There are several ways to invest in bonds. One way is to buy individual bonds through a brokerage account. You can buy bonds through most brokers just like you would stocks. But fees vary greatly and navigating all the options can be confusing. Another way is to invest in bond mutual funds or bond exchange-traded funds (ETFs). Funds own large, diversified fixed-income portfolios comprising hundreds or even thousands of bonds. Bond ETFs can be purchased through any standard investment account listed above. It can be purchased just like an investment company, an online broker or a financial advisor.
When investing in bonds, it’s important to know when they mature and their rating. It’s also important to investigate the bond issuer’s track record and understand your risk tolerance. Fixed-income investors use bond ladders to provide additional flexibility and adjust their holdings to changing market conditions. For example, if you have $15,000 to invest in bonds. One option would be to spend it all on a single bond with a 10-year maturity date. In this case, though, your capital would be tied up for a decade and plenty can change in the market in 10 years.
How do bonds work?
Bonds are issued by governments and corporations when they want to raise money. By buying a bond, you’re giving the issuer a loan. They agree to pay you back the face value of the loan on a specific date. They pay you periodic interest payments along the way, usually twice a year. Bonds work by paying back a regular amount to the investor, also known as a “coupon rate,”. And are thus referred to as a type of fixed-income investment.
A bond is simply a loan taken out by a company. Instead of going to a bank, the company gets the money from investors who buy its bonds. In return for lending it money, the company pays an agreed-upon interest rate for an agreed-upon period of time. When you buy a bond, you’re lending money to the organization that issues it. The company promises to pay back your principal plus interest over time.
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