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Corporate bonds are basically loans to businesses. Bonds work in a slightly different way than conventional loans such as credit cards or mortgages in the sense that principal repayment is not amortized over the life of the loan. Typically the lender (the owner of bond) loans the company the full amount of the principle when the bonds are initially issued, usually in denominations of approximately $1000. The borrower (the company) makes interest payments, know as coupon payments - usually on a semi-annual basis. Only when the bond matures does the company repay the principal on the loan to the bondholder.

These debt obligations trade on a secondary market - the bond market. This means that an investor can purchase a claim to all remaining interest payments and principal repayment at any time. A current bondholder can also sell their bond, surrendering their claim to the income stream that results from coupon payments. Unlike stocks, most bonds don't trade on an exchange, rendering pricing somewhat more opaque. It is therefore important to consult with a professional before purchasing corporate bonds.

A variety of risk factors affect the appropriateness of a bond issue for any given individual investor. Credit risk is the risk that the borrowing company will be unable to pay it's coupon payments or redeem the bond at maturity - which results in a bankruptcy. In a bankruptcy, bondholders typically have a claim to liquidated assets before stockholders. Interest rate risk describes the fact that as market rates rise, the value of bonds tend to fall. The 'longer' the bond, or the further off in the future the maturity is, the more prone a bond is to interest rate risk. Various other factors affect the simple supply and demand dynamics of the bond market as well. For example, if many investors elect to sell bonds issued by banks due to creditworthiness fears - the bonds of banks will presumably tend to fall.

Bonds can represent an attractive investment option for investors looking for an income stream. They also represent an attractive way to diversify away some of the volatility of a stock portfolio. Due to complexities involved in bond investing, it is better to utilize the services of a professional when making bond purchase decisions. Your SG Long & Company Financial Advisor has access to an inventory of thousands of corporate bonds on a daily basis. Please contact them to determine if a corporate bond portfolio might suit your individual needs.

SGL Investment Advisors, Inc. constructs customizable bond portfolios for high net worth individuals and institutions. SGL IA focuses on diversified portfolios that are customized to risk tolerance preferences based on an adherence to an asset allocation model. Asset allocation refers to the percentage mix of stocks vs. bonds within a portfolio. If this managed account model might suit your investment needs, please click the logo to get more information regarding SGL Investment Advisors, Inc.