A bond is a financial product not to be confused with action. Generally seen as safer, bonds allow you to benefit from an often attractive return while minimizing risk. However, before investing in this kind of real estate value, it is important to know the advantages, but also the disadvantages, which we will detail in this article.

What is an investment bond?

The bond is a financial product and more precisely, it is a real estate value. Unlike a stock that represents a share of capital, when one invests in a bond one automatically becomes a creditor to the issuer. Most often, it is the state, but it can also be a public enterprise, a community, a public body, a private company, an association, or any other form of the legal entity.

In other words, when you buy bonds, the issuing agency is in debt with us, which means that they will have to pay off that debt with interest, of course. It is the latter that will represent for us the profitability of the bond. This repayment can be made over the medium term, in the long term, and in a few specific cases in perpetuity.

The downsides to investing in bonds

The issuer of the bond may no longer be solvent and may no longer be able to repay its debts. In this case, you will not be able to be fully reimbursed for your investment. However, this risk is absent when it comes to government bonds. Indeed, the latter being solvent, government bonds are the ones that are the safest, but not necessarily the best.

In the event of inflation, your bonds will lose value. Unless they are inflation-linked bonds.

If these are bonds that can be prepaid, then the issuer can repay its debt before the final maturity. In which case, you find your initial investment and interest collected so far, but not future interest.

It is advisable to keep your bonds until they mature. Although you can resell them first, you may not regain your initial investment if their value has decreased. It is better to resell them at the right time, when their value is higher.

The benefits of investing in bonds

As we have already mentioned, when it comes to government bonds, the risk is zero. You are sure to get your bet and interest back at maturity.

In most cases, revenues are defined from the outset. This means that you know exactly how much interest you will receive when you invest in bonds. In particular, it is necessary to choose bonds that are indexed to inflation and which will not lose value. On the other hand, if you want a more efficient but riskier return, you should opt for a variable rate that can increase over time and allow you to earn higher interest.

Bonds are assessed according to their risk. Investing in the highest rated provides a relatively low-risk and better-paid investment than traditional savings products.

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