Creating A Positive Business Culture

Are Surety Bonds A Solid Investment During A Recession? You Be The Judge

by Beatrice Lambert

Choosing various investments in which to fill out your investment portfolio is definitely not easy. With all of the options out there, and the country just beginning to recover from a recession, you might be concerned that the investments you choose will not be protected if another recession hits before you retire. That said, you may be looking at "safe" investments, like surety bonds. How solid of an investment are they? You be the judge.

If You Are the "Obligee"

As an "obligee," you are the person backing and investing in someone else. You are putting your money up for a borrower to use and pay back, with fees and interest. In short, you operate like a bank, but you are private investor for that which the "principal" (or borrower) needs. The "surety" is the bonding company that guarantees that you will get your money back, and possibly a little more. This is different from just acting as a private investor alone, as you have no guarantee of getting your money back when you lend money directly to a borrower.

The important part to remember is that you are guaranteed your money back. If the principal (borrower) defaults, the surety makes sure you get every dime back, although you may or may not see a return on your investment. If the principal does not default, you get your money back plus a little extra. During a recession, there is a higher risk that you will not see a profit because borrowers tend to default more during a recession. During times of economic recovery and prosperity, the tables turn and you are likely to see profits.


So, are surety bonds a solid investment during a recession? They could be. The important part is that you get every dime you invested back, regardless of the outcome with the principal. That is the assurance the surety company makes with you. It means that you will never lose any money on surety bonds (unless there is some unusual clause in the surety contract), and there is always the possibility of gain.

It is smart to wait to invest in surety bonds when the country is in economic recovery, or when the country is flourishing. Then you will see some profits, if not a full profit, returned on your investment. You may also want to consider surety bonds that back construction in developing countries, where new construction will create growth and jobs.

For more information, you will want to contactNFP, P & C, Inc.