If you're looking to diversify or reduce market-related risk, you may want to consider bonds as part of your investment portfolio.
Bonds, as part of fixed income securities, are generally considered to be less volatile than stocks. By including bonds as part of your diversified portfolio, you can reduce the effect of market fluctuations and provide a steady source of interest income.
Investing in Bonds
When you invest in bonds, you’re essentially loaning money to a government, municipality or corporation in exchange for regular fixed interest payments and repayment of the principal at a specified future date.
BB&T Investment Services, Inc. offers a variety of bonds, including US Treasury securities, municipal bonds and corporate bonds ranging in maturity from less than one year to as many as 30 years to meet your specific needs.
US Government Bonds
- US Treasury securities, including bills, notes and bonds, are the most secure of all debt obligations because they are backed by the full faith and credit of the US Government.
- Treasury bills, commonly called T-bills, are issued with terms of three, six or 12 months.
- T-bills are sold at a discount and return full face value at maturity while Treasury notes and bonds pay fixed interest semi-annually.
- All interest from Treasury securities is exempt from state and local taxes.
- You may purchase T-bills at auction directly through the Federal Reserve or through brokers.
- Municipal bonds are issued by state and local governments.
- Municipal bonds pay for public projects.
- General Obligation bonds are considered second only to Treasury securities in safety.
- Municipal bonds are usually rated for quality and may be insured as well.
- These bonds hold special appeal for investors in high income tax brackets because interest is exempt from federal taxes.
- Because they are tax advantaged, municipal bonds pay lower interest rates than comparable corporate bonds, but tax advantages can give them a higher effective yield.
- Companies issue corporate bonds to raise cash for expansion, modernization, research and development, or other expenses.
- Corporate bonds pay higher yields than US Government bonds, but they also carry more risk.
- Semi-annual interest payments are fully taxable.
- Corporate bonds usually carry assigned ratings that indicate quality and degree of inherent risk.
- These bonds return full face value at maturity and may be callable by the corporation at a predetermined value.