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Financial Advisor Gaithersburg MD: What is a Corporate Bond?


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What is a Corporate Bond?

Our financial advisors can lead you in the right direction when considering investments in corporate bonds! First, what is a corporate bond? A corporate bond is a debt obligation offered by corporations to fund capital improvements, debt refinancing, expansions, or acquisitions. The interest rates vary widely and is usually based upon the creditworthiness of the corporation.

Each week investors are able to purchase new issue corporate bonds, generally in minimum denominations of $1,000. You should remember that when investing in corporate bonds, the higher the potential of the return comes with the potential of greater loss. But, corporate bonds are some of the highest yielding fixed income securities. Our financial advisors can help you evaluate the risks and see how these investments can fit into your overall portfolio.

Some of the risks in corporate bonds are call risk, event risks, and credit and default risks. Call risks are when bonds can be redeemed or paid off by the issuer at their discretion prior to maturity, which could means capital loss or loss of income for the corporate bond investor in the secondary market. Event risks are when unforeseen events impact the ability of the issuer to be able to make payments. Since corporate bonds are generally purchased for cash flow, this could lower the total return of your investment; your returns could be diminished because the issuer is having trouble making payments. Credit and default risks mean that if an issuer is not very creditworthy, they are more likely to default on payments; and this could mean you are not getting your income when you expect it. Our financial advisors can provide you with the details of the risks and rewards of corporate bonds.

If you need more information about corporate bonds contact CIC Wealth today; our financial advisors are here to help.