Corporate Bonds Risk

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.



Corporate bonds risk is unavoidable if you want to invest in bonds that offer higher yield than other types of bonds. Like any other investment vehicles, bonds also have their own risks, but at lower level.[br]

The risks of investing in bonds are lower as compared to:

·        Equities

·        Forex

·        Commodities

Corporate Bonds Risk

Corporate bonds are not guaranteed by the federal government and they are mostly not insured. This means that if the issuer or the issuing company is going out of business, you will lose your investment completely. Although this will not happen very often, be prepared. Like any other bonds or fixed income securities, it is you who bears the risk of interest rate fluctuations while investing in corporate bonds.

The price of a bond will decrease if the interest rate rises and vice versa. So, you should have sufficient knowledge about interest rates before investing in bonds. Particularly, it is important to consider and think seriously about interest rates if you are investing in bonds for short-term investment purposes.

Suppose you sell your corporate bonds in an environment of rising interest rates, the result is that the price of your bond will decrease and you may even lose money.[br]

Corporate Bonds Risk: US Treasury Bonds

The US Treasury bonds do not have the kind of risks that corporate bonds have. The US Treasury bonds are insured by the FDIC and guaranteed by the US Government. So, you can be assured that you will not lose any money.

Moreover, your interest income will be tax free, if you are using the returns for educational purposes. Moreover, the US Treasury bonds come with fixed interest rates. So, the good thing is that you don’t really need to worry too much about the interest rate fluctuations. The US Treasury bonds have some risks associated with interest rate. For example, if you invest in Treasury bonds during a time when the interest rate is very low, you are locking-in your money for a long period of time. Meanwhile, the interest rate increases substantially. So, the returns will be substantially lower than that of corporate bonds.

Before investing in bonds, understand the extent of risk you plan to take. To take more risks and get more returns, opt for corporate bonds. To opt for stability and not risks, choose the US Treasury bonds.



About EconomyWatch Content PRO INVESTOR

Follow The Money