Debt investment has traditionally been the domain of large financial institutions. However, new investment opportunities in this area have made it accessible for small investors. But before investing in debt, you should understand how it works and what it entails. Whether you are planning to invest in bonds or stocks, you need to know the basics of debt ownership.
The main feature of debt instruments is that they are characterized by periodic cash flows. These cash flows are generally described by a yield, which is usually expressed as a percentage. It is important to understand the different types of yields and the assumptions used to calculate them. Once you have an understanding of these factors, you can compare various debt instruments to find the best one for your needs.
Debt investments include government, corporate, and municipal bonds, real estate, peer-to-peer lending, and personal loans. Debt investments provide fixed income without the need for ownership of the company or asset. However, they tend to provide lower returns than stocks. Therefore, they are not the best choice for those who are looking for a high return without the risk of losing money.
