What is a Bond?

When you purchase stock, you purchase a piece of the company.  For the potential of growth, you take on some of the risk, of the company not being profitable.

When you purchase bonds, you purchase a piece of the company's debt.  For the potential of fixed income, you take on some of the risk, of the company going bankrupt.

A deeper explanation may be found at en.wikipedia.org.  Typically, a good mixture of stocks and bonds is advised.  See how your portfolio compares at online.wsj.com.

Personally, I like the idea of holding 40% in stocks and 60% in bonds as mentioned in Can You Develop a Portfolio With Little Experience?.  It all depends on your personal risk tolerance and the risk associated with bonds as discussed in 10 Investments Ranked From Least Risky to Most Risky. An explanation for why bonds tend to be less risky can be understood by reading 5 Obligations for a General Public Company.

Happy reading! Please come back soon to see why we focus on purchasing assets rather than the rate of return.

This post was reposted from http://finlit.biz/retirement-2/what-is-a-bond/, originally written on February 24th, 2013.

5 Obligations for a General Public Company

In general, public companies have various items they need to pay before they can claim a profit.  If you are an investor, do you know the various items and where you are on the list as far as when you will get paid?

If you were a creditor for a real estate property, wouldn't you want to know whether you were the first to get paid or the last on the list to get paid?

Here are the obligations for a general public company, ranking from the order in which they get paid:

1. IRS Taxes
2. Debentures or Unsecured Debt
3. Bonds or Secured Debt
4. Preferred Stock
5. Common Stock

Most people purchase common stock and don't realize that the company must pay off all debt before they can pay a dividend on common stock.  Even the preferred stock holders must wait until the debt gets paid.  In some cases, the company will claim bankruptcy and all proceeds will go to paying off debt, leaving the shareholders with nothing.

Read more at useconomy.about.com.

This post was reposted from http://finlit.biz/retirement-2/5-obligations-for-a-general-public-company/, originally written on February 5th, 2013.