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How to Buy Corporate and Government Bonds / Treasuries

Updated on August 15, 2013
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Buy Bonds Online: from High Yield to Very Safe T-Bills

Lots of people want a safe place to store and grow their money to save up for other things, like retirement. But buying stock in a company can be very risky, especially without a dividend. So, what's another option that is more secure? Buying bonds. A bond is when you loan your money to someone else. Whether it be the government or an organization or company. Don't know where to start though? Well here's a guide exactly how to buy bonds whether they are corporate or government securities.

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Have You Ever Bought Stocks or Bonds Before?

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How to buy bonds online / offline

There are a few ways to buy bonds.

  • You could purchase the bonds through a bond broker
  • a full service or discount broker
  • you can purchase them directly from a government agency

Opening a Brokerage Account to Buy Bonds

An important thing you need to know how to do when you want to invest in bonds is how to open a brokerage account. A brokerage account is an account at a financial institution which allows you to buy, sell, trade, and hold bonds, stock, mutual funds, options, etc. Every investor has at least one brokerage account. Some good places to open a brokerage account are: Fidelity, Charles Schwab, TD Ameritrade, and Scottrade. You can set up an account online or in person at a location.

In order to make an account, you will need to provide your Social Security number or Individual Taxpayer Identification Number, your employer name and address, your contact information (email, phone number), and the type of account you want to open. Do some research on the different types of brokerage accounts you can open, though you can trade stocks, options, mutual funds, ETFs, bond, and CDs in most investment accounts.

Some financial information will be required as well. When opening a brokerage account online, the website you are using will walk you through the process step by step, and they will make it as simple as possible. They will require some basic information, but it's nothing too complicated.

Find a Reputable Online Bond Brokerage

Once you understand the types of bonds and know which type you would like to invest in, look for reputable discount bond brokers. Consider what bond choices are available. Also pay attention to the commission on the bond. Commission for bond purchases usually range from $1 to $4 per bond, with minimum commission about $8 to $30 per transaction. Some other places to buy bonds are banks and www.treasurydirect.gov.

What Kind of Bonds to Buy?

The first step to buying a bond is understanding what a bond is and understanding your financial needs. A bond is an interest-bearing certificate, issued either by government agencies (known as treasury bonds) or business corporations (known as corporate bonds). With a bond, you will be payed a fixed amount of interest on set dates, usually every 6 months, until at maturity date you get your initial deposit back, plus your interest. However bonds can be structured in a vast amount of different ways and they all have pro's and con's. Pick a structure you are comfortable with.


How to Buy Government Bonds aka Treasuries

Once you've found a bond you are interested in, do your own research. Determine the type of bond, the interest payment dates, and determine if you think this is the kind of investment you would like to make.

Make sure you are satisfied with the safety of the bond, and the credibility of whatever it is your investing in. In general, buying a bond from the government is the safest bond, because a government is highly unlikely to go bankrupt as they can just print more money (this is true in the USA but not for all monetary unions).


Research the Bonds you Buy

So, all in all, buying a bond is obviously an important decision that needs to be thought about. You need to consider the type of bond that would work best for you. You need to consider if the investment you plan on making is a safe one and whether or not you will get your money back and the amount of money you would like to receive as interest. Just pay attention and make sure that the commission and minimum payment are just as you expected. Do your research and due diligence and you will be able to acquire bonds that meet your needs for risk/return levels.

Buying High Yield or Corporate Bonds

When investing in a company you want to be confident that the company will not go bankrupt over the period of time your money will be invested. Because the chances of a company failing are much higher then the U.S.A failing, companies generally pay out higher yields. This is compensation for the risk you bear. When you invest in High Yield bonds of emerging countries the same effect applies. The risk of these states failing is much higher and consequently they have to pay out more to entice investors to lend them money.

Like stocks, bonds will fluctuate in their prices. In general Bond prices are lowest when the interest rate is high because saving money is very competitive in these scenarios. You also want to know how much of your money you want to have invested in bonds instead of stocks.

Bonds are safer than stocks because you usually get priority over equity holders when the remains of a bankrupt company are divided. Bondholders routinely see some of their money returned to them while stockholders are often wiped out in case of bankrupcy. While with a stock, you have equity in a company and you can get either huge returns, or you can lose a lot of money.

Disclosure

This material is provided for information only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or financial instrument. This material is not a complete analysis of all material facts respecting any issuer, industry or security or of your investment objectives, parameters, needs or financial situation, and therefore is not a sufficient basis alone on which to base an investment decision.

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