Unit 9 Benefits and Risks Associated with Bonds 财经专业英语教程（第四版）课件幻灯片课件.pptx

Unit 10; Benefits [Para 1] While bonds traditionally earn lower returns than stocks, that does not mean there isnt a place in your portfolio for bonds. The most common reasons for investors to purchase bonds are below: ;[Para 2] Diversification - Bonds tend to be less volatile than stocks and can therefore stabilize the value of your portfolio during times when the stock market struggles. Having a combination of both types of investments over the long term can often provide comparable returns with less risk than a portfolio devoted to only one type of investment. ;[Para 3] Stability - If investors know they will need access to large sums of money in the near future—for example, to pay for college, a home, etc.—then it does not make sense to place that money in a highly volatile investment like stocks. Because the majority of the return on bonds comes from the interest payments (the coupon payments), fluctuations in the price of a bond will have little impact on the value of the investment. ;[Para 4] Consistent Income - Unlike stock dividends, coupon payments are consistently distributed at regular intervals. Individuals seeking this consistent income might find bonds a better alternative than the dividend payments some stocks offer. [Para 5] Taxes - Payments from some bonds are exempt from federal taxes. For individuals in high tax brackets, these investments are often an excellent vehicle for their portfolio.;For example, if the coupon is set at 6% and interest rates in the market are at 7%, the interest rate on the bond is well below what you could get from a different investment. Therefore, the price of the bond will decrease so that the capital appreciation will make up for the difference in interest rates. (For this reason, it can be risky to buy long-term bonds during periods of low interest rates.) ;[Para 8] Credit Risk - Just as individuals occasionally default on their loans or mortgages, some organizations that issue bonds occasionally default on their