Owning Bonds
So far, we've discussed stocks and the difference between stocks and bonds. However, we haven't elaborated on what bonds are and where they are traded. This section discusses bonds and the bond market. While you read, pay attention to how zero-coupon bonds, differed-coupon bonds, and split-coupon bonds differ. You will learn about municipal bonds, which are a way for governments, states, and municipalities to borrow money. Where are corporate bonds and government bonds traded?
Bond Strategies
Learning Objectives
- Discuss diversification as a strategic use of bonds.
- Summarize strategies to achieve bond diversification.
- Define and compare matching strategies.
- Explain life cycle investing and bond strategy.
Bonds provide more secure income for an investment portfolio, while stocks provide more growth potential. When you include bonds in your portfolio, you do so to have more income and less risk than you would have with just stocks. Bonds also diversify the portfolio. Because debt is so fundamentally different from equity, debt markets and equity markets respond differently to changing economic conditions.