Video: What Is a Corporate Bond?

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Corporate bonds are used to borrow money from individuals, or larger corporations, to fit the company's expansion needs. Discover why it's difficult to make money in the bond market with help from a personal asset manager in this free video on the bond market and money management.

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Video Transcript

Hi, I'm Roger Groh with Groh Asset Management. Today we're here to talk about corporate bonds, what they are, how you might be able to use them and how you can benefit from them. First of all, what are they? Companies that are expanding try to provide a blend in their financing package of debt and equity. On the debt side, corporate bonds are the favorite way to go, where they borrow money from individuals or larger corporations for their expansion needs. What should you watch for? How much income do they make relative to the amount of interest and principle that they have to pay back. You would like to see a lot more net income than you would like to see interest payments or mandatory principle payments. The reason is, the likelihood that you're going to get your money back is a whole lot higher. So how can you make money in them? Well, when interest rates are going up bond markets don't do well. Today with interest rates at zero percent it's unlikely that they're going lower. So it's going to be very difficult to make money in the bond market. My advice, I'd just stay very short, three months, six months, maybe a year and probably lotted out through that year so you constantly have cash coming through and you are not stuck like you would be in a thirty year bond in a rising interest rate environment. The flip side is, maybe you could short the bond market. Now you'd be very sophisticated and I would speak with a broker that you trust who can help you through that process. I'm Roger Groh and that's a little bit about corporate bonds.

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What Is a Corporate Bond?

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