Directory of risk prevention of bond investment: 1. Risk of bond investment

2. Risk prevention skills of bond investment

3. Risk prevention of corporate bond investment needs to be strengthened < /p > Risk of bond investment < /p > Any investment is risky, and the risk exists not only in price changes, but also in credit. Therefore, it is necessary for investors to correctly evaluate the risk of bond investment and make clear the possible losses in the future before making investment decisions. < /p > Of course, in the same bond market, the expected annualized returns of different investors are different, and there is a problem of investment skills. In the fifth chapter, we talked about that investors are divided into "risk-loving type" and "risk-avoiding type". For different types of investors, the investment skills are different. < /p > Although the expected annualized interest rate of bonds is generally fixed compared with stocks, people's investment in bonds, like other investments, is still risky. < /p > Risk means possible loss, and it is naive and ridiculous to think that investment will be profitable. Therefore, before analyzing bonds, it is necessary for us to first care about the risks of investing in bonds. Let's take a look at what losses we may face if we invest in bonds, and how to avoid it. < /p > (1) Default risk < /p > Default risk refers to the risk that the borrower who issues bonds cannot pay the interest or repay the principal on time, which will bring losses to bond investors. Among all bonds, the treasury bonds issued by the Ministry of Finance are often considered as gilt-edged bonds by the market because they are guaranteed by the government, so there is no risk of default. However, bonds issued by local governments and companies other than the central government are more or less at risk of default. Therefore, credit rating agencies should evaluate bonds to reflect their default risk (the issue of bond rating will be further discussed later in this section). Generally speaking, if the market thinks that the default risk of a bond is relatively high, then it will require the expected annualized rate of return of the bond to be higher, so as to make up for the possible losses. < /p > Avoidance method: The default risk is generally the risk brought by the poor operating condition or low reputation of the company or entity issuing bonds. Therefore, the most direct way to avoid the default risk is not to buy bonds with poor quality. When choosing bonds, we must carefully understand the company's situation, including the company's operating conditions and the company's past bond payments, and try to avoid investing in corporate bonds with poor operating conditions or bad reputation. During the period of holding bonds, we should try our best to understand the company's operating conditions so as to make a decision to sell bonds in time. At the same time, due to the low investment risk of national debt, conservative investors should try to choose national debt with low investment risk. < /p > (II) Expected annualized interest rate risk < /p > The expected annualized interest rate risk of bonds refers to the risk that investors will suffer losses due to changes in the expected annualized interest rate. Undoubtedly, the expected annualized interest rate is one of the important factors that affect the bond price: when the expected annualized interest rate increases, the bond price decreases; When the expected annualized interest rate decreases, the price of bonds will rise. Because the bond price will change with the expected annualized interest rate, even the national debt without default risk will have the expected annualized interest rate risk. < /p > Avoidance method: The preventive measures should be to diversify the maturity of bonds and cooperate with long-term and short-term. If the expected annualized interest rate rises, short-term investments can quickly find investment opportunities with high expected annualized income; if the expected annualized interest rate falls, long-term bonds can maintain high expected annualized income. In short, there is an old saying: Don't put all your eggs in one basket. < /p > (3) Purchasing power risk < /p > Purchasing power risk refers to the risk that the purchasing power of money will decrease due to inflation. During the period of inflation, the actual expected annualized interest rate of investors should be the expected annualized interest rate at par minus the inflation rate. If the expected annualized interest rate of bonds is 1% and the inflation rate is 8%, the actual expected annualized rate of return is only 2%, and purchasing power risk is the most common risk in bond investment. In fact, from the end of 198s to the beginning of 199s, because the national economy has been in a state of high inflation, the national debt issued by China did not sell well. < /p > Avoidance method: For purchasing power risk, the best way to avoid it is to diversify the investment, so that the risk brought by the decline of purchasing power can be compensated by the expected annualized income of some investments with higher expected annualized income. The usual method is to invest part of the funds in investment methods with higher expected annualized returns, such as stocks and futures, but the risks brought by them also increase. < /p > (4) Liquidity risk < /p > Liquidity risk refers to the risk that investors cannot sell bonds at a reasonable price in a short period of time. If an investor meets a better investment opportunity, he wants to sell the existing bonds, but he can't find a buyer who is willing to pay a reasonable price in the short term, and it takes a long time to find a buyer if the price is lowered to a very low level, then he will either suffer losses or lose new investment opportunities. < /p > Avoidance method: In view of the liquidity risk, investors should try their best to choose bonds with active trading, such as national debt, so as to be recognized by others, and it is best not to buy unpopular bonds. Before investing in bonds, you should also consider clearly that you should prepare a certain amount of cash for emergencies. After all, the transfer of bonds in the middle will not bring good returns to bondholders. < /p > (V) Risk of reinvestment < /p > There are three expected annualized returns that investors can get from investing in bonds:

1. Bond interest;

2. Expected annualized income from bond trading;

3. Interest earned by reinvesting temporary cash flows (such as interest received regularly and principal repaid at maturity). In fact, the reinvestment risk is for the third kind of expected annualized income. In the later chapters, we will see that in order to realize the expected annualized return equal to the expected annualized return when investors buy bonds, these temporary cash flows must be reinvested at the expected annualized return equal to that when they buy bonds. < /p > Avoidance method: For the risk of reinvestment, the preventive measures should be to diversify the maturity of bonds and cooperate with long-term and short-term. If the expected annualized interest rate rises, short-term investments can quickly find investment opportunities with high expected annualized returns, while long-term bonds can maintain high expected annualized returns if the expected annualized interest rate falls. In other words, it is necessary to diversify investment to spread risks and make some risks offset each other. < /p > (VI) Operational risk < /p > Operational risk refers to the mistakes made by the management and decision-makers of the bond issuing unit in the course of its operation and management, resulting in the decrease of assets and losses to bond investors. < /p > Avoidance method: In order to prevent operational risks, the company must be investigated when choosing bonds, and its profitability, solvency and reputation can be understood by analyzing its statements. Because the investment risk of national debt is very small, and the expected annualized interest rate of corporate bonds is high but the investment risk is high, it is necessary to weigh the expected annualized income and risk. < /p > Contents:

1. Risks of bond investment

2. Risk prevention skills of bond investment

3. Corporate bond investment needs to strengthen risk prevention < /p > Risk prevention skills of bond investment < /p > Bond investment is a process with constantly changing risks. Any process of investment transaction may encounter risks. Therefore, investors should not only correctly evaluate risks, but also learn to avoid risks in bond investment. Here are six ways to avoid the risk of bond investment.

1. Ways to avoid credit risk < /p > The risk of default is generally caused by the poor operating conditions or low reputation of the company or entity issuing bonds, so the most direct way to avoid the risk of default is not to buy bonds with poor quality. When choosing bonds, we must carefully understand the company's situation, including the company's operating conditions and the company's past bond payments, and try to avoid investing in corporate bonds with poor operating conditions or bad reputation. During the period of holding bonds, we should try our best to understand the company's operating conditions so as to make a decision to sell bonds in time. At the same time, due to the low investment risk of national debt, conservative investors should try to choose national debt with low investment risk.

2. Risk avoidance method of expected annualized interest rate < /p > The preventive measures to be taken are to diversify the maturity of bonds and cooperate with long-term and short-term. If the expected annualized interest rate rises, short-term investments can quickly find investment opportunities with high expected annualized returns, while if the expected annualized interest rate falls, long-term bonds can maintain high expected annualized returns. In short, there is an old saying: Don't put all your eggs in one basket.

3. Ways to avoid inflation risk < /p > For purchasing power risk, the best way to avoid it is to diversify the investment, so that the risk brought by the decline in purchasing power can be compensated by the expected annualized income of some investments with higher expected annualized income. The usual method is to invest part of the funds in investment methods with higher expected annualized returns, such as stocks and futures, but the risks brought by them also increase.

4. Liquidity risk avoidance methods < /p > In view of liquidity risk, investors should try to choose bonds with active transactions, such as national debt, so as to get the approval of others, and it is best not to buy unpopular bonds. Before investing in bonds, you should also consider clearly that you should prepare a certain amount of cash for emergencies. After all, the transfer of bonds in the middle will not bring good returns to bondholders.

5. Ways to avoid reinvestment risks < /p > For reinvestment risks, the preventive measures should be to diversify the maturity of bonds and cooperate with the long-term and short-term. If the expected annualized interest rate rises, short-term investments can quickly find investment opportunities with high expected annualized returns, while if the expected annualized interest rate falls, long-term bonds can maintain high expected annualized returns. In other words, it is necessary to diversify investment to spread risks and make some risks offset each other.

6. Ways to avoid operational risks < /p > In order to prevent operational risks, the company must be investigated when choosing bonds, and its profitability, solvency and reputation can be understood through the analysis of its statements. Because the investment risk of national debt is very small, and the expected annualized interest rate of corporate bonds is high but the investment risk is high, it is necessary to weigh the expected annualized income and risk. < /p > Contents:

1. Risks of bond investment

2. Risk prevention skills of bond investment

3. Risk prevention of corporate bond investment needs to be strengthened < /p > Corporate bond investment needs to be strengthened < /p > It seems that the circulation of corporate bonds is increasing, but in fact it has not developed much for many years. The main reason is that there are great risks in corporate bonds, which hinder some investors. On the one hand, investors should have a correct understanding of the risks existing in corporate bonds, and on the other hand, they should know how to avoid these risks. < /p > The issuer of corporate bonds is an enterprise, which is different from the issuer of national debt and policy financial bonds; Bonds have a duration, and they must repay the principal and interest at maturity, which is a hard constraint on enterprises, which is different from stocks. This special nature of corporate bonds determines the particularity of their risks. Therefore, we must attach great importance to corporate bond risks, especially credit risks and social risks. < /p > the first is the credit risk of the issuer. The main body of issuing corporate bonds in China is mostly large state-owned enterprises, and some of them are even flop companies. The bonds issued by these enterprises have quasi-government credit, so the problem of credit risk is not obvious. However, with the expansion of the market and the increase of the number of issuers, the credit risk problem will become more and more prominent. It can be imagined that if all the funds raised by listed companies through issuing stocks are realized in the form of issuing corporate bonds, it is not difficult to imagine the extent of credit risk with the profitability and integrity level of listed companies. In addition, the credit rating of domestic corporate bonds is mostly AAA. However, if it is put on the international market, the credit rating of most corporate bonds will be lowered. Because generally speaking, the rating of bonds issued by a certain enterprise will not exceed the sovereign rating of the government. It can be seen that there are still potential credit risks in our corporate bonds. < /p > The second is the social risk of breach of contract. Unlike stocks, the characteristics of bonds give creditors the right to be compensated. The long-standing consciousness that everything depends on the government makes the government the last bearer of various types of crises. If the phenomenon that corporate bonds can't repay the principal and interest on time breaks through the scope of individual cases, it is very likely that governments at all levels will come forward to "pay the bill" in the end. This situation will produce at least two hazards: first, it will undermine the stability of the entire financial system and form a potential financial crisis; Second, if the government comes forward to "pay the bill", the ultimate pressure will actually fall on taxpayers, which will affect social stability. < /p > As the saying goes, it's better to prepare for a rainy day than to dig a well when you are thirsty. When corporate bonds are issued, the issuer always feels that it can repay the principal and interest on time, and investors will not expect the issuer to break its promise. However, as a manager, you have to consider what kind of camera decision should be taken once an extraordinary situation arises. Therefore, the issuance of corporate bonds should have certain restrictions on the issuer, term and scale. Otherwise, one day, we will be exhausted to deal with all kinds of historical problems.