Why investing in bonds is a safe investment
Government Bond or government debt is a type of debt instrument issued by a government agency or state enterprise. In which the buyer or investor will become a creditor to receive payment and other benefits. For example, interest from debtors is the government or the agency that issued the bond. Investing in bonds, therefore, is not as complicated as other types of investments. Investors can buy bonds to keep. Until the time of redemption, will receive the principal together with the average interest of about 3% per year.
The government will use the funds raised from the sale of government bonds to invest in government programs, to pay back the state debt or used to do any government mission. Therefore, when we invest in government bonds as if it were a creditor lend to the government to borrow at the specified time. The government has a duty to pay interest and repay the principal as promised.
Investment in debt securities especially investing in government bonds; therefore, it is considered a low-risk investment when compared to investing in equity or ordinary shares. Of course, when the risk is lower, the yield of a bond is also lower than the return from equity. But consistent from interest payment flows.
In addition, investing in government bonds Will have a lower risk than investing in debentures. Although both government bonds and debentures are also debt instruments. Due to the risk of investing in debt securities, we will consider the credit rating. The credit rating is an important characteristic of private debt instruments. Which is different from government bonds that are considered debt-free debt instruments. Because the government is the most reliable in the country due to the government having the power to collect taxes to repay the debt Therefore, government bonds are considered debt instruments without credit risk.
How to invest in bonds?
The bond trading market is divided into 2 markets, just like other types of investments. It is traded in the primary market and secondary market which are as follows:
1. Primary Market
Is the trading of bonds that are first released Which is a transaction between the bond issuing institution and investors. The selling price will be the price of the ticket or lower price. By selling to investors in 2 types with different pricing methods
Is the trading of bonds between investors themselves that do not buy through the first market. Or investors buying through the first market but want to sell the bonds before the contract expires. Investors must sell through the secondary market. Trading is available in both agreed and tradable formats. And trading in the bond market (Bond Electronic Exchange, BEX), which is traded through a broker.
Who should invest in bonds?
1. People who want certainty in return Don't like risk Not much to accept damage from investment. And need a lump sum to invest Including that investment, the investment period must be in line with the bond period.
2. Who want to use debt securities for investment management (Portfolio Management) to be more secure
Aside from investing in risk-weighted assets such as ordinary shares with high returns, Investors should divide a portion of the money into debt securities as well. So that the debt instruments will generate consistent cash flow for use as regular expenses. In addition, investors will receive the principal upon redemption. Investing in debt securities, therefore, creates a balance for the investment portfolio. However, what proportion should investors divide in order to invest in debt instruments? Depends on many factors such as the age of the investor, the size of regular income compared to regular expenses. And most importantly, the acceptable level of risk. If the investor is not very old Just worked for a few years Have enough income for regular expenses and risky Then may not divide investment in debt securities in proportion not too high
Risks from investing in bonds
Even investing in bonds Will be a safe investment (Than investing in ordinary shares) However, in the world of an investment, No investment is truly risk-free. Investment in bonds is the same. The risks from investing in bonds include
Investing in government bonds is another interesting option. Because the buyer will be a creditor Which will receive a return in the form of interest on a regular basis. And get the principal back when the expiration date If investors make investment decisions, don't forget ... "follow up investment results" and "follow information about investment" regularly. Because investors have accurate, reliable and up-to-date information Will be able to adjust investment strategies in a timely manner
by: Nipapan Poonsatiansup,
CFP® Dependent Financial Planner