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the low down on Bonds and ETFs

Updated on February 7, 2013

Bonds are a great investment, but they are not stocks. Bonds are simply loans you are making to a company with an interest rate set by the company. There are municipal bonds, federal bonds, and corporate bonds. Treasurydirect.com allows you to purchade government bonds. If you are unsure which bonds to buy, many investment firms offer Bond ETFs. Vanguard has a total Bond fund (BND). It is a mix of bonds you can buy similar to a mutual fund, but full of bonds.

Bonds create income through the interest rate on the loan. They are much more stable than stocks. For this reason many people seek to have a mix of bonds and stocks. The rule of thumb is take your age and deduct it from 100. This is the percentage of stocks you should own, and the other is the percentage of bonds. So I am 27. Therefore I should have 73 percent of my portfolio in stocks and 27 percent in bonds. I must admit, at this moment I'm closer to 95% stocks. I intend to buy some bonds in the next quarter.

Bonds allow you to have a dependable source of income and a great return on money that would otherwise just sit in a savings account. For more investment tips, checkout these hubs Investing for beginners, how to get started investing.

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