Understanding Bonds With Flip Growth Investment
A bond is a loan from an investor to a borrower, typically a government or a company. In return, the borrower pays regular interest, called the coupon, and repays the face value at maturity. Because those payments are set in advance, bonds are known as fixed-income investments.
Types of bonds
- Government bonds such as US Treasuries and UK gilts
- Municipal bonds issued by local authorities
- Investment-grade corporate bonds
- High-yield bonds from lower-rated issuers
- Inflation-linked bonds whose payments adjust with prices
Yield and price
Bond prices and yields move in opposite directions. When interest rates rise, existing bonds with lower coupons become less attractive and their prices fall. Duration measures how sensitive a bond is to these changes: the longer the duration, the bigger the move.
The Role of Bonds in a Flip Growth Investment Portfolio
Growth investors often hold bonds to reduce overall volatility, provide income and supply cash for rebalancing when stock markets fall. The right mix depends on time horizon — someone decades from retirement may hold fewer bonds than someone who will soon draw on their savings.
Key risks include interest rate risk, credit (default) risk, inflation eroding fixed payments and liquidity risk in less-traded issues. Ratings from agencies such as S&P, Moody's and Fitch are a useful starting point, but investors should still understand what they own.