Corporate Bonds For Sale: Benefits and Drawbacks
Corporate bonds can offer both drawbacks and advantages to investors, so it is important to evaluate each bond individually to determine whether it is the right choice for your investing goals and portfolio. These bonds can come in different types, including high yield corporate bonds, and they can carry varying degrees of risk. These bonds are not the right choice for everyone, and before any corporate bonds are purchased they should be completely researched and thoroughly evaluated.
The benefits of investing in bonds offered by corporations, including both discount and premium bonds, normally include a higher interest rate than other bond types, including the US government. If the interest rates fall then corporate bonds which were previously issued at a higher rate can be sold for a premium price. In many cases these bonds can also be converted, and when this happens the bond is converted into company stock, which can be held or sold for the share value by the investor. You will receive a fixed stream of income from the bond until maturity, and there is less risk involved than investing in bond index funds. Another advantage is that as a bondholder if the company goes bankrupt you will receive payment from any asset liquidation, while someone with stock will only be paid if all the bond holders are paid first.
There are also some drawbacks to corporate bonds. These securities may sell at a loss if interest rates have gone up significantly since the bond was purchased. Unlike US savings bonds or other government backed bonds those which are offered by a corporation are not backed by anything except the company. This means that these bonds can be risky. There may also be a liquidity premium, because bonds offered by corporations are not purchased and sold as often as those offered by the government, so these bonds are not as liquid and can take longer to sell.