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Easy Tips through the Stock Market Maze of Bonds

31 may 2007 - Features - Editor

No serious stock market player can do without bonds. The latter term is used loosely by many nowadays, with bills and notes with maturities of less than a decade each, also being termed as bonds in common parlance. However, every portfolio of any professional significance must have an element of investment in bonds.

You have to be staid to opt for bonds! Maturity durations and coupon rates make them look pretty awful in comparison with the blue-sky projections which the hot shots of Wall Street love to make! Besides, who knows when you may need sudden cash infusion to handle an emergency which your insurance does not cover?

Republican thinking in Federal circles has made bonds look even worse of late: playing hardball with local municipalities which splurge on the poor can mean that some of your personal savings lose precious values. Similarly, the new approach of the World Bank exposes third world countries with marginal economies to threats of virtual bankruptcies. How come the stock market

Professional stock market traders and teams of managers of large funds have sophisticated means of deciding on investment amounts in bonds, notes, and bills. But what about the small operator who stands alone on stock market floors? Should they dodge fixed interest and maturity options entirely or depend on them exclusively? Obviously, neither extreme will be opportune, but finding balances is easier said than done. Here are 3 free tips to help you work through the myriad and often confusing options:

Firstly, always match stock market bond maturity dates to specific events in your foreseeable life. Coincidence with a child seeking higher education is a perfect example. You will be able to manage high return and risk stock market options better once your planned fund needs are assured.

Secondly, assess government bodies and organizations with the same microscope that you would use for a profit-making corporation. High deficit financing, unproductive projects for populist reasons, corruption, and dependence on climate-related factors, are always reasons for worry. Stock market prospects of such countries and municipalities should be discounted heavily.

Finally, never forget that stock market decisions in favor or against bonds should be as fluid as for shares. You do not have to hang around until maturity dates come around. Liquidate when you get an offer over the coupon rate and begin a new chapter. However, never sacrifice safety for returns.

 


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