Bond Review Compare and Summarize a Separate

Bond Review Compare and summarize a separate article on why companies or individuals invest in bonds. There are a variety of reasons as to why a corporation or an individual will purchase bonds. Some of the most notable that were previously discussed include: safety, steady returns and they are providing diversification to the portfolio. To determine the accuracy of these findings we will compare these ideas with those from a piece literature that will be examined.

Once this takes place, it will provide specific insights about the overall advantages that bonds are offering to: corporations and individuals. The article that we will be examining is titled the Tax Advantages of Pension Fund Investments in Bonds. This was selected, because it can provide specific insights about why this particular asset class has become so popular. At the same time, it will offer historical insights about the advantages that bonds have over other areas of investing.

This will help to corroborate the findings about the overall benefits that this asset class is providing to a host of individual and institutional investors. There are a number of specific advantages that bond investing can offer to pension funds over the long-term to include: it will reduce volatility in cash flows, it will increase their liquidity position and it will provide a variety of tax benefits.

The way investing in bonds will help a pension fund to reduce volatility in cash flows, is to select investments where the principal can remain stable. This will reduce the amounts of volatility that the fund will have in its portfolio from other classes. The interest that is being received will help to improve the liquidity position by: ensuring that there is a consistent amount of cash flow that is generated.

These different elements are important, because they will provide these funds with greater stability in their earnings and how they are generating their profits. (Black) The way that this will increase their liquidity position is through: the stability of the bonds and the interest that they are receiving. This can be used to increase their investments in other fixed income securities that are interest bearing. Once this begins to occur, this will cause the returns that the fund is receiving to improve.

This will help their cash flow and liquidity position to increase. (Black) Depending upon the type of bond that is being selected, most pension funds will be able to receive tax breaks by investing in certain kinds of securities (such as municipal bonds). This is important, because many of these kinds of organizations can be able to: receive a higher return and they can reduce their expenses by millions of dollar a year.

Over the course of time, this will have a direct impact upon the total return and the liquidity position of the fund. (Black) When you compare this information, with the advantages of investing in bonds that were discussed previously (i.e. safety, steady returns and they are providing diversification to the portfolio), it is clear that it is confirming why investors are demanding this particular asset class. As it found that.