How To Make Money Buying Bonds

Before getting to the subject matter of making money from bonds, you have to first know the different types of bonds that are available for you to invest in:

  • Government Bonds – categorized into Bills, Notes, and Bonds. All are sufficiently safe investments when issued by countries with hale and robust economies but not so with struggling countries that face the risk of defaulting on the national debt.
  • Municipal Bonds or “munis” – for short are tax-free free bonds offered by local governments. However, being tax-free, you can expect lower yields when you decide to invest but is still very ideal if you consider its quantifiable risk.
  • Corporate Bonds – also known as Convertible Bonds and Callable Bonds are issued by large corporations. This type of bond investment gives you the option of insuring it anywhere from 5 to 12 years. Investing in corporate bonds can be one of the most financially-rewarding investments for you but you have to remember that corporations can go kaput anytime so the stakes are higher. Be careful and get sound advice prior so you won’t say bupkis to your hard-earned cash.
  • Zero-Coupon Bonds – the lowest type of bond-yielding investment you can get into since it is purchased at a considerable discount, which in itself is an actual devaluation of its attractiveness as an investment.

Bonds can be transacted through the following:

  • A full service or discount brokerage which asks for the standard $5,000 deposit,
  • Mutual fund institutions
  • Banks
  • US TreasuryDirect

Now, what does it take to make money in the bond market? Well, there are two components that come into play for you to make money in the bond market. First, you have to be able to sleep soundly at night knowing that you will be paid back (seriously, no joke). Second, bonds do well when interest rates are decreasing but when these interest rates go up, bonds suffer as a result. If you’re particularly masterful at observing the market, you will know which bonds do well when interest rates are spiraling downward. In today’s money market – and the economy as a whole – interest rates are rock-bottom, at zero percent to put it bluntly, resulting to very promising bond yields. Of course, since interest rates are way down there, there’s no way for it to go but up. See the irony here?

To play safely at it, you can insure your bonds and hold this until it matures depending on your preference – can be anywhere between three months to a full year. The longer it’s kept, the lower its value, so let’s say you invested your bond for a 30-year term… this means your yields are significantly lower. So think short in terms of maturity and invest only in high-quality bonds.

Lastly, do your research and know everything that you can to avoid being taken for a ride especially by brokers. Money is sort of like a honey trap and if you fall for its sticky sweetness, you might end up getting duped and penniless in the end. Be wary and calculating before loaning your money to a government or corporation and by all means, consult a reputable Fund Manager before forging ahead.


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