Canada Savings Bonds Calculator

With a plethora of ways to analyze bonds, it can make your head spin. Even so, estimate the potential risk before you buy and calculate your potential return is an essential step in the process of acquiring the bonds.

1. Evaluate potential

You should pay attention to every detail - interest rates, inflation, as it is easy to sell that particular link, you name it.

2. Credit Risk

It does not matter what kind of connection you choose to invest in, there is still a credit risk. In 1995, U.S. Treasury bills, considered the gold standard of the bonds have been almost lacking for the first time in history. For municipal and corporate risks are even greater, running across the aaaaaa to B and below. They are often called junk bonds.

3. Evaluation Grid bonds - What is your earning potential? - What is the current earnings per share? - What is a dividend payment of usual? - What is the outstanding debt? - What is foreseeable technological changes may affect this relationship? - What is the record of management?

4. Dividends

The cost of debt increase, the amount of interest paid rises, thereby reducing the amount of these investments and put a company closer to default on existing debt, since much can be supported by current revenues.

5. Interest rate

Many bond issues have a maturity of 5-30 periods of the year. Any changes in prevailing interest rates affects unmatured bonds in two ways. A rate rise lowers the price for those looking to sell before maturity, because investors can get a better rate with a new instrument. In addition, the pressure increases to sell, since the holder can not get a higher rate of a new instrument. Plus, it holds the oldest, the more opportunity costs it incurs.

7. Against inflation

Inflation is the enemy of bonds. It will significantly reduce your return on any link. Even ignoring tax issues, jumped 8% in a 4% inflation is worth half the value of the coupon. Historically, inflation tends to rise more it decreases. When he does general decline of the economy tends to suffer, increased returns of all investments. Knowing the rate of inflation and market conditions before investing.

If you decide to go with a link, first of all, expect to pay a minimum of $ 5,000. You'll want to invest in a bond that is rated AA or higher, and stick to a well-known, major brokerage to handle your investment. Even with inflation, you can expect to make profits by 4% per year. Of course, 4% of $ 5,000 is only $ 200, but over a period of 10 years becomes $ 2,000. Of course, in today's economy of $ 2,000 will not even last one month for rent, food, utilities, etc. Even so, bonds have many advantages. Since they have a fixed interest rate and maturity date, their behavior is much more easily predictable, given plausible assumptions about changes in interest rates and other economic factors. You can not attribute this kind of reliability of stocks, for example.