating is assigned by credit rating agencies, such as Standard and Poor’s, Moody’s, and Fitch, and reflects the agency’s opinion of the issuer’s ability to meet its financial obligations.

Now, let’s get specific with some examples of bonds out there that YOU can invest in.

The SPDR Bloomberg 1-3 Month T-Bill ETF, aka the BIL, and the iShares Core 10+ Year USD Bond ETF, otherwise known as ILTB, are both government-issued notes.

BIL is a very short-term instrument. One to three months with a yield maturity of 4.5%, the average dividend you get annually if held all the years to maturity.

While the ILTB has an average yield to maturity of 14 years and offers a yield of 5%.

Now, let’s explore corporate bonds vs. government bonds.

When investing in fixed-income issued by corporations, the investor may demand even higher returns because the risk of corporate failure is higher than that of the government. 

Therefore the iShares iBoxx High Yield Corporate Bond ETF, aka HYG, could be an excellent option for those willing to take on more risk.

Although HYG has an A rating, and an average maturity of five years, unlike the government bond, kit offers a yield to maturity of 8.7

SO, are bonds considered a good investment?

If you’re looking for a way to invest your money that provides a potentially steady, more predictable return, fixed-income investments may be the right choice for you.

Remember to always consider your investment goals, risk tolerance, and personal financial situation, before making any investment decisions. 

Thank you, and see you in the next video.