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Again and again the term comes up and so does the question: What are bonds? Bonds are also known as debentures, notes or debenture stock.. Find out everything you need to know about bonds today!
Schwiizerfranke supplies you with Practicality and easy Explanations. By the end of this article, you should have answered your question and learned a few things. Still more questions? Then feel free to write them in the comments!
Bonds Definition: Bonds are interest-bearing securities. In contrast to Shares the buyer of the bonds receives fixed interest. Also Government bonds or Corporate Bonds belong to the class of securities known as bonds. The Runtime is mostly fixed and typically ranges between 1-10 years.
Signed Bonds can typically be purchased at banks or on the stock exchange. Since bonds usually have a have a fixed interest rate and a fixed term, their price changes in line with the market situation. It can be said that falling interest rates lead to rising prices and vice versa. You can find attractive bonds at Swissquote find in large selection.
In the case of bonds, there are of course many special forms and exceptions, as well as special rights that can be determined by the issuer. In this article, however, the special forms will be omitted.
Requires a Company capital, for example to set up a manufacturing facility, there are several options. The company could take out a loan, Shares sell, or for example, issue bonds.
Also a State may issue bonds in the form of Government bonds issue. Particularly in the case of solid, Western countries, repayment can be assumed to be secure.
If the issuer of the bond/bond is in a good position, i.e. has a Good balance sheet and earning power out, he has a good rating. This will be accompanied by a correspondingly lower interest rate. Risk and return are always coupled. A less well-positioned issuer will therefore only be able to make its bonds attractive with a higher interest rate.
When the bonds are issued, the term is fixed and usually also the interest rate. Investors can purchase the bonds and receive interest during the Term the fixed interest rate. At the end of the term, the issuer then buys the securities back from the investors at 100%. This gave the issuer the opportunity to raise capital at a self-determined interest rate.
Some bonds have maturities of up to 30 years or more, but you can of course trade them on the stock market at any time.
NoteIf you hold a bond until the end of its term, you will get back the full amount of the capital you originally paid in and will have received interest payments during the term. Nevertheless, there are risks of bonds that you should be aware of.
If you want to invest with little risk, bonds may be exciting for you. Because if you hold them until the end of their term, you receive the agreed interest during the term. Interest and at the end your paid-in capital at 100% back.
What's the catch?
Bonds have risks, of course:
Bonds have an issuer risk. The issuer is the issuer of the bond (e.g. a country or a company) and this can of course become insolvent.
States like Brazil have already shown this and of course companies are also exposed to this risk.
An issuer with a good rating (such as AAA) has only a low risk of default, but the interest paid is usually very low. Return and risk are always coupled.
If you are looking for high interest rates, you may end up with foreign bonds that are not traded in Swiss francs. However, you then bear a foreign currency risk if the exchange rate fluctuates against the Swiss franc.
Tip: If possible, avoid foreign currency risk with bonds.
Bonds have other risks and they can fluctuate greatly in price. Although many investors believe they are risk-free, this is not so!
As already mentioned above, the Issuance of bonds/bonds As a rule, a Runtime and a fixed interest determined. The only variable is the price of the bond, which can vary over time. In the case of these "normal" bonds, the Inflation expectations that are current at the time of publication.
But what if, as in recent years, higher inflation has to be assumed due to the flood of money from governments?
This is where inflation-linked bonds could come into play. But what are Inflation protected bonds and how do they work? For the sake of simplicity, you will only learn about the most common variant here.
Inflation protected bonds guarantee a fixed real return, regardless of how high inflation or price increases will be during the term. For this purpose, as a rule the Repayment value of the bond continuously adjusted to real, current inflation. The inflation risk with inflation-linked bonds is therefore lower than with standard bonds. Accordingly, the interest rate is generally lower.
You can now answer the question "what are bonds" and you also know what special forms such as inflation-protected bonds are. Now there is the question of how to Buy bonds and previously finds and selects at all.
First you should ask yourself where you want to buy bonds. You already have a Trading Depot for Shares and ETFs? Then look there first, whether something is offered. After all, an excellent bond is of little use to you if you can buy it from your provider or from no Swiss provider at all? Besides the Availability are the Fees is, of course, decisive for a good investment. Therefore pay close attention to ongoing or hidden charges at your bank or your Online Broker.
Schwiizerfranke has numerous Swiss broker and even considered foreign providers. In the end, the Swiss provider Swissquote most convincing. Especially if your investments are at least around CHF 1,000, Swissquote is pleasantly inexpensive. You don't buy bonds as often as you do shares or bonds. ETFsbut the more than 50,000 bonds offered create a good selection. However, you will not find a bond recommendation list here, as they should always fit your individual portfolio.
If you are interested in Swissquote and would like to support Schwiizerfranke, you can enter the code when you open your account. Then you will both save CHF 100 in fees on your next investments!
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The question "what is a bond" or the meaning of a bond can be answered as follows. Bonds are interest-bearing securities, which usually have a fixed term and a fixed interest rate. Its variable is the price, which fluctuates over the term with the market situation. Furthermore there are Inflation protected bondsThe repayment value of these bonds is continuously adjusted to current inflation. You can buy bonds at your Bank or your Brokerwhere you like always you should also consider the fees.
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If you want to buy bonds throughout Switzerland, a Swiss broker with a large selection of available products makes sense. Swissquote is a suitable provider here.
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