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How do I Choose the Best Corporate Bonds?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 17 September 2016
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Corporate bonds are often considered one of the best investment opportunities for investors that tend to be more conservative in the creation of a financial portfolio. Generally carrying less risk than stock options or commodities, bonds of this type provide a modest but equitable return that can aid investors in reaching their financial goals over time. There are a few things to keep in mind if you want to acquire the best corporate bonds currently available, and increase your chances of earning the best returns.

Finding the best corporate bonds for your situation begins with understanding what you want to accomplish with the bond purchases. Some investors focus on bonds that provide incremental returns over an extended period of time, such as five years. If the idea is to take those returns and reinvest them in other ventures, choosing a corporate bond with a longer duration and regularly scheduled interest payments is a good idea. On the other hand, if you are looking for a bond that provides a relatively quick return, possibly as a lump sum when the issue matures, going with bonds that mature in two years or less may be the best approach.

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Along with deciding what you want to achieve with the investment, choosing the best corporate bonds also requires taking a look at the stability of the issuing corporation. While bonds of this type are considered to bevery safe investments, they are not completely free of risk. Indications that the issuer may be headed for financial difficulties may mean that the bond may be called early, an event that could significantly reduce the amount of return earned. Make sure that all public information about the issuer indicates the business will remain stable at least through the maturity date, and the chances of earning the best return possible are greatly enhanced.

For many investors, choosing the best corporate bonds also means going with companies that support issues that are important to those investors. For example, an investor who is concerned about environmental issues will focus his or her attention on bonds offered by companies that utilize green initiatives as part of their business model. By making sure that the underlying philosophies of the issuer are in line with those of the investor, the satisfaction generated by the investment is broader than simply the monetary returns.

Choosing the best corporate bonds involves considering a number of factors, including the yield based on the bond rates, the structure of the bond issue itself, and the general condition and structure of the company that is issuing the bond. Taking the time to look closely at all these factors will reduce the chances of taking on an investment that is ultimately not in harmony with your investment goals. At the same time, carefully investigating each opportunity to find the best corporate bonds will help you advance toward those goals, ultimately providing more satisfaction than simply choosing a bond issue that looks good on the surface.

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