How To Buy Bonds And Build A Portfolio

How To Buy Bonds And Build A Portfolio

If you have decided that bonds are the right investment for you, now your probably asking how to buy bonds. Bonds are an amazing way to invest your money, and can often be done on your own without a brokerage. Typically bond transactions are quite similar to stock transactions. It has to go through a brokerage. There are two options that are available – standard brokerage or specialized bond brokerage. Bond brokers require a minimum deposit into an account to get it going. If you do not have a minimum sum, such as $5,000-$10,000, you might wish to purchase a bond fund instead of buying individual physical bonds.

How To Buy Bonds?

In certain areas, banks also act as brokerages. This is especially true if you wish to purchase government bonds. Of course, it is also possible to purchase government bond from government bodies.

Purchasing bonds through brokerages come at a commission cost. At some brokerages, this commission cost is included into the price of the bond, or the “marked up price”. To ensure that you do not get overcharged in commissions, you can always search up the price of the bond online and do a quick validation.
Alternatively, you can buy a bond fund, which is a specialized security that consists of bonds and debts. The industry in which the bond is involved with differs between fund to fund. A bond fund is designed to mirror the performance of certain bond indexes or bond price trend, you will need to do research on an array of other factors such as the long term track record of the fund, the investment philosophy of the fund manager, the costs involved with investing in a mutual fund as well as the macroeconomic trends. Typically when you make a purchase in a bond fund, you will have to pay the fund manager an annual or semi-annual management fee. Be sure to factor in these hidden costs in your evaluation of the fund.

Although investing in bond funds might complicate things a little more in terms of research, a great bond fund pick can save you countless hours of headache and yield you above market returns for a long time to come.

Building A Bond Portfolio

The ultimate long-term investment goal is to build a portfolio that is able to consistently beat market returns while hedging against market swings and volatilities. The quickest way to build a great portfolio with superior returns is by investing in stocks. However, if you are a retired investor or just want to take the back seat approach in investing, you will definitely need to consider the possibility of crafting a bonds portfolio, or a fixed-income portfolio.

In theory, not many people would want to craft a portfolio that is entirely made up of bonds. However, bonds can play a major role if you are looking to build a fixed income portfolio. A fixed income portfolio is one that will generate a good passive income due to dividends or interest payouts.

A good, and conservative fixed-income portfolio should consist of about 30%-40% in low risk bonds. Besides low risk bonds, stocks and equities should also play a big part in your strategies. However, the stocks that you want to invest in are probably not volatile ones such as high-tech, bio-tech etc. The stocks you want are big, stable companies that yield very high dividends. They should also be in an evergreen market, not cyclic, and be reasonable priced. Investing in stocks is certainly risky, which is why we want to mitigate this risk by placing most of our cash flow into low risk bonds.

Other things you might want to include in the portfolio can include “real estate investment trusts” or REITs. Land space is only going to get more and more expensive, and investing in real estate trusts is a great way to leverage this trend as well as nailing some high interest rates. Investing in real estate offers the investor an excellent way to diversify from financial and credit risks brought about by stocks and bonds. A typical portfolio consists of 10-15% of REITs.

Besides risk free bonds, you can also choose to purchase high-yield bonds

High-yield bonds have low credit rating but a much higher yield. Considering that you are taking a big risk in this investment, as in the chances of default are a lot higher, it should only form about 4-7% of your entire portfolio.

Leveraging bonds to build a fixed income portfolio can be an incredibly rewarding process because of the predictable, consistent revenue they generate. If you are conservative in nature and are thinking about investing for the long term, be sure to study this in more detail and you will be able to confidently reap the benefits of bond investment.

How Early Can you Retire?

How Early Can you Retire?

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Introduction

Someone rightly said that “Retiring is inviting a world of new adventures ” but the question is; are you fully prepared to undertake this leisurely adventure? Or is it a phrase taken vaguely? We will seek to answer that question using certain points explained below.

Age of Retirement

One factor to put into consideration is the age at which you intend to retire. In real life, many people foresee that they will retire quicker than they actually do and uncertain issues, such as health constraints or changes in workplace (Re-structuring, demotion etc.), tend to come on the way and hence resulting in an early retirement.

And remember the earlier you seem to retire, the bigger bank balance you will need to last throughout the life after retirement. It’s very crucial to prepare for unseen events that could force you to bid farewell to your work life.

Life Expectancy

It is generally accepted that you can’t predict how long you will live, but there are a few factors that may give you strong hints and with which you can plan your days.

You should consider your family background in terms of health and life expectancy—how long people in your family have lived. This can be seen in how long your ancestors have lived and the ailments that they have suffered from if any. Also, your own health comes into question here.

After that, you would have to take into account the fact that life spans are becoming longer with the developments in medical sciences. Nowadays, there are chances that a good number of people will live up to 100 years or even longer. Now calculate the amount that you need to survive through these years

Health care needed in the future

Another major thing to consider is the amount of money involved in health care. These days, this cost is rising at a much faster pace than the general inflation, and very few employers are generous enough to offer health benefits to the retiring people.

Care in the long-term is another factor, and this expense could surely dip into your savings account and even lead to filing for bankruptcy if the need for care is elongated and constant. Therefore, factoring the costs involved in health care after you leave your work is very important.

Your current lifestyle

Now what you should be thinking about while thinking of retirement is lifestyle that you want for the rest of your life. Would you travel frequently or you want to get involved in community service? Would you sign up for an expensive club membership or is there any hobby that you want to take up? Your honest answer to these questions can aid you in deciding what surplus costs your dream retirement will require.

Many enthusiastic people expect that they would like to work part-time in retirement. However, if this is your intention you will still need some funds to enhance your retirement lifestyle.

Inflation

If you have analyzed and accounted for every certainty while constructing a savings fund, then forget this vital factor as you will have a good buffer to head into retirement. Inflation lowers the value of your savings from year to year, heavily decreasing your purchasing power over the years. It is crucial and vital for your savings to be on pace with inflation.

And the Sum-up of all the above

After considering all these factors, you should have a mirror image of how much you need to earn and save for your retirement.

But after you calculate your retirement savings fund and apply all the factors to how much savings you have currently, you will be able to analyze how much is required from your end to save each year and reach your savings goal. The most important thing is to make a goal and then strategize how that will help you to reach it.

Remember, the earlier you initiate savings and invest to reach your goal, the better you will realize your dream retirement.

Have a happy retirement ahead!