Investing in Bonds
investors who want to maximize the growth potential of their assets
don't think about adding bonds to their portfolios. However, in
times of market volatility, many of these same investors seek
a combination offering a higher degree of stability and performance
in their investments. Such a combination can be achieved with
the purchase of individual bonds.
have traditionally been considered income-producing investments.
You buy a bond, hold it to maturity, and receive regular interest
payments every six months or year. Then you get the principal
back when the bond matures.
For the most part, bonds appeal to investors who are looking for
steady income and don't want to risk losing their principal investment.
But bonds have a place in virtually every investor's portfolio.
A portfolio of both stocks, to help combat the erosive effects
of inflation, and bonds, to provide income and offset any stock
losses with bond interest, can work for many investors. The key,
however, is to determine what percentage and what type of bonds
to own based on your personal financial needs, investment objectives
and tolerance for risk.
Investors in their twenties have more time to ride out the market's
ups and downs and can generally afford to allocate a large portion
of their assets to equities. Some may even allocate up to 100
percent to equities as historically stocks have outperformed income-oriented
investments like bonds over the long term, although with greater
volatility. As they age, however, many investors adjust the allocation
in their portfolios according to their tolerance for risk and
reliance on investment income---gradually adding bonds---to enhance
the portfolio's yield potential.
Of course, finding and maintaining the right investment mix, one
that balances both risk and reward, is a complex process further
complicated by the array of choices-bonds are issued with varying
maturity dates by corporations, the U.S. Treasury, municipalities,
and federal, state and local government agencies. Therefore, it
may be wise to seek the assistance of an experienced financial
advisor before you invest.
John Aellen is a financial advisor of Legg Mason Wood Walker,
Inc., a securities brokerage and financial services firm and member
of the New York Stock Exchange, Inc. and SIPC. For more information,
please contact him directly at 1-800-837-5833; ext. 5722 or firstname.lastname@example.org.