April 18, 2024

Illuzzi Letter

Envisioning And Creating Your Dream Home

Bonds – Best Choice For Retirement

Planning for retirement? Why not invest in bonds; bonds are debt instruments that will typically pay a fixed rate of interest over a stated term, with the face amount of the bond usually repaid at maturity. In other words bonds are issued for a set period of time, and at the end of that time, or at the bond maturity date, the bond issuer is required to pay the original amount.

The interest payments are typically made by the issuer to the bond holder between the issue date and maturity date. This amount actually depends on the rate of interest of the bond, also known as the coupon rate, which is established by the bond issuer when the bond is being sold.

To illustrate the above description, if a person planning for retirement buys a bond of $10,000 with an interest rate of 7 percent and a maturity of 10 years, he will be paid an interest of $700 per year until the maturity period and also the amount of $10,000 (his initial investment) which will be repaid by the bond issuer. The benefit of investment in bonds is that some bond holders who retire will receive periodic interest payments plus an eventual return on principal.

Since bonds have a low but stable yield unlike stocks, which actually generate higher yields, the companies which are less creditworthy pay a higher rate of interest than the companies which are more creditworthy. Bonds are considered as the safest form of investment, whereas in stocks one may lose his or her investment without earning any benefits. The best part of investing in bonds is that investors can buy and sell their bonds before maturity, as factors such as changing interest rates affect the value of bonds.

So the best, safest and easiest way to invest after retirement is investing in bonds.