CIS Financial Planning
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Buying Bonds
Bonds aren't as flashy as stocks, but they can play an important role in a financial plan. A key determining factor for bonds is interest rates. If rates are rising, bonds drop in value. If rates are dropping, bonds go up. It is that simple. Corporate bonds have some extra factors like ratings and conversion factors that can add to their potential for gains.

Zero coupon bonds are a very under-utilized investment. They allow an investor to target money to mature at a specific point in the future. The investor pays only a fraction of the face value, and the interest continues to accrete to maturity value in the future. It is a good tool for college planning or retirement planning. Also, if you have no need for current interest income, you should use zero coupon bonds.

Since interest rates are so important to the value of bonds, the maturities of bonds should be managed properly. If rates are rising, you should shorten the maturities of your portfolio. As rates decline, you should lengthen the maturities. Do not be afraid to to own 30 year bonds. As interest rates decline, they usually have the most capital appreciation of any of the maturities.

This is not a a complete review of all the investments available. Annuities, municipal bonds, commodities and international investments all could have a place in a well diversified financial plan. How these should be used is much more specific and should be discussed in a personal review with a qualified advisor.

"...wisdom is found in those who take advice" (Proverbs 13:10)

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