"Fight or Buy Bonds. Third Liberty Loan." - NARA - 512621 (Photo credit: Wikipedia)Financial IQ Philippines Quick Hit(s):
Here is a helpful article about bonds, written by one of the industry's personal finance guru, Randell Tiongson. In summary, bonds is a fixed income instrument that can serve to diversify your holdings (i.e. equities, bonds, etc).
What are bonds? Bonds are contracts in which an investor lends money to a borrower. As compensation for receiving the money, the borrower agrees to pay interest, often twice a year and generally of a fixed amount. The borrower also agrees to repay a stated sum at the end of a fixed period. The date that the loan is to be repaid is called the maturity date.
Bonds issued by a sovereign state are known as Government Securities. It is usually considered zero or minimal risk because the government backs the indebtedness. In the Philippines investment scenarios, majority of fixed income investments are done through government securities. However, there are some investment grade bonds issued by top corporations such as PLDT, Ayala Corp., San Miguel Corp., SM, etc. Obviously, the risk associated with corporate bonds are higher than those issued by the government, hence one can expect higher yields from corporate bonds.
Bonds of high-quality companies are considered safer than most of investments for the following reasons:
1. The annual income to be received is generally fixed in advance
2. The contracted – for loan principal is likely to be repaid in full at the stated due. In the even financial difficulties, the borrower will have to comply with the terms of the contract. Interest and principal will be repaid on time or the company will be faced with bankruptcy. Should bankruptcy occur, bondholders have priority in receiving the proceeds from liquidation of business assets and are therefore repaid before stockholders receive any material proceeds.
http://www.randelltiongson.com
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