People that invest in bonds and other fixed income securities, are well aware of the advantages and benefits of doing so, when choosing this type of investment over investing in the stock market instead. The bonds help to diversify your portfolio which helps minimize risks, and most of the traditional bonds provide a stable source of interest payments and return of your principal at maturity, on a known date and for a fixed rate of interest (with minor exceptions).
Treasurers and other government fiduciaries, CFO’s in large corporations and banks, as well as non-profits and wealth-management professionals can all invest in this, the largest market in the world, the bond market. But there are still some risks to be aware of, especially the most common one that we are here to change; ignoring the data, being unaware of all the risks involved in this types of investments, and not knowing all of the available bonds to consider in order to choose wisely, depending on your very own portfolio policy.
So when it comes to investing in bonds and fixed income securities, it all depends on how much risk you are willing to take and which investment instrument is appropriate for you. And even though before PFITR was here, there were several very expensive options to find the source of the information for this investments, you might not have access to all of the necessary data, nor to the real-market pricing. But with the new technology developed by PFITR, the Bond Price Validation tool is the source to find all CUSIP numbers that represent every bond available, and will give you the analytics to better identify your right investment option.
Now, with this knowledge available to every fiduciary investing in bonds, the recent trend shows that market uncertainty is eroding the charm of equities and the bonds have emerged as the preferred asset class. Therefore, large number of banking institutions, corporations, treasures and even government entities are moving towards safe and secure investment options such as bonds with more confidence than ever.
And like we promised with the title for this blog post, we shall identify some very basic questions fiduciaries must consider before investing in bonds.
1. The Bond information: first and foremost, you need to understand the bond you are buying, mainly for figuring out your goals and risk tolerance. And although to find the bond information was a tedious task, and came with an extra cost, not anymore, there is one software tool in the market that is providing all the required bond information at real market time and at an accessible cost, PFITR’s Bond Price Validation (BPV) tool ( https://www.pfitr.com/bpv-tool/ )
Tip: So when you ask yourself “where can I find bond information?”, you now know that right HERE.
2. Creditworthiness: One of the most important assessment factor when buying a bond is to know who the issuer is. You need to assess the credibility of the issuer and the repayment capacity. The major things that you need to look at are the stability of the issuer and the market that it operates. When it comes to the issuer credibility, there is no better option than government bonds as these are backed by the US government and are mostly classified as no risk investment option because the government is not likely to default on payments, right?.
Tip: Ask yourself “what is the credibility of the issuer?”
3. Credit ratings: Every bond is rated based on its credit quality by a rating agency. These credit rating agencies come up with ratings of bonds issued by Moody’s, Standard & Poor’s and Fitch that tells how a particular bond is expected to perform and how much risk is associated with it. A bond which has been rated ‘AAA’ is among the best in the market. ‘AA’ bonds are also a very safe investment. Bonds with the lowest rating (typically C or D) should be avoided if you are risk averse. These ratings indicate how much risk you are taking on in a particular bond and it gives you an indication of the likelihood that a bond issuer will be able to pay you back when the bond matures.
Tip: Ask yourself “what are the credit ratings of the bond?”
4. Maturity: Maturity is the date by which issuer is obliged to pay you the principal back. The longer the time to maturity, the greater the risk these bonds carry because of unexpected future events that may occur. In such cases, there is a possibility of default by the issuer, so it all depends on your risk handling with a particular bond.
Tip: Ask yourself “where can I see the maturity date?”, the response, in the BPV tool.
5. Call date: It is very important to understand the difference between the maturity date and the call date and how it will impact returns. While the maturity date is the date by which an issuer is obliged to pay you back the principal, whereas, the call date is a date that is set by the issuer from the beginning that gives the issuer the right to buy back the bond from you at a set price. An early call can have a major impact on your portfolio, so don’t ignore this very important characteristic.
Tip: Ask yourself “Is the bond callable by the issuer before the maturity date”?
These are some of the basic questions, that you need to ask yourself before you start investing in bonds. And it is pretty clear that on this time of age, you can always get help of professionals and technology solutions. For this specific case, PFITR is the answer. No matter that you are still not sure because you have no experience or lack the confidence to start investing in the bond market, we will empower you with all the right data and necessary coaching to the point that you will be using our solutions without requiring our help other than to keep you updated on the latest trends and new versions of our technologies.
The Bond Price Validation tool, answers all of the above-mentioned questions by providing the charts, transparent pricing and all the key bond information at one place.
By not just limiting ourselves to developing an online software tool, we also care to coach you on how the best investment decisions are made. We believe that with the right use of knowledge and technological tools to find the best investments for your portfolio and easily report them to your constituents to comply with regulators, anyone can master the best practices for fixed income investments, you just need the best guidance and right software solution to be a great investor. Give us a call at 1-800-921-1992