How to Buy Bonds

Bonds are a fixed-income security that represents debt, usually of a corporation or government. Investors can buy bonds as part of a diversified portf🤡olio. Where you buy bonds depends on the type of bond you are purchasing.

Many types of bonds can be bought from a bond broker through full-service or 澳洲幸运5官方开奖结果体彩网:discount brokerage channels. This is similar to the way stocksဣ are purchased from a stockbroker. You can also buy bonds as part of an ETF (exchange-traded fund) or mutual fund. Government bonds can either be purchased from a broker, as part of a fund, or directly from the gov🐷ernment issuing the bond.

While the presence of 澳洲幸运5官方开奖结果体彩网:online brokerage services has brought investing costs down, ♌dealing with a bond broker can still be prohibitive to some retail investors.

How to Buy Bond Funds

As an investment asset, bonds have different characteristics from stocks. They have less volatility than equities, making them a less risky investment. However, they don't offer the same potential level of return over time. Dividing your investments between multiple assets such as stocks, bonds, and cash creates a more diversified portfolio.

Buying bonds individually can be challenging for individual or inexperienced investors. 澳洲幸运5官方开奖结果体彩网:Buying bond funds through a brokerage can simplify this process.

A 澳洲幸运5官方开奖结果体彩网:bond fund is a mutual fund or 澳洲幸运5官方开奖结果体彩网:exchange-traded fund (ETF) t𓆏hat exclusively holds bonds in its portfolio. These funds are convenient since they are usually low-cost and contain a broad base of diversified bonds so you don't need to do your research to identify specific issues.

When buying and selling these funds (or,ไ for that matter, bonds themselves on the open market), keep in mind that these are “secondary market” transactions, meaning that you are buying from another investor and not directly from the issuer. One drawback of mutual funds and ETFs is that investors do not🅠 know the maturity of all the bonds in the fund portfolio since they are changing quite often, and therefore these investment vehicles are not appropriate for an investor who wishes to hold a bond until maturity.

How to Buy Government Bonds

Purchasing government bonds such as Treasuries (U.S.) or Canada Savings Bonds (Canada) works slightly differently than buyin𒁃g corporate or municipal bonds. Many financial institutions provide services to their clients that allow them to purchase government bonds through their regular investment accounts.

If this service is not available to you through your bank or brokerage, you also have the option to purcha๊se these securities directly from the government.

In the U.S., for example, Treasury bonds and bills (T-bonds and T-bills) can be purchased through . Sponsored by the U.S. Department of the Treasury Bureau of the Fiscal Service, TreasuryDirect lets individual investors buy, sell, and hold Treasury Bills, Notes, Bonds, Inflation-Protected Securities (TIPS), and Series I and 澳洲幸运5官方开奖结果体彩网:Series EE Savings Bonds in paperle💃ss form via electronic accounts.

No fees or commissions are charged, but you must have a Social Security number or U.S. Taxpayer Identification Number, a U.S. address, and a U.S. bank account to purchase via the site.

How to Buy U.K. Bonds

In addition to the Treasury, cor♛porate, and municipal bonds described above, there are many other bonds that can be used strategically in a well-diversified, income-generating portfolio. Some investors may choose to hold bonds issued in other countries.

Like most other countries, the two most common types of bonds in the U.K.꧙ are government and corporate ones. 

Gilts

In the U.K., government bonds are called "gilts." Similar to U.S. Treasuries, they are pretty much guaranteed to pay out, making them safe investments. That also means they generally pay a low rate of return. Gilts come in two forms; a standard or conventional gilt and index linked gilts. Standard gilts offer a fixed payment every six months up until the maturity date. Index-linked gilts constitute a minority of gilts in issue. They link their payouts to the U.K. 澳洲幸运5官方开奖结果体彩网:Retail Prices Index (RPI), which moves up and down based on inflation.

Gilts can be bought directly from the U.K. Debt Management Office’s . Alternatively, they can be bought on the secondary market, which is accessible via brokers, banks, and so on. Prices are quoted per £100 face value. However, it’s possible to trade gilts in much smaller units.

Another optio💞n is to invest in a fund holding a portfolio of U.K. government bonds. Some fund🐲s specialize specifically in U.K. gilts. Others may mix them with government bonds from other countries or perhaps corporate bonds.

Corporate Bonds

Generally, the best, most accessible way to buy a bond issued by a U.K. company is on the secondary market through an online broker. Most brokers offer a wide selection of 💜corporate bonds. They’ll typically💖 list the coupon, the day the loan is due to be paid back, and the price.

Investing individually in a suitable number of U.K. corporate bonds can be quite expensive. For most retail investors, it is more affordable to invest in a range of them via an ETF or other fund instead.

Cost of Buying Bonds

Buying bonds through a brokerage comes with associate꧙d costs. Many specialized bond brokerages require high minimum initial deposits; $5,000 is typical. There may also be account maintenance fees and commissions on trades.

Depending on the quantity and type of bond purchased, broker commissions can range from 0.5% to 2%. Bond funds tend to have lower expense ratios than their equity counterparts. Passively managed bond ETFs, which track a bond index, tend to have the fewest expenses of all.

When using a broker (even your regular one) to purchase bonds, you may be told that the trade is free of 澳洲幸运5官方开奖结果体彩网:commission. What often happens, however, is th🏅at the price is marked up so that the cost you are charged essentially includeꦆs a compensatory fee.

Strategies for Buying Bonds

Today, many online brokerage 🦩platforms make buying bonds of all types easy and cost-efficient. Therefore, finding the right bonds for your portfolio is key. Depending on your investment goals, tax exposure, risk tolerance, and time horizon, different types of bonds will be most appropriate for you. Most of these platforms will also have to💟ols to screen the universe of bonds and filter based on various criteria such as credit rating, maturity, type of issuer, and yield.

U.S. Treasury bonds are frequently used as a benchmark for other bond prices or yields. Any bond's price is best understood by also looking at its yield. As a measure of relative value, the yields of most bonds are quoted as a yield spread to a comparable U.S. Treasury bond.

If you're willing to give up some yield in exchange for a risk-free portfolio, you can use Treasury bonds to structure a portfolio with coupon payments and maturities that match your income needs. The key is to minimize your 澳洲幸运5官方开奖结果体彩网:reinvestment risk by matching those coupon payments and mat🔥urities as closely as possible to your income needs.

A 澳洲幸运5官方开奖结果体彩网:bond ladder is a strategy that attempts to minimize these risks associated with 澳洲幸运5官方开奖结果体彩网:fixed-income securities wh♋ile managing cash flows for the individual investor. In a bond ladder, the bonds' maturity dates are evenly spaced across several months or several years so that the proceeds are reinvested at regular intervals as the🏅 bonds mature. By staggering maturity dates, you won't be locked into one bond for a long duration.

The Bottom Line

A well-diversified portfolio should include 澳洲幸运5官方开奖结果体彩网:investments in bonds, but the bo🐟nd market can be complex and overwhelming if taken as a whole. Most brokers today allow for easy access to the bond market, either directly or via bond mutual funds or ETFs. Depending on your investment goals, tax exposure, risk tolerance, and time horizon, different types of bonds will be most appropriate for you. Knowing the risks and features of each type of bond can help you understand when and how much of that asset class to add to your portfolio.