Investing in various bond strategies can lead you towards a high net-worth with significantly reduced risk. Trading in bonds can be risky however, and holding bonds to full-term or near full-term will significantly reduce risk. The steady interest-payments that bonds throw out are like the proverbial drops that add up to an ocean of wealth, or a multi-million dollar net worth. While not as exciting as playing the stock market, it will free up your mind to concentrate on other important things in your life - your business, career, family and more.

Bonds are loan instruments, and by buying a bond, you are loaning the receiving entity the said amount of money. Naturally, you want to be sure that the said entity is trustworthy and will return your principal while paying the regular interest due. Credit rating agencies such as Moody's and Standard & Poors simplify the task of determining whether the entity you are lending to is trustworthy or not. In this thread then, government entities - both federal and state - are considered the most pristine because of their ability to raise taxes. Corporations with a strong balance sheet are next in sequence, followed by large corporations with enough assets to back their loans and going further down till you enter the junk bond category. Junk bonds are issued by entities that may or may not pay back your loan - and to attract investors, they pay a very high interest rate.

While it should be self-evident that returns from a bond portfolio are likely to trail returns from the stock market, the key factor is risk-adjusted returns. Bonds held to full-term reduce your risk significantly and should not be overlooked. To further reduce risk, ladder your portfolio such that you have some part of your bond portfolio maturing each year. You can achieve that by building your bond portfolio a little each year. For example, you can buy some 10 year corporate bonds this year, then some more next year and so on. In 10 years' time you will have some bonds maturing each year. You can do the same with 5 year or even 2 or 3 year bonds. This approach lets you get the maximum interest possible owing to the longer duration of each bond, but reduces the risk for your portfolio as some part of the portfolio is always near maturation.

Inflation is the biggest enemy of a pure bond-portfolio. Since your returns are fixed, a high inflation rate immediately lowers your real rate of return. While stocks tend to adjust to inflation, bonds that are held to maturity are going to return a pre-set amount. While instruments such as TIPS and I-Bonds have been created to adjust with change in inflation, these do not carry a significant real-return, and in times of low inflation can lower your overall returns significantly.

Loss in value of currency in which the bond is paying its returns is another risk-factor. It often pays to diversify your bond portfolio across multiple countries and currencies. For example a mix of bonds issued in Euros, Canadian and Australian dollars, British Pounds along with the US dollar would make for a strong, well-diversified portfolio.

Corporate bonds are the favored instrument for those seeking higher returns - and firms with the highest ratings tend to have bonds that are just as stable as from a sovereign nation. The higher interest rate is in compensation for the relatively higher risk associated with any business entity. Corporate bonds come with many built in features that favor the corporation however - such as callability (i.e. - the bonds may be called back before their maturity if the company has access to similar funds at a lower rate) - and this reduces the desirability of these bonds.

Taking these factors into account, a portfolio of laddered ten-year government bonds from multiple countries (and hence currencies) can throw off cash that can be re-invested in more bonds and pave your path towards early retirement without significantly raising your risk profile!