No Junk Here – Angel Bonds are a Different Kind of Investment

by Investing School on July 25, 2011

You have certainly heard of “junk” bonds; angel bonds are the opposite of these fallen investments. These bonds are “investment grade” although they pay a lower interest rate. They can do this because the issuing company has a high credit rating. The minimum ranking of an investment bond is the grade of “BBB” as defined by S&P and Fitch or “Baa” by Moody’s. These ratings are based upon the financial standing of a particular company.

If for some reason the company is no longer able to pay back the principal, the bond may fall below this standard and become a fallen angel.

Angel investors are those who invest in start-up companies which can’t find funding otherwise. Some of these investors want a share in profits over the long term, while others want partial ownership in the company; the arrangements are often as unique as the individuals involved. The risks in this kind of investment strategy are significant, and there are many ways the investment can go wrong.

Perhaps the best way to minimize risk in such angel bonds is to go over the company’s financial plan thoroughly. Another option is to enter the investment as part of a larger group. Younger investors can pursue such opportunities more aggressively while those reaching the end of their investment horizon should avoid putting much money into such bonds.

Before getting involved in angel bonds and other such financial arrangements, the investor should do a great deal of research about the proposal, the company and the risks.

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