What are Bonds’ Risks and Return?
The value of mutual funds, stocks, and other securities can fluctuate dramatically, but high-quality bonds offer a guaranteed rate of return. They also provide passive income, with low risk, and their value will typically increase at a time when other asset classes are declining.
Bonds are considered safer than stocks, but they typically offer lower returns. The interest rate, or coupon rate, is linked to the creditworthiness of the issuer.
A bond rating is a carefully developed grade that reflects this creditworthiness. The lower the grade, the higher the coupon rate ̶ along with the risk that a bond issuer may not be able to make the interest payments and repay the loan in full at maturity.
Junk bonds have very low ratings. They are considered to be high-risk, speculative investments that bring the potential for a higher coupon rate.
Sit down with your Carte Financial Advisor to compare three or four potential bonds. Your choice will depend on the coupon rate you want and the level of risk you are comfortable with. Learn about the methodologies and criteria behind that bond rating and how it reflects the financial health of a bond issuer.