Invest in Bonds

You invest your money in stocks and bonds or lend money to someone else. All of these ways and others are different types of investments. You invest in order to make money. You can make money through earning interest, capital gains, or dividends which are essentially a part of the companies income.

When you think of investments, you probably think of bonds because they are one of the most common. Governments and corporations issue bonds to raise money for growth and the running of the business. A bond is basically a loan from you to them.

Bonds are usually issued in $1,000 increments. You can buy one bond for $1,000. The government also issues lower denominations such as $50 savings bonds which you are probably most familiar with. You might even have a few savings bonds that you have received over the years as gifts.

When you buy a bond, you have a few different ways to earn money. The first way is the most obvious way which would be by earning interest. If you buy $10,000 in bonds at a 4% interest rates, you will get $400 a year. Sometimes you may be paid annually, semiannually, or all at once when the bond is repaid.

You can also buy a bond at a premium or discount. A premium would be paying more than the face value and a discount would be paying less. You could buy a $1,000 bond for $900 and when you are repaid the principle you would get $1,000 which would be a $50 profit. This is another way you can earn from a bond in addition to the interest rate you choose.

You can also trade bonds. All bonds have different maturity times. Short term bonds usually mature in six months or less and long term bonds can mature in as much as 30 years. You can sell them or buy them within that time for a profit.

I will give you an example of how this all works. A company is selling $1,000 bonds for $900 each. You buy 10 bonds for $9,000 at an interest rate of 4% and they mature in 10 years. After 10 years you will have made $3,000 in interest and $1,000 when they repay you $10,000 for a total profit of $4,000.

Any of these bonds could have been sold before maturity, as long as someone wanted to pay for them. You should focus more of your investments on bonds if you are close to retirement, otherwise you should invest more in the stock market because you will make more money.