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Use these tips when investing in bonds

by , 30 September 2015

When the stock market goes through a bear market, one asset class that tends to perform is bonds.

During bear markets, high quality bonds perform well. And this has been the case for the vast majority of bear markets over the past 100 years.

So how can you invest in in bonds? And what's the best way to go about it?

Read on to find out…


How to invest in bonds


If the stock market starts to drift south, you may want to keep your money in cash. But this isn’t the best strategy for you, Alexander Green in Investment U explains.

Your money is going to earn next to nothing in the bank and it’s unlikely your returns will come near to beating inflation. That’s why you should consider investing in bonds.

If you want to invest in bonds, you have a few different options…

Investing in bonds directly
You can buy bonds directly through your stock broker. But the minimum investment amount can be quite large, so check with your broker first.

You can also invest in government retail bonds.

Investing in bonds through a fund
You can invest in bonds through unit trust funds or exchange traded funds (ETFs). This gives you exposure to a range of different bonds of different maturities.

Some funds may also give you exposure to corporate bonds as well as government bonds.


How to pick the best bonds to buy


If you can, try to buy individual bonds. By investing into a bond fund, there’s no guarantee you’ll get your principal back.

When you buy bonds directly, they have a maturity date. You can then reinvest your principal amount back. You’ll also save on the annual expense fees you pay with funds.

Try to invest in bonds that have maturities of five years or less. Buying bonds with longer maturities means they are more volatile.

A shorter-term bond will be less volatile and you’ll get your principal amount back quicker.

So there you have it. Tips to use when investing in bonds.

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Use these tips when investing in bonds
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