Even with interest rates on the rise, a person can barely afford a diet coke with the annual bank interest paid on $10,000. The number one question facing many investors today is how to beat the bank with a relatively safe investment. While everyone is disgusted with the interest being paid, no one wants to lose principal at the expense of getting a few more cents on the dollar in interest. Exchange Traded Debt EDT may well be the answer to this dilemma.
Companies, who need cash, issue bonds to investors. In exchange for the cash loan, the bond owner gets periodic interest payments and receives his principal back again at some time in the future. Exchange Traded Debt is a new type of bond. ETD manifests itself in the form of “Baby Bonds.” These bonds generally have a $25 par as opposed to the traditional corporate bonds which are sold in the Bond Market in $1,000 increments. The bonus is that these Baby Bonds trade like a stock on an exchange. The simplicity of buying a Baby Bond in the stock market is becoming more popular every day as common investors learn more about ETD.
As alluded to earlier, ETD in the form of Baby Bonds, might very well be an answer to next-to-nothing interest being paid in your checking account. Baby Bonds are issued by both large and small companies. Bonds issued by smaller entities, called Business Development Companies BDCs*, are the bond of choice for many income seekers. Jim Hammond, a Certified SCORE Mentor and Board Member, cites the Baby Bond’s popularity as stemming from the fact that “…no BDC has ever defaulted on a bond obligation.” Baby Bonds issued by BDCs are therefore a low risk investment which pay 4-6% interest after fees. They may be an answer to today’s interest dilemma because this relatively safe investment is now readily accessible.
One essential point to make regarding Baby Bonds is that finding these bonds with short durations is of utmost importance in a rising interest rate environment. Investors do not want to be caught with longer duration bonds right now. For more information on shorter duration Baby Bonds contact Innovative Investment Solutions, Inc.
One essential point to make regarding BDCs is that some of these stocks trade on light volume. For more information BDCs, contact Innovative Investment Solutions, Inc.
*Investopedia defines a Business Development Company (“BDC”) as “a form of unregistered closed-end investment company in the United States that invests in small and mid-sized businesses. This form of company was created by Congress in 1980 as amendments to the Investment Company Act of 1940. Publicly filing firms may elect regulation as BDCs if they meet certain requirements of the Investment Company Act.””
IMPORTANT CONTENT DISCLAIMER
The information presented and made available in this article is intended for educational purposes only. The information is not and should not be confused with investment advice and does not attempt or claim to be a complete description of any specific securities or markets. This information is of a general nature and has not been prepared with regard to any particular person’s investment objectives, financial situation and/or particular needs.
The opinions and analyses included herein are based on sources and data believed to be reliable and are presented in good faith; however, no representation or warranty, expressed or implied is made as to their completeness or accuracy. It is imperative to understand your investment risks since all stock and option investments involve significant risk. The risk of loss in trading securities and options can be substantial.