|New York -
There are several factors you should consider. Below are a few guidelines
to keep in mind:
Define your time horizon - You
need to decide how long you would be willing to hold a bond. The longer a bond's
maturity, the greater the risk. The reason is that if inflation rises, new bonds will pay
higher interest rates than the one you just purchased; thus, if you need to sell your
bond, you will have to lower the price of the bond to the buyer to compensate them for the
difference. In general, short-term bonds with maturities of four years or less have the
lowest interest rate risk. Intermediate bonds, with maturities of five to ten years have
moderate risk and long-term bonds, with maturities over 10 years have more risk.
Determine your income yield - You
need to decide how much income you want and the risk you are willing to take to get it.
Some bonds provide high yield while others provide low yield but carry lower principal
Determine quality of the backer -
You should review who issued the bond and determine the credit worthiness of the bond
issuer. Many individual use a bond rating company such as Moody's
or Standard and Poors' and only buy high quality
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Laddering is a method to reduce the
long-term impact of inflation.
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