Investing in bonds can be a safe and profitable way to earn interest without worrying too much about losing money. But I explicitly mean individual bonds and not bond funds or ETFs. Why?
In bond funds, if interest rates rise, investors are likely to lose money because bond prices fall. However, with individual bonds, their value may fluctuate before maturity, but they will ultimately be redeemed at their face value (e.g., $1,000), unless the issuing company goes bankrupt.
The current attractiveness of bonds is that some high-quality bonds offering yields of 6% or 7% at the moment. There are concerns of a recession but the strong economy, low unemployment, and increasing foreign investment in the U.S. are positive factors. Despite inflation may be a concern, interest rates should stabilize or even decrease in the future.
If you own a bond yielding 6% and interest rates decrease, the bond’s price will rise, making it more valuable. You’ll continue to earn the fixed 6% yield until maturity, potentially selling the bond at a profit if its price rises enough.
The current bond market offers a rare opportunity with strong yields, and if a recession occurs, bonds purchased now could generate significant income and profit at the same time.
Sven Franssen