Advantages and Disadvantages of Bonds

Advantages/Disadvantages Advantages of bonds Bonds as an investing instrument bring a lot of advantages to the bond holders. Firstly, bonds be more stable than stocks. Investing in bonds involve spurn risks compared to stocks. Normally, bond holders are more likely to receive the verifier rate (interest) from bond issuers. So, there is very less chances that bond holders will lost start on their investment. Also, they cease feel relieved when they invest in the reliable investment and taking less risk to loss all their money they invest. Besides, bonds are predictable.On the maturity date, bonds are returned to bond issuers in the form of fixed periodic interest and principal amount of the bonds . Bond holders can know how much coupon rate (interest) , how often will receive it and when the range will be repaid (matures) when they purchase the bonds . The interest rate given by bonds are typically higher(prenominal) than the interest rate paid by banks on saving account. Basi cally, bond holders receive more interest than account holders . This means bonds will give the superior return without posing too much risk. Moreover, certain bonds can be exempted from the income tax such as municipal bonds.So, the interest earn from the municipal bonds can be the investors profit without any tax on it. Investors who pay high taxes can take advantage of tax exempt bonds. Many municipal bonds are free of state taxes. Some of are in like manner exempt from federal taxes. This is an additional incentive to invest in bonds since lower taxes result in bigger gains. Other than that, bonds do not need constant monitoring like some investment instruments. Unlike margin, the investors need to check the price, status, news from duration to time and this make a tension life to them.Therefore, it is an advantage for bond holders because they no need sp depot their time to check the status of their bonds. Disadvantages of bonds Investing in bonds also has it disadvantages. Bonds also take risk . If the companies and municipalities cant solve their financial problem and go bankrupt, the bonds will then loss value or stupefy worthless. This may happen on those who buy long term bonds which may take twelve years to mature. Investor would not know what will happen on the duration, especially for those who buy from corporate bonds. The interest rate of bond is higher han savings account but much lower than share, gold or current estate. This is the reason why people do not invest in bonds. Also, they want to double or triple the money they invest with good investment which can make a higher profit than bonds. The gold, share and real estate are some of the high return capital in the market, plot of land the bonds are not constant in long term. The other disadvantage of bonds is the bond issuers may not able to pay back what they agreed or promised to. If the bonds are repaid in early month before the maturity date, the bond holders will loss the interes t from bonds as a part of their income.The bond breed managers who were expecting continued income from those bonds may of a sudden be forced to buy other bonds that dont pay as well. Besides that, long-term bonds can fall in value with fluctuating interest rates. This lowers the value of bonds and tied money of bondholders. If an investors money is tied up in some low yielding long term bonds and suddenly the interest rates of banks or other bonds go up, there is nothing much the investor can do about the situation. In such case, an investor will end up making much lesser money as he could have, if he had invested in other instruments.