Overview

This essay sheds light on the top critical mistakes to avoid when investing in the bond market and also elucidates the most effective criteria for how to determine if a bond is worth buying. Moreover, how to prudently invest as a bond investor is delineated and how to earn substantial money online so that you can afford to invest in the bond market is expounded upon in this essay. There are a copious amount of mistakes that investors should prudently circumvent making when investing in the bond market that go beyond neglecting to ascertain the bond fund's expenses, overly focusing on bond yield curves, being overdependent on bonds for retirement, not leveraging the TRACE system to preempt paying a high premium for a bond, procuring highly volatile junk bonds, and buying corporate bonds based on speculation. First and foremost, it is critical for investors to avoid buying bonds from companies that do not offer a dividend payment to their equity investors. Investors often make the calamitous mistake of buying corporate bonds from companies that do not provide dividend payments to their shareholders. By offering a dividend yield on their shares of equity, the company's stocks become more of an enticing income generating assets to prospective investors and can therefore help a company more easily raise capital and pay off their debts by being able to more sell more stocks than they otherwise would be able to if their stocks were devoid of a dividend yield. Companies are more apt to win over the trust of investors and raise capital more easily by offering a dividend yield on their shares of equity. The merits of a company's business model are eminently dubious if the board of directors does not have the confidence to offer a dividend payout to their company's shareholders. Some investors completely abstain from ever buying corporate bonds from companies that do not have the confidence in their own business model to pay their equity investors a dividend. It it important to avert making the critical mistake of buying corporate bonds from companies that do not have the confidence in the potently of their business model to be able to offer a dividend payout to their company's investors. Second, it is of salient importance to preclude making the critical mistake of investing in bonds of junior status. You should prioritize investing in bonds of senior status and not overlook a bond's claim status. There are senior notes, which are often backed by collateral (such as equipment) that are given the first claim to company asset in case of bankruptcy and liquidation. There are also subordinated debentures, which still rank ahead of common stock in terms of claim preference, but below that of the senior debt holder. In the event of bankruptcy, bond investors have the first claim to a company's assets (Curtis, 2019). Bond investors should meticulously check their bond certification to ascertain the bond's status, such as by stating senior note if it a bond of senior status. If the bond is an initial issue then the investor can look at the underlying company's financial documents, such as the 10-K or the prospectus (Curtis). In order to mitigate risks of succumbing to a capital loss, it is paramount to procure bonds that have senior status instead of junior status. Second-lien debt is also called junior debt and the company's junior debt holders receive repayment after other, senior debt holders. Being a junior debt holder poses a higher risk that the investor may not receive payment. It is also possible that subordinated debt holders will receive either a partial payment or no payment at all (Chen). Investors should understand the eminent importance of holding senior debt or subordinated debt over subordinated debt in order to preempt succumbing to a negative return on investment. Holding subordinated debt can be deemed highly risky.

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