What are bonds?

  • A bond is represented as a loan from an investor to a borrower; such as a company, government, municipalities, bank etc
  • They are typically used by the borrower to fund their projects and operations
  • Owners of the bonds are called debtholders/creditors and receive a certain percentage of interest from the borrower based on the bond price per year

Why should you buy bonds?

  • Provides an income stream that is easily predictable in many cases; although this depends on what type of bond you buy
  • Potential of earning higher rates of return than a benchmark bank fixed deposit profits; although this only applies for corporate bonds and depends on which company your bonds are in

 Types of Bonds

  • There are 2 primary bonds:
  • Corporate Bonds: a bond issued by a credit holder to a company, the borrower. The borrower funds their projects, etc and in return pays to the credit holder; pays an annual interest of about 5% to 9% of the bond price until the full amount is given and the payments cease
  • Government Bonds: like a corporate bond, except it is issued to the government. They will also pay an annual interest of about 7.5% of the bond price until the full amount is given where the payments will stop

Pros and Cons of Bonds


  • Understand: bonds are easy to understand as you give a certain sum of your money which they use for their operations, however will also pay you a certain amount of interest based on the bond price
  • Buy and Sell: bonds can easily at the creditor’s request depending on the price
  • Passive Income: bonds are an easy source of income as you receive your interest annually, however until the full amount is paid


  • Risky: very risky investment and you can lose your money completely if the borrower makes losses; only for corporate bonds
  • Bad Against Inflation: bonds fall if interests go up due to inflation; also happens if companies make losses too (however in government bonds, you will be compensated with the equal amount)

Are bonds a safe investment?

  • Bonds issued by the government are the safest as there is little risk, since they will compensate for any losses; (however government bonds give less interest) 
  • Because of this, you should not invest all your money in one bond, but be diverse and invest in both depending on your appetite for risk
  • Bonds are rated by credit rating agencies from AAA to DD


  • Invest your money in both corporate and government bonds, use the rule of 100 to help you decide which bonds to invest in 
  • Read carefully which companies to buy corporate bonds in; check their credit rating, past and future rate of returns, number of sales etc before doing so
  • Buy bonds when the price is low, and sell when prices are high
  • Always monitor how much interest you are being given, and by when