Question

Do some research and share two strategies/techniques you would like to use for your bond investment and explain the reason why you would like to use them.

Please be well versed, detailed and clear! Thanks :)

Answer 1

Two strategies/techniques i would like to use for my bond investment are as follows :-

1) "buy and hold" or Passive strategy.

2) Active Strategy of Bond

Passive Strategy of Bond Management

The "buy and hold" or Passive strategy is basically focused to increase the income-generating capacity of the bond investment. The concept of this technique is that bonds are presumed to be the safest investment.We can predict sources of income from the bond. Buy and hold strategy includes buying of individual bonds and holding them till the maturity.We can use the Cash flow from the bonds to fund the external financing needs or for reinvestment in the existing portfolio.

As far as a passive strategy is concerned, the bond may be purchased originally at premium or discount with a presumtion that full par value will be redeemedat the end of maturity. Here The only expected variation with respect to the total return from the actual interest yield is the reinvestment of the interest amounts

Here i chosse this strategy if i buy the bond with an intention to hold it for long term.

Active Strategy of Bond

Here the goal of an active management is to increase the total return from the bond investment. If we choose the increased opportunity of making returns, then it obviously have increased risk. examples of active Strategy include anticipation of interest rate, valuation, spread exploitation, timing and multiple interest rate scenarios. The fundamental presumption of every active strategies is that, Here the investor is ready to make bets on the future estimations rather than settlling with the possible lower returns which a passive strategy may offer.

Here i chosse this strategy if one of my intention to make profit is based on the speculation concept.