Safe Investment The advantages of investing in bonds are interesting to discuss. In investing there is a strategy known as portfolio diversification. So you should not save money in just one type of investment instrument. You need to diversify into bond instruments. Then what about the benefits of investing in bonds? Check out the explanations we have compiled from various sources.
What is a Bond?
Bonds are debt securities issued by the government or companies. The government issues bonds or debt securities with the aim of accelerating development such as infrastructure. Likewise with companies issuing bonds with the aim of obtaining fresh funds that are more efficient than borrowing from banks. Bonds contain the principal amount, interest rate or coupon, as well as the maturity of the bond.
Advantages of Investing in Bonds
Investors choose bonds not without reason. Of course bond investment instruments are considered profitable and have their own charm compared to other investment instruments.
Here are some of the advantages of investing in bonds that you need to know:
- Safe Investment Instruments
The first advantage of investing in bonds is that they are classified as safe investments. It is often associated with stock investment which is considered to have greater profits. But you need to know, Bonds have a low level of risk. Bonds are debt in which an institution or company must prioritize payment of obligations compared to shareholders.
Your money will be safe if it is placed in bond investment instruments. Even safer if you buy government bonds. Because your investment will be guaranteed and protected by law. In addition, government bonds are highly unlikely to default. Government bonds default if a country is said to be bankrupt because it is unable to pay off its debts. 
Fixed Profits
The second advantage of investing in bonds is getting fixed coupons. You will get a coupon every month or six months until payment is due. Coupon payments are adjusted to the terms agreed from the start. So this investment instrument is suitable for those of you who are entering retirement age because you will still get coupons to finance your basic needs when you are not working.- Suitable for Portfolio Diversification
The third advantage of investing in bonds is that they are suitable for portfolio diversification. Fixed profits will be your emergency investment when other investment instruments are experiencing a decline. If you are a stock investor then you need to diversify into bond instruments. Very volatile stock price movements will be very risky if you don’t diversify. - Interest is higher than bank deposits
The fourth advantage of investing in bonds is that they have a higher interest rate than bank deposits. The average bond coupon ranges from 4.5% -6%, which when compared to bank deposits is only around 2% -3.5%. - Providing Capital Gains
The fifth advantage of investing in bonds is that they provide capital gains. Bonds can be traded like stocks. However, bonds that can be traded are generally government bonds. Bonds have a liquid nature, aka they can be traded. What’s more, if you can sell it for a higher face value than when you bought it.
That’s an interesting explanation of the advantages of investing in bonds. Hopefully this information is useful to you and adds to your insight.
