How to Buy Bonds in a Down Market

The bond credit rating agencies have tarnished their image by giving unstable issuers high ratings. The following are additional things you should consider before investing in a bond.

Difficulty: Moderately Easy

Instructions

1. One of the ways to lower your risk in the municipal bond market is to stick to state GO, or general obligation bonds. These bonds are backed by the taxing authority of the state and are not dependent upon revenue that is generated from a specific facility. These bonds are relatively safe because there is little chance that an entire state will go bankrupt. The yield will probably be slightly lower than that of a revenue bond, however.

2. When it comes to municipal bonds, it's wise to stick to geographic areas that you are familiar with. If there are a large number of foreclosures in your area, then you may want to look elsewhere. Revenue bonds that get funded from necessary projects like sewers as opposed to recreational facilities like sports arenas are also good bets.

3. When it comes to corporate issues, bonds are probably no safer than stocks these days. The same underlying financial data should be examined by bond buyers as stockholders. Compare the company's credit ratings to its financial health and see if there are any discrepancies. The company's cash flow and balance sheet should at least roughly match with the company's bond rating.

[Rockney]

on 11/21/2008 Good information about Bonds.