Investing in bonds can be a low-risk way to diversify your portfolio. By doing so, you are effectively lending money to corporations or governments to finance their expenditures, such as building roads or funding research projects.
What is a bond?
Bonds are IOUs that allow an investor to lend money (by purchasing the bond) to other entities, such as corporations or governments. As payment for helping them out, they agree to repay you with interest in the future.
Financial institutions and governments use bonds to raise funds, basically like how you might borrow money from your friend or family member.
The interest rate on Hong Kong bonds depends on many factors; the government’s credit rating, inflation rates, etc. The higher these factors are, the more likely it is for your investment to yield positive returns!
There will be no guarantees of receiving this interest since the amount paid out every six months varies depending on economic conditions and performance.
Investing in four simple steps
Open an account with a stock brokerage firm that offers bond trade services (e.g., Phillip Securities or Citic Securities) and deposit some cash into it.
The first step is to open an account with a stock brokerage firm, such as Phillip Securities or Citic Securities, so that you can buy and sell bonds through them.
Select the type of bond you want to buy after doing your independent research on available options
After researching, select which type of bond you’d like to invest in (i.e., government bonds, corporate bonds, etc.) and the amount of money you want to invest in it.
Place an order through your broker’s online trading platform.
Next, place an order through your broker’s online trading platform.
Sit back and wait for your broker to execute the order. Pay attention to significant market events that might affect bond prices.
You can complete steps 1-3 within minutes. However, for your trade order to go through successfully, you will need to wait until the bond is released from escrow once it gets traded in the secondary market (which typically takes one business day).
You might also consider subscribing to real-time market data feeds to keep track of significant market events that could affect prices, such as interest rate announcements or economic outlook reports. Saxo forex broker has all the information you need.
Step 4 is the last step you might not need to do if your broker executes your order automatically. If they don’t, then you will need to sit back and wait for your broker to execute the bond trade on your behalf.
Selecting suitable bonds
Selecting a suitable bond can be a daunting task. Many factors should go into making this decision, including company risk profile, interest rate risk tolerance, time horizon, market trends and liquidity preference.
As you can guess, bond investing is not for everyone. However, suppose you are comfortable bearing some credit risk and willing to work hard to choose the correct bonds (and stay on top of significant market events that might affect prices). In that case, it can be a low-risk way to diversify your portfolio.
Before moving on to the next step, here’s an important tip: once you invest in bonds through your broker, keep track of your bond holdings by setting up an account at the issuer’s website, so you get regular updates about interest payments or other upcoming events.
The final step is optional-you only need to pay attention to significant market events that might affect bond prices. For example, suppose you hold bonds issued by the Hong Kong government (aka Government of Hong Kong). In that case, you should pay attention to interest rate announcements made by its Monetary Authority because they will impact your bond investments.
How are Hong Kong bonds different from other bonds?
Hong Kong bond investors receive an interest rate linked to the “Hang Seng Corporate Sustainability NTR Index”, which tracks sustainable company’s performance, so you will have a better chance of being rewarded for investing in the right companies!
Plus, you can choose to invest in specific industries rather than just one country or the stock market, if that’s your thing! Zero capital gains tax on income generated by coupons (the interest payments) and profit made through selling the bond itself.
If you follow these four simple steps, you can learn how to invest in bonds in only a few minutes!
If you have been following major market events, then congratulations! Your investment is now complete.