If you are looking for a gold mine, try the safer route of investment grade corporate bonds. Sounds gibberish? Well lets just say that in laymans term, it means thats where the big bucks come from.
Investment grade corporate bonds is a corporate term for a safe investment that is by way of issuing a debt instrument called bonds. How does it work? First off, you need to know that there are two kinds of investment when it comes to an individual investor. An equity investment, such as being a stockholder, requires the investor to take an ownership in the corporation, i.e. buying stocks, while a debt investment such as in investment grade corporate bonds, only requires the investor to loan money to the corporation.
This scenario can be further illustrated by way of a simple borrower-lender relationship. You invest your money by loaning a certain amount to the corporation. You are then issued a bond. As a bond holder, you become the lender and the corporation in turn becomes the borrower. Within a certain timeframe, there is an existing contract between you and the corporation that it will pay you the interest for the amount you loaned them. Thats how you make money. By the end of the contract, the corporation will then repay you with the principal amount you invested which in turn can be re-invested with the same corporation or anywhere else.
One advantage of investment grade corporate bonds is that unlike being a stockholder, once the corporation dissolves or becomes bankrupt, the investor gets priority in terms of payment. Moreover, investment grade corporate bonds can also provide a steadier flow of income, via the interest paid, than being a corporate stockholder. Also, once the principal amount invested is already paid, it can be re-invested. Still another advantage of investment grade corporate bonds is that it can be a good way of diversifying your investments.
Whats the difference between an investment grade and a non-investment grade corporate bond? The classification depends upon the rating that major rating companies give the bonds. Investment grade corporate bonds have a much higher quality when it comes to price and yield thus, the non-investment ones can be easily considered as junk.
Also, when you are deciding to try investment grade corporate bonds, you should also look into closed end bond which can either be a taxable or a non-taxable bond, and have a fixed number of shares that may also be traded in the stock exchange similar to corporate stocks.