Advantages and Disadvantages of Bonds

Advantages/Disadvantages Advantages of trammels Bonds as an investment instrument look at a lot of advantages to the deposit holders. Firstly, bonds be more stable than stocks. use in bonds involve lower risks comp ared to stocks. Normally, bond holders are more in all likelihood to receive the coupon tread (interest) from bond issuers. So, at that place is very slight chances that bond holders will lost out on their investment. Also, they fag end thumb relieved when they invest in the reliable investment and taking slight risk to want all their silver they invest. Besides, bonds are predictable.On the maturity date, bonds are returned to bond issuers in the form of fixed periodic interest and sensation amount of the bonds . Bond holders can know how much coupon rate (interest) , how often will receive it and when the place will be repaid (matures) when they obtain the bonds . The interest rate lendn by bonds are typically mettlesome(prenominal) than the interest rate paid by banks on saving account. Basically, bond holders receive more interest than account holders . This means bonds will give the greatest return without posing too much risk. Moreover, certain bonds can be releaseed from the income tax such(prenominal) as municipal bonds.So, the interest solve from the municipal bonds can be the investors profit without any tax on it. Investors who hold high taxes can take advantage of tax exempt bonds. Many municipal bonds are free of state taxes. Some of are withal exempt from federal taxes. This is an additional incentive to invest in bonds since lower taxes result in larger gains. Other than that, bonds do non need incessant monitoring like some investment instruments. hostile margin, the investors need to check the price, status, news from time to time and this make a tension life to them.Therefore, it is an advantage for bond holders because they no need spend their time to check the status of their bonds. Disadvantages of bon ds Investing in bonds also has it disadvantages. Bonds also take risk . If the companies and municipalities cant solve their financial difficulty and go bankrupt, the bonds will then loss value or give way worthless. This whitethorn transcend on those who buy long marge bonds which may take twelve years to mature. Investor would non know what will happen on the duration, especially for those who buy from corporate bonds. The interest rate of bond is higher han savings account but much lower than share, atomic number 79 or real estate. This is the reason why people do non invest in bonds. Also, they want to double or triple the silver they invest with good investment which can make a higher profit than bonds. The gold, share and real estate are some of the high return capital in the market, while the bonds are not constant in long term. The other disadvantage of bonds is the bond issuers may not able to pay back what they agreed or promised to. If the bonds are repaid in earl y month before the maturity date, the bond holders will loss the interest from bonds as a part of their income.The bond fund managers who were expecting keep income from those bonds may suddenly be forced to buy other bonds that dont pay as well. Besides that, long-term bonds can fall in value with fluctuating interest rates. This lowers the value of bonds and tied money of bondholders. If an investors money is tied up in some low yielding long term bonds and suddenly the interest rates of banks or other bonds go up, there is nothing much the investor can do about the situation. In such case, an investor will end up making much lesser money as he could have, if he had invested in other instruments.