Bonds Can Add Stability, Boost Investment Returns

With the stock market likely to remain unsettled for a good part of 1995, investors may want to consider diversifying their portfolios beyond stocks and into bonds.

Bond investing can give portfolios the potential for stability. Here are a few choices to consider:

U.S. Treasury bills and notes. These are direct obligations of the U.S. Government, making them among the safest investments available. Bills, which mature in 91 days to one year, are available in initial face-value amounts of $10,000, with $5,000 increments thereafter. You purchase bills at a discount and receive the face amount at maturity. (For example, you might buy a $10,000 face value T-Bill for $9,500).

Treasury notes have maturities of one to 10 years and are available in minimum amounts of $1,000. Their yields are usually higher than T-Bills but less than longer-term government securities. Notes pay semiannual interest at a fixed rate.

Municipal bonds. Municipal bonds are sold by cities, states, municipalities, revenue districts and municipal project authorities for the purpose of constructing or repairing schools, roads, sewers, hospitals, etc. They appeal to investors mostly because their income is free from federal, and in some cases, state and local taxes.

Zero coupon bonds. These bonds offer a fixed rate of return like other bonds, but you purchase them at a deep discount instead of receiving regular interest payments.

Your return is the difference between the discounted purchase price and the face value, which is what you’ll receive when the bond matures. For example, you might be able to purchase a zero coupon bond for $300 today that will be worth $1,000 at maturity.

Keep in mind that zero coupon bonds react with more volatility to market fluctuations than coupon-paying bonds.

Stocks are not the only way to make money when investing, and these are just a few of the many alternatives available for diversifying your portfolio.

A professional investment broker can provide more information about the safety, yields and other pertinent details of these and other investments.