What is a Corporate Bond?

• Before investing in corporate bonds, it is important to understand exactly what you are dealing with as an investment. Corporate bonds are a type of debt instrument used to fund corporate projects. When a company issues bonds, investors can purchase these bonds and then receive regular interest payments from the company. Upon the maturation of the bond term, the investor can get back his original investment from the company. The bond is guaranteed by the company and if it defaults, bondholders may get back a portion of their investment when the assets of the company are liquidated.
  
  

Bond Ratings

• One of the most essential tools that you can use to research corporate bonds is the bond rating. A bond rating is a measure that bond rating agencies put out on a regular basis. For example, companies like Standard & Poor's and Fitch put out bond ratings for every major corporate bond issue. If a company has a good bond rating, this means that it is very unlikely to go into default on the debt. Companies with low bond ratings have a higher risk of default.
  
  

Sectors

• When building a portfolio of bond investments, it is important to find out what sectors each company comes from. You should invest a portion of your portfolio into several different sectors of the market. By keeping your investment to no more than 10 to 15 percent in each sector, you can help diversify your portfolio. This protects you from putting too much money into a particular sector and then losing it during a market crash. For example, you may want to put some of your money into the financial sector in some into the technology sector.
  
  

Professional Management

• If you do not wish to get involved with bond research, you could leave this up to someone else. For example, if you put your money into a bond mutual fund, the fund manager conducts all of the research for you and then purchases the appropriate bonds for the portfolio. When you buy into a bond fund, you must pay a management fee to the fund to compensate for the professional research and management. This can eat into your returns, but it also saves you a great deal of time and may reduce risk.