January 21, 2016

It's Easy to Lose Money in the Bond Market

Compared to stocks, bonds are often considered to be a "safe" investment. However, it is easy to lose money in bonds, especially as interest rates rise, which is the current situation. Because bonds promise to pay a fixed interest rate, set at the time of purchase, if prevailing interest rates in the economy increase, the value of existing bonds decrease because investors can purchase new bonds that pay a higher interest rates than older existing bonds. Another factor to consider is inflation; bonds generally pay modest interest rates which, after paying taxes on the income, may translate to just breaking even or even losing money. Another factor to consider is the possibility that the bond issuer will default and fail to make regular interest payments and even default on repayment of the principal. Read the details at: http://time.com/money/4186106/bonds-investing-risk/


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