Experts have said that in recent times, the internet is the largest market in the world. You could get virtually anything you are looking for on the internet and in most cases at a very competitive price. Investors have gotten their needs met by merely surfing the internet to get information on the type of venture to embark on.
If you are an investor looking for what to invest in, you might want to try online bonds. One of the most secure forms of investment that present a high rate of return and lower risks is investment in bond securities. However, let us first consider what a Bond is?
What is a Bond?
A bond is a kind of debt instrument which governments, public and private companies use to raise money. Bonds are similar to loan agreements, with you (the investor) acting as the lender and the bond issuer as the borrower. In simple terms, a Bond in finance is defined as an instrument or a certificate of indebtedness that the issuer of the bond owes the buyer or holder of the bond. The bond certificate issued signifies a promise by the issuer to repay a certain amount of money to the lender at the end of a specified period. So when you purchase bonds whether from the government or any other source, what you are simply doing is borrowing them some of your money, which would be repaid with interest after some time.
A government issues bonds to its citizens as a way to raise revenue to finance its projects. These kinds of bonds are known as treasury bonds and are usually very safe because it is very unlikely that a government would go bankrupt. Also, government agencies raise bonds which they use to support and finance some of their projects. As for private companies, they also issue bonds when they need to finance some projects or incur some huge expenses.
Although Bonds and Stocks are almost similar in the sense that both of them are securities available in the stock market, the obvious difference is that; as a bond holder in any company, you are seen as a creditor whereas a stock owner in any company is seen as a partner because they have equity stake in the company. In essence, bond holders get their returns on investment before the stock owner, because creditors are treated as higher priority compared to stocks owners.
One of the reasons why bonds are highly beneficial and preferable over some other forms of investment is that they are considered safe forms of investment—even safer than stocks. This is because if for any reason a company goes bankrupt, the bondholders are always given priority and paid off even before the stockholders. And it gets even better when it’s a government bond because the government is unlikely to go broke (and even if it does, there are dozens of ways by it can generate revenue to pay off its debts).
In addition, it is important to know that there are different types of bonds available in the stock market. There is the Treasury or Government bond, the Zero-coupon bonds, the Fixed rate bonds, the Floating rates notes, the High-yield bond, the Exchangeable bonds, the Convertible bonds, the Inflation-indexed bonds, the Subordinated bonds, the Covered bonds, the Perpetual bonds, the Bearer bonds, the Municipal bonds, the Revenue bonds, and the Social impact bonds amongst others.
Having made that clear, let us now proceed to the 5 steps that can help you start investing in online bonds and get good returns on your money.
How to Invest in Bonds Online – A Beginner’s Guide
1. Build Your Capital
Anyone who intends going into any form of business or investment naturally is expected to build his or her capital. Hence, if you want to invest in Bonds online; the first thing that is expected of you is to have the required capital to invest. You might want to save up to meet your desired capital, or you might want to pool the resources together via close family members and good friends. The amount in question which you intend investing is up to you. Be sure you set a target and discipline yourself to save it up before launching out on your investment.
2. Know What You Want
As you are already aware, there are loads of bonds out there in the stock market, but before investing, you should take your time to know what you want and what you can afford. Having a pre – informed knowledge is key to having a successful investment portfolio in bonds. For instance, there are bonds that are transferrable, and there are bonds that aren’t, so if you intend transferring your bond to someone else in the future, you need to look out for transferrable bonds to invest in. Also, in the case of the Bearer bonds, it doesn’t come with any name except the identification number. If your intention is to buy bonds on behalf of your children or grand children, you can buy this type of bond (Bearer bonds) and then transfer the certificate to your children or grand children as the case maybe to claim the value of the bond in future.
3. Search for a Reliable Platform Online To Buy Your Bonds
Different countries especially in the developed world have different treasury websites where they list available bonds for sale online. No matter the part of the world you are in, you can log on to a reliable website especially the ones owned and managed by the Government of the counties to purchase bonds. Follow the due process to register and open an online account that you can transfer money from. Please be aware that buying bonds online via a third party platform is a highly risky endeavor, so if you want to choose a third party platform to buy bonds from, make sure you do your investigations properly to avoid the risk of losing your money to internet fraudsters.
4. Prepare the Required Documents and Identification
Before you start buying bonds online, you would be required to present some vital documents and identification. This is to guide against under aged people who might want to buy bonds, or most importantly to checkmate those buying bonds for terrorists or outlawed criminals. So make sure you scan all the required documents beforehand. You will be required to produce your Social security number, your Address, your international Passport or Drivers License, telephone number, email address et al.
5. Start Buying Your Stock
If you have read through the points stated earlier, then the next thing to do is to browse through the website of your choice to check out for all the available bonds. Thereafter, select your choice and click buy. When you click buy, the money would be deducted from your account instantly and you would get a confirmation of your purchase via your email. One of the difference between buying bonds online or through a stock broker (offline) is that you get an e-copy of your certificate when you buy online in your email box but when you buy via a stock broker you get a paper certificate mailed to your box. Whichever way it goes, make sure you secure your bond certificate.
Every investor, both accredited and non-accredited know the importance of having an investment portfolio in bonds. They know that in the case of some bonds, it is the safest form of investment to go into because one’s investment would always be paid back especially when it is a Government bond. There you have it. Tested simple guide you can rely on to make your first purchase of bonds online and to continue to do so without stress. So what are you waiting for? Hurry and invest in bonds online.
Choosing the Best Bonds to Buy: 10 Factors to Consider
Also, bonds are safer in terms of security and predictability. Unlike stocks whose values fluctuate from time to time, the returns on your bonds are almost always guaranteed and predictable. Bond investments also give better interest rates with less risk. However, before you start investing in bonds, there are some factors to consider. Some of them include:
1. Reputation of the Bond Issuer
The first thing you have to consider is the credibility of the bond issuer. You must be sure that the company is credit worthy and that you are not just going to be throwing your money away by investing in its bonds. Pointers to the fact that a bond issuer is credit worthy include the length of time it has been in existence, its market position in its industry and the potential future of the industry in which it operates. If you are buying government stocks, however, you don’t need to worry about credibility as it is unlikely that the government would default.
2. The issuer’s credit ratings
It’s not only individuals that have credit ratings and scores; private companies also have their own credit ratings, which you can use as a measure of its credit worthiness. Company bonds are also rated by credit rating agencies so you should look out for bonds rated AAA or AA. Bonds rated C or D should be avoided, as they are considered unsafe. You can always find out a company’s bond rating by searching on the internet.
3. Yield to maturity
This is also known as return on investment, and it signifies the amount you would receive as interest on maturity of the bond. Usually, this is always listed in the newspaper or bond table where the bond sale is advertised. The market price of the bond as well as the yield of the bond would be mentioned.
4. Your purpose of bondholding
There are different reasons why peoples hold bonds, some do so as a means of maximizing their income while some others use it as a means of saving money that they do not need now until a later date. Like I already mentioned above, there are different types of bond instruments and the type you would buy depends on your reason for deciding to invest in bonds.
5. Your investment Portfolio-: It’s always good to have diversified portfolio hence you should consider what you already have in your portfolio, and how much bonds you already have and whether it is safe to invest in more bonds or not.
6. Taxes-: Another factor to consider is the taxes you would have to pay on the returns you will receive.
Although bonds are one of the safest investment options with high yield, you should also look into other investment options that can bring you higher returns. But you must be aware that such high-yield investments are often prone to higher risks.
8. Transactional costs-: If you are buying through a broker or a financial manager, you should consider the transactional costs you would be charged and relate it to the interests you would receive.
9. Liquidity-: You may need to sell your bonds before its maturity for one reason or the other, so you should consider how liquid the issuer’s bonds are sold and how easy it would be to sell to other investors.
10. Prices-: Lastly, you should consider the prices of the bonds and compare it to general market prices.