Newbie Investor Forming Your Own The “gold reserve” cannot but turn its attention to bonds. First of all, government bonds, which are also called OFZ, or federal loan bonds. This is an abbreviation word.
Many of our fellow citizens, far from the world of finance, are confident that bonds are a very profitable way to get passive income. Is it really? What is the yield of OFZ?
Bonds are promissory notes. By investing in OFZs, the merchant becomes the owner of the debt, even if the state debt.
Often, experienced speculators prefer to invest in more profitable and therefore more interesting instruments. For example, in valuable stocks. Moreover, income on shares is calculated not from debt, but from profit.
There are investors who prefer to combine both of these financial instruments (bonds and stocks) and diversify their own risks. For beginners who are taking their first steps in investing, after mastering passive income from a bank deposit, it is recommended to switch to investing in OFZs.
But, to the surprise of novice traders, it turns out that bond yields are not always the same. This is where the catch of investing in OFZ comes in. (We do not touch upon the pitfalls of corporate bonds). How to find the most profitable OFZs?
What is the yield of different types of bonds
The yield on bonds can be:
- Present or current
Types of yield on securities:
- Fixed coupon,
- Variable coupon yield, the rate at which depends on certain indicators,
- With a constant and constant rate and variable value of the bond’s par price,
- With amortized debt
- With a growing coupon.
The bond yield is indicated in the description of the bond issued. But income on securities is calculated as interest relative to the face value or real investment.
The yield on coupons of securities is a percentage of the declared, par price of the security. The bond issuer usually pays the coupon interest two or four times a year.
The amount of interest payments on coupons is slightly higher than the yield on bank deposits, and this interest is formed at the par value of the security.
The current value of a debt security is a reflection of the coupon yield of a security, but it is calculated not at the declared price of a debt security, but at the current market price (it can be lower or higher than par).
After the expiration of the validity period of the security, the merchant will receive a profit, which can be calculated only if the interest rates of future coupon charges are known. This profit is called simple bond yield.
The effective yield of the valuable bond is calculated by taking into account reinvestment across all coupons.
What are the most profitable bonds?
The yield of securities is affected by the amount of coupon payments. Most often, the coupon rate is about 2 percent and it increases depending on the amount of inflation.
Calculate the yield of the bond in special calculator programs.
It is profitable to receive income on bonds, even taking into account the growing inflation. But what happens if inflation is well over 5 percent?
That is why right now, at this very moment, financial market professionals recommend investing in valuable bonds with a maturity of no more than two years.
This time period will be less risky for an investor in an unstable economic environment. Although, if the situation is optimistic, it is more profitable to invest in long-term bonds.
PS OFZs are a fairly profitable and stable financial instrument, since the state is the guarantor of OFZs. OFZ is suitable for investing novice businessmen. OFZ yield is higher than the bank deposit.