1. Bond Basics: Introduction
  2. Bond Basics: What Are Bonds?
  3. Bond Basics: Characteristics
  4. Bond Basics: Bond Prices and Yield to Maturity
  5. Bond Basics: Different Types Of Bonds
  6. Bond Basics: How To Read A Bond Table
  7. Bond Basics: How to Trade Bonds
  8. Bond Basics: Conclusion

Most bond transactions can be completed through a full-service or discount brokerage, and increasingly online brokerage services allow for easy and inexpensive bond trading.

Bond Brokers

You can also open an account with a specialized bond broker, but be warned that most bond brokers require a minimum initial deposit of $5,000. Another option for adding bonds to a portfolio is by looking at mutual funds that specializes in bonds (known as a bond fund).

Mutual Funds and ETFs

In addition to numerous mutual funds, there are also exchange traded funds (ETFs) that invest in bonds, and which trade like shares of stock for investors. When buying and selling bonds 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. Another drawback is that you will have to pay additional fees to the portfolio managers.

If you do decide to purchase a bond through your broker, he or she may tell you that the trade is commission free, but be wary! What typically happens is that the broker will mark up the price slightly; this markup is really the same as a commission. To make sure that you are not being charged too much, simply look up the latest quote for the bond and determine whether the markup is acceptable.

Government Bonds

Many financial institutions today will provide their clients with the service of transacting government securities. However, if your bank or broker doesn't provide this service, you can purchase government bonds directly through a government agency. (This is true in most countries). In the U.S. you can buy bonds directly from the federal government through its service, TreasuryDirect. The Bureau of the Public Debt started TreasuryDirect so that individuals could buy bonds directly from the Treasury, thereby bypassing a broker and greatly reducing transaction costs. All transactions and interest payments are done electronically.


Bond Basics: Conclusion
Related Articles
  1. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  2. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  3. Investing

    Pros & Cons Of Bond Funds Vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  4. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  5. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  6. Investing

    The 4 Biggest Bond Myths

    Bonds can be a great addition to a portfolio but be aware of these four myths.
  7. Financial Advisor

    How Brokers Are Compensated for Selling Bonds

    Find out how brokers are paid for selling bonds and how the transaction costs are passed on to the investor through a markup or commission.
  8. Investing

    Bond ETFs: A Viable Alternative

    Discover the advantages of a security that tracks bond index funds, but trades like a stock.
  9. Investing

    An Introduction to Individual Bonds

    Individual bonds are better than bond funds and can be a key component to one’s investment strategy.
Frequently Asked Questions
  1. What is a reasonable amount of debt?

    It really depends on numerous factors - what stage of life you are at, your spending and saving habits, the stability of ...
  2. How are IRA withdrawals taxed?

    Learn how IRA withdrawals are taxed at retirement age and for qualified withdrawals. Consider the different tax consequences ...
  3. How does CareCredit for pets work?

    Understand how using a CareCredit credit card aids pet parents in the payment of potentially high veterinary care costs.
  4. Do 401k contributions reduce AGI and/or MAGI?

    Discover how contributing to a 401(k) plan can reduce your AGI and/or MAGI. Also learn by how much and how this differs from ...
Trading Center