Corporate Bonds
Description
A corporate bond is a loan to a company. When you invest in a bond
issued by a company, the company pays you a fixed rate of interest
every year and pays back the nominal value at maturity.
Objective
To provide regular interest payments over the life of the bond and
repay the capital.
Suitability
Corporate bonds are suitable for investors seeking regular income
payments.
Features
- Regular income: Corporate bonds pay a fixed rate of interest paid monthly, quarterly, semi-annually or annually.
- Liquidity: Corporate bonds may be sold on any business day at their current market value, which may be more, less or equal to the initial amount invested.
- Fixed rate of return: Bonds bought and sold with a face value of £1,000 per bond and priced on a daily basis, according to the market. Once you buy a bond, you have a fixed rate of return until the maturity date. Although the price may fluctuate on a daily basis, this is of no concern unless you plan to sell your investment before it matures. In that case you may get back an amount more, less or equal to what you originally invested. However, if you hold the bond until maturity you will get back the face value (£1,000).
- Risk: It is important to consider the credit quality of bonds. Bonds with a high credit rating usually carry less risk than those with a lower rating. Also be aware that if interest rates rise, the price of your bonds will likely decrease. However, if high quality bonds are held to maturity, you should expect to receive the face value back. If you bought your bond at a premium you will get back only the face value.
- Diversification: An integral part of diversifying your bond holdings involves a 'laddering' strategy, which means buying bonds with a variety of different maturity dates. Laddering does not depend on higher or lower future interest rates for success but should help provide consistent income under various market conditions.
Bond portfolios need to be continually monitored to ensure that they stay in step with your long-term financial goals. Your Edward Jones financial adviser can help you determine if there are any missing 'rungs' in your bond ladder. If any exist, your next bond purchase can help to balance your portfolio.
Edward Jones generally offers corporate bonds from its own bond inventory. Edward Jones undertakes to provide best execution to bond customers buying from or selling back to the inventory.
For more information on corporate bonds, contact your Edward Jones financial adviser today.
