AboutDoug Ingram Expertise Fixed income portfolio allocation and strategies for institutional investors. Having designed multi-scenario risk quantification and cash flow projection models for nearly 25 years, Strategic Technical Initiatives can answer your regulatory, SFAS 115 allocation, securities selection, and other questions dealing with yield curve placement and portfolio mix strategies. I perform detailed portfolio analysis and strategy ideas for SAMCO Capital Markets. We are Dallas based, and I am in the Memphis office.
Experience Trading and designing portfolio strategies since 1980.
Can you explain to me the major differences (advantages or disadvantages) of a Bond vs. a Certificate of Deposit.
From what I can gather a Bond is an "investment" with a company and a CD is an "investment" with a bank. Is it that simple?
Do bonds have minimum investment times (like a CD?)
I am under the impression that a CD is a fixed interest type of investment, assuming that is true is a Bond the same thing? (Can a bond or a CD lose money?)
These questions all revolve around personal investing.
Thank you
Answer Both are debt. Both are investments.
They also can have various coupons based on length to maturity (usually higher coupons for longer investment terms). CDs traditionally have terms up to 2.5 years (or a little more). Bonds can go out to 30 or even 50 years.
Coupons can be fixed or variable (on both).
They can a coupon or no coupon and pay only at maturity (some CDs, strips, savings bonds).
The coupon you get is based on your investment risk.
CDs have a low coupon (relatively) and are backed up to $100,000 with FDIC insurance.
For Bonds - (government or corporate debt)
In order of low to higher coupons based on ability to pay, safety, and liquidity.
Treasury bonds, Agency bonds, High quality Municipalities and Corporations. Then Munis without taxing authority, companies with a heavy debt load, companies and municipalities in debt trouble (junk bonds), etc.
Bank CDs shouldn't lose money (penalties for early withdrawl). If you have more than $100,000, use $100k in separate banks!
Bonds can go from a few days to 30+ years. You pick it!
Bonds CAN lose money if a corporation fails or a county/city gets in financial trouble (munis like Orange County, CA.)
Bonds should pay more than CDs. You pick the risk. AAA rated bonds pay less coupon than AA, then A, then Baa, etc.
A broker dealer will give you a quote like 3.82% for 4 years. You then simply check a bank to see what their best 4 year rate is. Most bonds come in $5,000 blocks. CDs can be less. Getting OUT of a CD is less costly than a bond (prior to maturity). Unless, of course, it's a large block of very liquid bonds like Treasuries.
