Those who find stocks volatile may find that bond investments are safer in contrast. They believe that it is so safe; in fact, that many people decide to invest in without fully understanding how it works. Those wanting to maximize their yield in bonds would do well to take notice of these five tips that I have penned for them:

1. Know your key terms. Are you comfortable enough with explaining to a person what a bond’s par value, coupon rate and maturity rate mean? If you can comfortably talk about it with someone, then that means you understand them.

2. Know how to compute for the yield. Crunch the numbers and then compare the result with other potential investments. It’s pretty basic to compute. Yield is just the interest that the bond pays in a year divided by its current price.

3. Be mindful of the bond’s rating. Such ratings indicate the stability of the bond issuer’s cash flow. Review the bond’s rating before you finalize your decision to purchase. The quality of the bond is directly proportional to how high the rating is.

4. Be aware of the bond’s the bond’s interest rate risk. The interest rate and the bond price often go opposite ways; interest rate risk is the term that describes this relationship. A bond’s price is likely to go down as interest rates go up. Long-term bonds are especially susceptible to interest rate risk.

5. Above all, think before you sell. The price of a bond in an ideal situation does not change; it will only do so if you buy or sell it before it matures. Factors affecting this change are the bond’s maturity rate, transaction costs and interest rates. Examine the bond markets carefully if you’re thinking about selling before the maturity. It’ll help you determine if doing so would be easy or difficult.