{"id":127509,"date":"2023-05-10T07:46:26","date_gmt":"2023-05-10T07:46:26","guid":{"rendered":"https:\/\/businessyield.com\/?p=127509"},"modified":"2023-05-10T08:44:10","modified_gmt":"2023-05-10T08:44:10","slug":"how-to-buy-bonds","status":"publish","type":"post","link":"https:\/\/businessyield.com\/bs-investment\/how-to-buy-bonds\/","title":{"rendered":"How To Buy Bonds: Top Easy Steps to Follow","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"

Bonds are often purchased from a bond broker via full-service or discount brokerage channels, in the same manner that stocks are purchased from a stockbroker. While the availability of Internet brokerage services has reduced investment fees, engaging with a bond broker can still be prohibitively expensive for certain retail investors. Here’s a breakdown of how you can buy bonds, including available platforms like Robinhood and E-Trade.<\/p>

How to Buy Corporate Bonds<\/span><\/h2>

Many specialized bond brokerages need large initial deposits; $5,000 is common. Account maintenance fees may also apply. And, of course, trade commissions. Broker commissions can range from 0.5% to 2%, depending on the amount and type of bond acquired.<\/p>

When you use a broker (even your regular one) to buy bonds, you may be told that the transaction is commission-free. However, it is common for the price to be marked up so that the cost you are paying practically includes a compensation fee. If the broker does not profit from the transaction, they are unlikely to provide the service.<\/p>

Assume you made an order for ten corporate bonds at a price of $1,025 per bond. You’d be told, though, that they cost $1,035.25 each bond, making your total investment $10,352.50 rather than $10,250. The difference amounts to a 1% commission for the broker.<\/p>

Look up the most recent bond quote to ascertain the markup before purchasing; you can also utilize the Trade Reporting and Compliance Engine (TRACE), which displays all over-the-counter (OTC) transactions in the secondary bond market. Use your judgment to determine whether the commission fee is excessive or one that you are willing to accept.<\/p>

How to Buy Government Bonds<\/h2>

Buying government bonds, such as Treasuries in the United States or Canada Savings Bonds in Canada, works slightly differently from purchasing business or municipal bonds. Many financial institutions provide their clients with the option of purchasing government bonds through their regular investment accounts. If you are unable to obtain this service through your bank or brokerage, you may purchase these securities directly from the government.<\/p>

Treasury bonds and bills (T-bonds and T-bills) can be acquired in the United States, for example, through TreasuryDirect. TreasuryDirect, sponsored by the United States Department of the Treasury Bureau of the Fiscal Service, allows private investors to buy, sell, and hold Treasury Bills, Notes, Bonds, Inflation-Protected Securities (TIPS), and Series I and Series EE Savings Bonds in paperless form through electronic accounts. There are no fees or commissions, but you must have a Social Security number or Taxpayer Identification Number, a US address, and a US bank account to purchase through the site.<\/p>

How to Invest in Bond Funds<\/h2>

Another option to get exposure to bonds is to invest in a bond fund (a mutual fund or exchange-traded fund (ETF) that only owns bonds). These funds are convenient since they are typically low-cost and contain a diverse foundation of bonds, eliminating the need for you to conduct your own study to find certain concerns.<\/p>

When buying and selling these funds (or, for that matter, bonds on the open market), keep in mind that you are engaging in “secondary market” transactions, which means you are purchasing from another investor rather than the issuer. One disadvantage of mutual funds and ETFs is that investors do not know the maturity of all the bonds in the fund portfolio because it changes frequently, and thus these investment vehicles are not suitable for investors who intend to keep a bond until maturity.<\/p>

Another disadvantage of mutual funds is that you must pay additional fees to the portfolio managers, but bond funds typically have lower expense ratios than equity funds. Passively managed bond ETFs that track a bond index offer the lowest expenses of any type.<\/p>

Aside from the Treasury, corporate, and municipal bonds mentioned above, there are numerous other bonds that can be strategically used in a well-diversified, income-generating portfolio. Understanding the risks of these bonds requires an examination of their yields in relation to US Treasuries as well as comparable bonds of the same type and maturity.<\/p>

How to Buy Bonds on E-Trade<\/h2>

Research Available Bonds On E-Trade <\/h3>