Choosing a Bond

by David Jenyns on June 12, 2009

That said, bonds are some of the safest endowments out there.

Some of the matters which should be borne in mind are: type of business (railroad, manufacturing, public utility); bond type (mortgage or debenture); term, rate of return, special features (callable, convertible, etc.); financial status of issuing company; coverage of interest charges, which should be ample; relationship to other bond issues.

While bonds are quoted on a day-to-day price basis, they do not characteristically fluctuate as widely as common stocks – at least the high-grade bonds do not; the medium- and lower-grade bonds are subject to rather sharp fluctuations, and for this reason are perhaps even inferior to higher grade preferred stocks for the investor of modest means.

6. There are certain tax advantages inherent in the ownership of certain state and municipal bond issues. Sadly, some investors simply overlook bonds as unworthy endowments due to their relatively low long-term return.

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