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I have invested in stocks previously but realized that it isn't for me, at least for now. I have been researching on other options as to where I should invest my money and I found myself looking into bonds.

What factors should I consider in picking a bond and how would they weigh against each other?

Also, like stocks, should bonds be diversified, or just pick a good bond and invest all your money there (since they're fairly low risk)?

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  • You need to identify your objective in buying a share or a bond, your investment time-horizon, and your tolerance of risk. For most people just buying mutual funds is the best option. Oct 24 '14 at 13:49
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just pick a good bond and invest all your money there (since they're fairly low risk)

No. That is basically throwing away your money and why would you do that. And who told you they are low risk. That is a very wrong premise.

What factors should I consider in picking a bond and how would they weigh against each other?

Quite a number of them to say, assuming these aren't government bonds(US, UK etc)

  • How safe is the institution issuing the bond. Their income, business they are in, their past performance business wise and the bonds issued by them, if any. Check for the bond ratings issued by the rating agencies.

  • Read the prospectus and check for any specific conditions i.e. bonds are callable, bonds can be retired under certain conditions, what happens if they default and what order will you be reimbursed(senior debt take priority).

  • Where are interest rates heading, which will decide the price you are paying for the bond. And also the yield you will derive from the bond.

  • How do you intend to invest the income, coupon, you will derive from the bonds.

  • What is your time horizon to invest in bonds and similarly the bond's life.

I have invested in stocks previously but realized that it isn't for me

Bonds are much more difficult than equities. Stick to government bonds if you can, but they don't generate much income, considering the low interest rates environment. Now that QE is over you might expect interest rates to rise, but you can only wait. Or go for bonds from stable companies i.e. GE, Walmart. And no I am not saying you buy their bonds in any imaginable way.

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  • Hi there, thanks for your answer. From what I understand from google searches, bonds give you annual interest (or twice a year), and by the end of the maturity period, you are assured your principal value. Is this correct? Also, how are government bonds different from private bonds that you excluded government bonds from your explanation?
    – Zaenille
    Oct 23 '14 at 13:42
  • you are assured your principal value No that is the best scenario. Anything can go wrong. government bonds Government can sell more bonds, or sell assets to service the bonds, or raise taxes. These powers are a big guarantee or a safety net. Companies don't have them.
    – DumbCoder
    Oct 23 '14 at 14:22

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