HOUSEKEEPING
Check yourself before buying bonds
With interest rates coming down and the stock market vacillating, many investors are turning to the bond market for diversification and balance. While it’s a good idea, it’s important to understand bond basics before going in that direction.
One place to get that understanding is at , the site of the Bond Market Association. There, the “Investor’s Checklist” — part of a comprehensive “What You Should Know” section — will walk you through some very basic questions and provide perspective on your answers. Armed with that perspective and a knowledge of how you want to invest in bonds, you can then pursue sensible fixed-income investment strategies.
The site also features investors guides to most types of bonds, from Treasury securities to corporate, municipal and zero-coupon bonds and more.
SHORT COURSE
“Present value” looks to future
Also known as the “time value of money,” this is the basic principle that holds that money can earn interest, so that $1 today will be worth more in the future if invested. In securities, present-value calculations are used to determine how much money should be invested today to achieve a certain sum at a future time.
Present value often seems confusing. An investment that earns 10 percent per year and that can be redeemed for $10,000 in five years would have a present value of $6,200. What that means is that $6,200 put into that investment today will be worth $10,000 — its future value — five years from now.
