“The name’s Bond, James Bond.” Okay okay, not that type of bond and probably not as exciting either. However, financial bonds are important to know about. As a Lockheed Martin employee, chances are you already familiar with stocks, whether they’re through your 401(k) or other investments. However, with bonds typically receiving less attention, we’ll discuss them in this post along with the various bond types.
Bond types
- Corporate bonds
- Issued by private and public corporations.
- Ideal for investors who aren’t considered about taxes.
- Investment-grade bonds
- Have higher credit ratings, implying less credit risk. A credit rating is essentially the likelihood that the borrower will make good and their promise of repayment.
- Ideal for moderate risk-takers.
- High-yield
- These bonds have a lower credit rating, implying higher credit risk than investment-grade bonds and, therefore, offer higher interest rates in return.
- Ideal for risky investors.
- Municipal bonds
- Issued by states, cities, counties, and other government entities.
- Ideal for investors who are concerned with taxes.
- General obligation bonds: These bonds are not secured by any assets; instead, they are backed by the “full faith and credit” of the issuer, which has the power to tax residents to pay bondholders.
- Revenue bonds: Backed by revenues from a specific project or source, such as highway tolls or lease fees. Some revenue bonds are “non-recourse,” meaning that if the revenue stream dries up, the bondholders do not have a claim on the underlying revenue source.
- Conduit bonds: Governments sometimes issue municipal bonds on behalf of private entities such as non-profit colleges or hospitals. These “conduit” borrowers typically agree to repay the issuer, who pays the interest and principal on the bonds. If the conduit borrower fails to make a payment, the issuer usually is not required to pay the bondholders.
- U.S. Treasuries
- Issued by the U.S. Department of the Treasury on behalf of the federal government. They carry the full faith and credit of the U.S. government, making them a safe and popular investment.
- Ideal for investors who don’t seek risk.
- Treasury bills: Short-term securities maturing anywhere from within a few days to 52 weeks.
- Notes: Longer-term securities maturing within ten years.
- Bonds: Long-term securities that typically mature in 30 years and pay interest every six months.
- TIPS: Treasury Inflation-Protected Securities are notes and bonds whose principal is adjusted based on changes in the Consumer Price Index. TIPS pay interest every six months and are issued with maturities of five, ten, and 30 years.
Bonds are a great way to complement stocks in a portfolio and provide excellent diversification benefits. To find out more about how bonds can benefit you, we invite you to sign up for a free consultation. Here you will have the ability to speak with a Lockheed Retirement Specialist about not only how to invest wisely, but how to incorporate investments into your overall financial picture. We look forward to hearing you!
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