## Bonds You Should Know: From Basics to Investment Decisions

Amidst the volatility of financial markets, many investors feel confused. Why are stocks risky? Bank deposits yield too little returns. And in this economic world, the best approach is to find a suitable solution between these two options. The answer is **bonds**, an investment choice that often doesn't receive enough attention.

### What exactly are bonds?

In the simplest terms, bonds are like debt certificates issued by (companies or governments) to (investors). The issuer receives money and promises to pay interest periodically and return the principal at maturity. Meanwhile, holders benefit from a steady cash flow, which offers better returns than regular deposits but with lower risk than stocks.

### Risks to Watch Out For

Investing in bonds isn't risk-free. There are five key risk factors:

**Default Risk** is the fear that the issuer may not pay when due, especially bonds issued by companies with weak financial health.

**Interest Rate Risk** occurs when market interest rates change. If you buy a bond and interest rates rise, you might miss out on better returns.

**Liquidity Risk** Bonds don't have a stock-like trading market. If you want to sell before maturity, it may be difficult to find a buyer or you might have to sell at a lower price.

**Inflation Risk** If inflation is high, the purchasing power of the money you receive decreases. If interest rates are lower than inflation, real returns can be negative.

**Reinvestment Risk** When bonds mature, there might not be suitable investment options for reinvesting the proceeds.

### Hidden Rights That May Be Included

Some bonds come with special privileges. Bondholders should understand these before purchasing:

**Callable (Issuer’s Right)** The issuer has the right to redeem the principal early, which is disadvantageous to investors because they lose future interest payments.

**Puttable (Holder’s Right)** Bondholders can sell back the bond to the issuer under certain conditions before maturity.

**Convertible (Conversion Right)** Bondholders can convert bonds into common shares of the issuing company, offering additional speculative opportunities.

### What Types of Bonds Are There?

**Classified by Issuer** Bonds can be issued by the government (least risky), public sector organizations, or private companies (corporate bonds). The risk and interest rates increase in that order.

**Classified by Seniority** Subordinated bonds have lower priority for repayment compared to other creditors, while non-subordinated bonds have equal rights with regular creditors.

**Classified by Collateral** Some bonds are secured by assets, others are unsecured. This classification affects the risk level.

**Classified by Interest Payment Method** Bonds may pay interest regularly, as a lump sum at maturity, or may be zero-coupon bonds sold at a discount without periodic interest.

**Classified by Interest Rate Type** Some bonds pay fixed interest throughout, others have floating rates tied to an index.

### How to Buy, Sell, and Calculate Returns

There are two main channels for bond trading: **Primary Market (Primary Market)** where you buy directly from the issuer through commercial banks or financial advisors, with terms like interest rate and maturity set from the start.

**Secondary Market (Secondary Market)** in Thailand, such as BEX, where bondholders can trade among themselves, similar to stocks, with a T+2 clearing period.

For example, if you buy a bond worth 10,000 THB with an 8% annual interest rate paid semi-annually, holding it for 4 years, you will receive 800 THB in interest per year, totaling 3,200 THB over four years, plus the principal of 10,000 THB, for a total of 13,200 THB.

### Is investing in bonds suitable in 2024?

Bonds offer several advantages:

**Flexible Duration** from 1 day up to 20 years, allowing you to choose based on your goals.

**Steady Cash Flow** If you select bonds that pay regular interest, you get additional income beyond principal savings.

**Better Returns than Bank Deposits** Bonds generally offer higher interest rates with lower risk compared to stocks.

**More Secure Debt Priority** In case of company bankruptcy, bondholders are paid before shareholders by law.

**Moderate Liquidity** The secondary market provides flexibility to exit positions.

### Bonds vs. Stocks: Which to Choose?

Deciding between bonds and stocks depends on your personal situation:

**Stocks** are suitable for younger investors willing to accept higher risks for higher growth potential. Stocks can grow significantly but are more volatile—up to three times more than bonds.

**Bonds** are better for older investors seeking stability, lower risk, and predictable returns. They offer lower yields but less volatility.

**Balanced Strategy** Many investors combine both—stocks and bonds—to offset volatility and achieve a suitable return with manageable risk.

### Summary

Bonds are a meaningful investment tool for portfolio balance. They offer returns higher than regular savings but with less risk than stocks. With a variety of bonds available, investors can find suitable options to meet their needs and improve their investment balance. When choosing bonds, understanding the risks, types, and personal investment goals is crucial to making confident decisions and achieving investment success.