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When investors engage in bonds buying, they are lending their money to the issuer, be it a corporation or the US Treasury. Governments and companies issue bonds to finance their projects. In return, bond buyers get their investment back with the interest amount after a certain period of time. Investors must, however, be careful about some potential risks while bonds buying.[br]
Bonds Buying – How to Do
Bonds buying carry some inherent risks, unless it is a government or US Treasury bond that is insured by the FDIC and guaranteed by the US Government. There is always a possibility that the issuer does not make the interest payment. Hence, before buying bonds, first consider the bond ratings issued by agencies like Moody’s. If the rating is high, the quality of the bond is also high. Here are some other points to consider during bonds buying:
Brokerages: Opting for a brokerage is one of the popular methods of bonds buying, just like stocks buying. You can use a discount broker or full-service broker to buy bonds. It is better to shop around before opting for a particular brokerage service, because the commission charges vary from broker to broker. You also have the option to buy bonds directly from the issuing agencies. However, bonds are mostly traded in the secondary market.
Buying from the Treasury: TreasuryDirect is a program launched by the Bureau of the Public Debt to buy US government bonds directly. With this option, you can avoid using a broker’s service. You just need an account to hold government’s bills, treasury notes and bonds and receive your account statements periodically.[br]
Mutual Funds: It is one of the easiest methods for bonds buying. Mutual funds help you to invest in small amounts, periodically, through automatic investment plans that involve transferring money from your checking account to the investment account. You can also enjoy the benefits of diversification in bonds through mutual funds.
Financial journals and newspapers, like “The Wall Street Journal,” publish bond prices in various exchanges. However, most bonds are not traded on a daily basis. Hiring a broker’s service helps you in choosing the right kind of bonds to meet your investing goals.