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I understand investment is about risk and reward - including risk management of course. I'm trying to build a personal portfolio for growth and or regular income for the next 10-20 years.

I'm trying to create a portfolio, but I am just confused about which of the two types of bonds --- Government or Corporate --- I should invest in.

I am only able to buy either one of the two, not both.

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You may need to provide further details to get a valuable answer, but to start out somewhere, here you go:

Investing is about risk, reward and cost.

Risk: The corporate bond, in almost all developed countries, bears more risk than its governement cousin. That is because the government usually has the lowest risk of defaulting in these countries. Both may or may not be backed by collateral and the likes which can reduce the risk of not being repayed substantially. In terms of maturity, the longer the remaining duration of the bond, the higher the risk. Corporate bonds usually feature a rating ranging from AAA (signifying the best) to CCC or D (signifying the worst) creditworthiness. From the question, I take that you are thinking of buying an individual, single bond - from a risk perspective you might want to consider a bond fund that distributes the risk accross many bonds.

Reward: If you are talking about buying a single bond (rather than a bond fund) you may compare the government bond yield for the maturity you are looking for with that of the government bond. So, you would expect: A corporate bond to have a higher yield than a governement bond, a longer bond to have a higher yield than a shorter bond and a lower rated bond to have a higher yield than a higher rated bond.

Costs: I strongly advise you to run through the costs associated with your investment idea. It may significantly impact your total return.

EDIT:

If I where to buy into bonds looking for growth and income I would be scanning through bonds in the Utilities, Consumer goods or Consumer Services area for a local currency AA-rated corporate bond with a maturity between 4-7 years. That does not mean this is any good for your level of risk tolerance but, for me, that would be a viable place to look.

  • Thanks Mark, but I understand investment is about risk and reward - including risk management off course. I'm trying to build a personal portfolio for growth and or regular income for the next 10-20 years. Hopefully this helps. – LanzOluz Apr 29 '16 at 9:07
  • Utilities in particular is a very traditional area for reasonably-low-risk "buy the stock or bond, then sit back and clip coupons". – keshlam Apr 29 '16 at 13:46

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