There is no one time to invest in bonds. In fact, due to the low-risk nature of most bond opportunities, they are almost always a stable investment. To maximize stability, it is best to purchase bonds in a low-inflation market. To maximize profit, however, it may be better to purchase some bonds in a more volatile marketplace. It is necessary to understand how the market as a whole will affect the value of a bond before deciding when to purchase.

Bonds and Inflation

Inflation is the biggest possible profit killer on most bonds. Of course, there is a chance the entity issuing the bond will go bankrupt or be unable to pay yields. This probability aside, though, inflation is the largest risk. When you purchase a bond, you are quoted an interest rate on the bond. For example, you may buy a $100-bond at 5.5 percent interest compounded monthly for 10 years. This means you will receive $173 dollars upon payout. Your rate of return is 73 percent, which is very profitable. However, if inflation grows to 4 percent in the same period, you are actually earning the equivalent of only 1.5 percent on the bond. Buying when you anticipate inflation will be low is advisable if you want a predictable return.

Bonds and Price Fluctuation

You may want to sell your bond before it matures. You can sell for no loss if the price of the bond stays the same during the time you hold it. However, most investors want to sell for profit. In this case, the price of the bond issued by the company will have to go up in order to provide the desired result. Investors will attempt to buy a bond when they feel its price will go up during the lifetime of the bond. This is very hard to predict, but investment advisers may offer insight.

Bond Maturity

The maturity of a bond is simply how long it takes until it is repaid. Maturity has a large impact on both the possible influence of inflation and the possible change in price for the bond. The longer a bond's maturity, the higher potential effect of inflation. For this reason, long-term bonds typically have higher interest rates. They offer a greater potential profit in return for the increased risk. Buying a long-term bond when you predict a very long period of stagflation is a sound investment. Again, this can be difficult to predict, but investment advisers attempt these predictions every day.

Bonds and Taxes

Government bonds provide a handful of tax benefits that make them a good investment at different periods of your lifetime. Many federal bonds are tax-exempt. They can be a good option for a college fund or retirement fund for this reason. However, if they are placed into certain tax-exempt retirement funds, like a 401k, then they may lose their independent tax-exempt status. Considering your current tax level and your potential future tax level will give you insight into the best bonds to purchase today. You should attempt to pay taxes on the sum when you are in the lowest possible tax bracket.

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