- Do not accept the first interest rate you are offered. Compare interest rates, negotiate where possible and find out more about fixed versus fluctuating interest rates and the term of fixed-interest investments.
- Do not think interest-bearing investments are safe, risk-free havens. Remember the impact of inflation.
- Do not forget about interest rate risk. When interest rates increase, bond prices will decrease, resulting in a loss on your investment. The longer the term of the bonds, the greater the drop in the market price.
- Do not invest in bonds without understanding the terms of the bonds and the interest rate environment. Invest in well-known and reputable bonds rather than in unknown corporate bonds.
Sunday, 31 January 2010
Mistakes to avoid when investing in interest-bearing instruments
Interest-bearing investments may be relatively stress-free, but they too have their pitfalls. Watch out for the following: