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How to Buy Bonds

By Edited Jun 3, 2015 0 0



Entities issue bonds to raise capital to finance activities or expansions. I said entities because bonds are not exclusive to companies, as a matter of fact all levels of government issue bonds as well. You have probably heard about U.S. series EE, or state bonds, or even municipal bonds.

Bonds, whether issued by a corporation or government work in the same way. When bonds are first issued, you, as an investor have an opportunity to buy bonds at face value. By buying bonds you actually become one of the creditors. In exchange the bond issuer promises to pay you a yearly interest, for an "x" amount of years after which it will pay the amount listed on the face of the bond.
Photo by Jenn Jenn  CCL

By face value of a bond it is understood that we are talking about the value printed on the face of the bond. Depending on market conditions, you may be able to buy or sell a bond above or below face value. However when the bond matures, the bond holder is entitled to the face value of the bond.

Interest rates change, (I bet you did not know that), and with interest rate changes the sale price of bonds change as well.

Investing in bonds is usually considered safer than investing in equities (stock), but it is important to know that even bonds may not be repaid when companies go under. Stick with high quality bonds, or government bonds, and keep in mind that those bonds that have a high yield are the riskiest, did you ever hear the term junk bond?

Federal bonds may be purchased directly through Treasury Direct. Other bonds can be acquired through a broker. If you already have a broker account log on to your account and see if bonds are available for trade. If your broker does not offer bonds research other brokers that offer this service, and make sure that the fees that come with a brokerage account are reasonable.
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