Mistakes Made in Bonds Investments - Assignment Example

Introduction

Individuals seeking to make income from capital investment gave always bonds to be part of their investment portfolios, however, just like Roberts; investors ignore the potential risks that accompany investment in debt instruments. Interest rates and bond prices have been known to be having a negative correlation; such that when rates shoot, the bond prices fall and the converse is true.  There are certain mistakes that have been attributed to the transactions that were done by Robert Wallace, and this paper shall provide a comprehensive analysis of the situation.

Tax-Free Municipal Bonds

The problem with municipal bonds are predictable as they pay twice a year, and a sale of the bonds virtually guarantees the present market price for the bond, which may be less or more than the first release price, obviously without the additional penalties. However; they carry comparatively low interest rates relative to the other types of securities.

Maximum Yield-Lower Quality Bonds

High-yield low-quality bonds are very risky in the long haul compared to higher-quality bonds. Their vulnerability to economic and credit risk is obvious, as they are unrated by agencies such as Standard & Poor or Moody.

Conclusion

In securities investment, it is always advisable to diversify one’s investment in different classes and categories of investment, and pooling resources in one investment bag can be counterproductive, especially in high-risk bonds such as lower-quality bonds. Instead of investing in five of the 15-year corporate bonds; he should have appropriated in different bond classes. Investing in different bonds ensures that a fall in price as a result of low high interest in one class of bond is compensated with a high price as a result of low interest in another class of bond.