Investments in debt involve a variety of different risks. These include credit risk and maturity risk. Bonds are issued by companies of different credit ratings, so the risk involved can vary. Investors can choose between fixed and floating interest rates. Fixed-rate bonds are considered a safer bet because they are more predictable.
Debt investing has long been a domain of the largest banks, but the emergence of new investment opportunities have made it more accessible to smaller investors. However, if you’re considering investing in debt, you must be certain that you understand what it is and how it works before making an investment. Here are some tips to make sure that you’re making the best choice.
First, understand the risk. Credit investing involves risking that a borrower will not make their scheduled payments. This can reduce the overall return for the lender. Second, investors must also be aware of the risk of interest rate changes. In other words, if interest rates change, the interest paid will decrease or increase.
