Are Bonds Worth It Anymore?

computer bonds

There are so many different options associated with saving that we cannot even begin to understand them all. However, we can try. We can try to explain to you what it means to have a certain type of savings for your retirement or just as a form of savings in general. One of the questions people ask most often is in regards to bonds. Are they worth it? Are they even still around? What is a bond to begin with? How can we be sure that bonds are being used correctly and efficiently, and will they really help me save for retirement?

Not everyone loves the idea of purchasing bonds, but many people find them quite beneficial in terms of their savings. Some consider them old fashioned and outdated and many people are just unaware that they are even still around. Here’s the deal; bonds are far more complicated than most people even realize, so we thought we’d just break it down for you so that you know what you’re getting into when you invest in one.

What is A Bond?

The best way that this was ever explained to me was one so simple I cannot believe more people don’t use it to explain it away. Essentially, it’s a way for major corporations and the government to borrow money from you. Wait, what? That’s what I said, too. Let’s go back a bit further. Have you ever borrowed money from someone for something? Before you shake your head, think about your car loan, your mortgage and even that one time you asked a friend if she had a quarter so you didn’t have to break a big bill at the store.

You’ve borrowed money. Hopefully you are the kind of person that pays it back right away, because that’s what kind of person you should be. So, now that we know you sometimes have to borrow money to buy things such as a house or a car, or even to make renovations around the house, you understand half the bond battle.

Bonds are a way the government to do the very same thing. It’s how they borrow your money. Would you actually just give the government money if they called up and said, “Hey, friend. Can I borrow a thousand bucks and pay you back in 10 or 20 or 30 years?” Probably not, if we are being honest with one another.

The government uses a much more appealing, much more enticing manner of asking you to borrow money. They offer you the opportunity to give them a set amount of money now and they will pay you more than that at a later date.

How Does A Bond Work?

Now that you know you are lending your money to a major corporation or at least to the government, you probably want to know why you’d do that and how it works. It’s a good question, and we appreciate it. Basically, you get to earn interest on the money you loan to the corporation or government. Let’s say you allow them to borrow $10,000 from you and you earn 8% on your loan. Most bonds pay out bi-annually to their investors, so you’ll receive $400 twice every year on that loan.

At the end of the term (let’s say it’s for 10 years), you will have earned a staggering $8,000 for allowing a business or the government to borrow your $10,000. Additionally, you’ll get that money back that you lent in the first place. It’s a lot of money, and many people feel that it is worthwhile.

Are Bonds Worth It?

This depends on how you look at things. You are considered a sort of creditor for the company that you purchase bonds through. This means that you are lending them money, and you are going to get the first dibs when it comes to repayment if the company goes under or goes bankrupt. It’s not a bad deal. Essentially, bonds are for those who want to save money and earn money at the same time, but cannot afford to lose out on money in the process. It is typically recommended that people who are in the midst of retirement take on a bond if they want to save since that is their retirement money and they do not and cannot afford to lose it.

Whether or not a bond is right for you is a personal decision. We cannot tell you if it’s a good idea for you. We don’t know if it’s a good idea for you. However, we do know that there is a chance you can earn some serious cash if you do invest in them. It’s a personal decision, but we know that understanding how it works is the first step.

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