Why Bond Investments

From Financial Literacy Wiki

Bond investment appeals to many investors that are seeking 'safe' haven for their money. It is a good investment instrument for people who are seeking capital protection more than capital appreciation.

One of common reason why bonds is favored is because it provides a regular stream of income called coupons. The payment is usually higher than the interest payment of bank savings and fixed deposits. It is also mandatory for the bond issuer to pay the coupon at regular fixed intervals until the bonds reach maturity. If the issuer were to default on coupon payment, he can be sued by bond holders. And in extreme cases, bond holders can force the issuers to liquidate his assets to pay the obligated coupon payments. Such regular streams of income can be used to finance routine expenditure.

Due to the above reason, bonds is relatively safe compared to stocks, thus lower volatility as well. Such low volatility is good for risk averse investors. They would feel more secure investing their hard-earned money in bonds.

Coupon payments is not the only way for bond investors to earn money. Bond holders can also enjoy capital appreciation as well. And the good news for Singapore investors is capital gains are not taxed in Singapore.

Because of the constant stream of coupon payments and the return of principal when the bonds matures, bonds can be used to accumulate a sum of money that can finance foreseeable expenditure like children's tertiary education expenses or property purchase.

Last but not least, bonds has a place in any investment portfolio as it can improve the expected reward to risk ratio of the whole portfolio. This is because bonds can reduce the volatility of investment portfolio.