4 Risks in Bond Investment and Tips for Overcoming It

4 Risks in Bond Investment and Tips for Overcoming It

Each investment offers a number of returns, but on the other hand also losses are unpredictable. This applies to all investments, not except bonds.

As an investor, you need to think of ways to address those risks in order to maximize the return on investing. Before discussing risk coping tips aforesaid, first recognize the following four types of investment risk.

4 Risks in Bond Investments

1. Risk of Failing to Pay

What emerging risks if the bond issuer, neither the government nor the company can pay the principal of the investment nor the coupon agreed upon from the beginning of the investment. As these conditions occur, then you will lose some or all of the money in the bond.

Fortunately, not all bonds like this. Bonds that the government issues, for example, because they have been protected according to applicable laws. It can be said that the government will pay the debt when due.

2. Market risk

Caused risk due to fluctuations in prices in the market. If these fluctuations cannot be controlled, then it can potentially lead to inflation. As inflation rises, then bond prices themselves will decline.

Decreased sell value bond certainly causes loss (capital loss). It is best to be aware of factors affecting the condition of the economy, such as the rise in the Bank of Indonesia’s interest rate, political and social changes.

3. Liquidity risk market

an investor who need quick funds, but don’t miss finding potential bond buyers will usually run into liquidity risks. It is possible for an investor to sell a bond at an unnatural price or lower than its buying price that caused the loss.

Therefore, the disposition to use “cold money” while investing, not least bonds. Thus, this risk can be avoided because investors still have other sources of funds to finance urgent matters.

4. Risk of change rule

If regulations about bonds in a country change, this would be risky to the value of the bonds. An example is changes in income tax rates that may at any time change. Currently, the income tax (PPh) of bonds amounts to 10%.

Make sure you always update concerning the rules imposed on the bond if it were interested in investing. Don’t be ignored if you don’t want the profit rate to decrease.

Tips for Overcoming Risks in Bond Investments

1. Buy when the price drops

Bond prices could fall at any time, for example at the onset of inflation. as good as buy a bond when the situation is like this and sell it when the price returns to normal to make the profit raised to the maximum.

Nevertheless, keep your eyes on the types of bonds the purchased. If not oblige government gases, ensure such bonds are issued by a trusted corporation or corporation to guarantee their validity.

2. Hold bonds

Constitute the easiest way to address risk an investment, i.e. by means of a management bond while its price is falling. What’s more, if you don’t need urgent funds, selling bonds is not the right choice. Because usually it’s not just the value of bonds that goes down, it’s the value of other investment instruments.

Withholding his true bonds cost you a fortune, fire only for a moment If conditions are already back to normal, bond prices also join normal or higher than their purchase prices. So, there is no need to rush to sell it.

3. Diversification from the beginning of investment

Given the value of the bond including fluctuating, as good as do diversification products from the beginning of investing. If you already have bonds, there is nothing wrong with glancing at deposits, stocks, or gold. Anyway the type of investment that fits the financial conditions and is advantageous for You are, both in the short term and in the long term.

Diversified helps you minimize loss investment. If it’s bond’s value is falling, there are still other investments that can cover those losses. Call it gold, which is very high in price when inflation occurs.

4. Choose bonds with longer maturities

The reason is simple, which is because the interest rate higher than an bond one whose falling time was shorter. Interest rates will provide passive benefits that can be enjoyed every year.

Even if you’re planning to sell bonds as well as bonds due, hence legitimate sonly provided that the selling value is higher than the buying value. As a result, the profits earned became multiplied.

5. Apply assessment analysis

This strategy makes it easy for you to conduct an assessment of the intrinsic value of the bond. Compare the intrinsic value and fair value of bonds in the market before buying.

When market value is much more high rather than its intrinsic value, it can be said that bonds are overvalued or too expensive. When the market value is lower than the intrinsic value, bonds are declared undervalue.

Conclusion

If you want to search for an investigate one who is quite safe, in that the profit is not bad while the risk level is low, then bonds can be used as an option. Moreover, the return rate on bonds themselves is more large compared to deposits, so there’s nothing wrong with trying to invest a little capital for bonds. Don’t forget to constantly buy bonds issued by trusted corporations, yes!

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