Basic debt instruments: Calculating returns, comparing with stocks, and investment strategies in 2024

When Do Bonds Become an Option

In a volatile investment environment, your capital needs a safe space to grow, but stocks seem too risky, gold prices are high, and bank deposits offer only minimal returns. Bonds (Bonds), which are often overlooked investment tools, can fill that gap in your portfolio significantly.

What Are Bonds Anyway?

Simply put, bonds are official documents that imply “I owe you”. The buyer of a bond (creditor) has the right to demand the issuer (company or government) to return the principal and interest according to agreed terms.

Both the issuer and the bondholder are in different tiers of the financial hierarchy. Bondholders have priority over shareholders for repayment, so the risk is lower, but the returns are also less than more risky assets.

Five Risk Dimensions to Consider

Before purchasing bonds, you should understand these risks:

1) Default Risk – If the company or government goes bankrupt, you might not get your principal back.

2) Interest Rate Risk – If you buy a bond with an 3% yield and market rates rise to 5%, you lose potential opportunity.

3) Liquidity Risk – Some bonds are not actively traded, and you may have to wait longer to find a buyer.

4) Inflation Risk – If inflation exceeds your interest earnings, the real value of your returns diminishes.

5) Reinvestment Risk – When the bond matures, if you don’t find a good investment, you might have to make decisions under time pressure.

Bond Structure: 3 Hidden Rights to Watch Out For

Beyond basic returns, some bonds come with “additional rights” that impact your investment:

Callable (Issuer’s Right to Redeem Early) – The issuer can buy back the bond before maturity. Looks good, but you lose out on future interest income.

Puttable (Holder’s Right to Redeem Early) – You can sell the bond back to the issuer before maturity if market conditions turn unfavorable for you.

Convertible (Convert to Shares) – You have the option to convert the bond into common stock at a specified price and time. This feature favors the issuer being below, but can sometimes benefit investors.

Types of Bonds: Which One to Choose?

There are many types of bonds, depending on your preference:

By Issuer:

• Government Bonds (Safe but low yield)
• State-Owned Enterprise Bonds (Moderately safe)
• Corporate Bonds (Higher yields but increased risk)

By Claim Rights:

• Unsubordinated Bonds (Paid equally with other creditors)
• Subordinated Bonds (Paid after other creditors)

By Interest Payment Method:

• Regular Payments (Paid twice a year, e.g.,)
• Accrued Interest (Paid at redemption)
• Zero Coupon (Purchased below face value, profit from difference)

By Interest Rate Type:

• Fixed Rate (Fixed return – predictable)
• Floating Rate (Adjusts with an index)

Calculating Returns Made Easy

Example: Buy a bond with a face value of 10,000 THB, an 8% annual yield, paid twice a year, for 4 years.

• Interest per period = 10,000 × (0.08 ÷ 2) = 400 THB
• Annual interest = 400 × 2 = 800 THB
• Over 4 years = 800 × 4 = 3,200 THB
• Total principal + interest = 10,000 + 3,200 = 13,200 THB

This rough calculation doesn’t account for inflation but gives you a general idea.

Two Markets: When to Buy and When to Sell

Primary Market (Primary Market) – You buy directly from the issuer or through institutions. Price, interest rate, and terms are “take it or leave it” at issuance.

Secondary Market (Secondary Market) – If you don’t want to hold until maturity or want to buy from existing holders, this is BEX (Bond Electronic Exchange) in Thailand. Transactions are through brokers, similar to stocks, with T+2 (2 business days) settlement.

Investing in Bonds in 2024: Is It Really Good?

The advantages of bond investing still hold:

1. Flexible durations – from 1 day up to 20 years.
2. Steady cash flow – if you choose bonds with regular interest, you get income without waiting until maturity.
3. Higher returns than regular deposits – yields are somewhat above bank rates.
4. Lower risk than stocks – your claim is prioritized, reducing potential losses.
5. Sufficient liquidity – trading doesn’t require many participants.

Bonds vs. Stocks: Who Wins?

This is a common question. Let’s compare:

Now decide which is better:

If you are young and risk-tolerant, invest in stocks — you have time to recover from losses.

If you are nearing retirement and want peace of mind, bonds may be better — reduce daily market stress.

A common strategy: Stocks + Bonds = “Balanced Portfolio” — reasonable returns without overexposure to market volatility.

Final Thoughts

Bonds are not the boring investment tools many think they are. They are mechanisms that add stability to your investments, shielding you from market volatility. In today’s environment, with open access to information and trading channels, choosing the right investment tools depends on understanding your needs. For those seeking a balance of safety and returns, bonds might just be the answer.