How do I learn about buying individual bonds?

[disneysteve]

Every time Suze Orman talks about bonds, she advises against bond funds. She says if you are going to invest in bonds, it should only be with individual issues so that you lock in rates and lock in maturities. What happens to interest rates doesn't affect you if you hold individual bonds to maturity. With a fund, though, if rates rise, the value of the fund falls. That defeats the purpose of owning bonds which is supposed to be to keep a portion of your money save and sound.

So how do I go about educating myself about buying bonds? Right now, we hold a bond fund in a Vanguard Roth account. If I decide to liquidate that and buy individual issues instead, can I do that through Vanguard's brokerage arm within the Roth or would I need to move that money elsewhere?

[maat55]

You might call stocktrade or one of the other brokers and just probe them with the question. I found this info on the web.

This gives 7 pages of info, the last page tells how to buy them.

Money101 Lesson 7: Bonds

[jIM_Ohio]

I would start at treasury direct.com

The flaw with ormon's logic is that if you wanted to liquidate bonds to buy more equites, her technique will cost more or cause headaches to an individual investor.

The reverse is also needed- if you need to buy more bonds when stocks go up, what options exist?

If you own various durations of bonds, you will be less subject to interest rates risk.

[MYOM]

I wrote a chapter in my book called Bonding With Bonds. I have to be real careful with my answer here because I am new to the Forum. If you Google the word Bonds and Dan Clemons, you will find you can search inside the book for bonds at no charge. There is a lot to know about bonds but it is not rocket science.

I too only like individual bonds. I like them because you get to pick the maturity and I like a year or less although I don't mind a small percentage going out as far as 4 years. Bonds do fluctuate in value with the economy, interest rates, and this current credit crisis. As maturity approaches the price of the bonds climbs back to par or $1,000 per bond, which I like. I want my interest paid to maturity and my money back. I also like the fact you can invest in CD's from all around the country in the secondary market where the yields are higher.

High commissions get in the way of yield with almost all broker/dealers. They charge 1.5 to 3 points in commissions. That is $15 to $30 per bond. If you buy 10 bonds or $10,000 in bonds the commission would be $150 to $300. There is one broker dealer, can't mention names here on the forum because I run the risk of getting the boot, that only charges $10.95 in commission per trade no matter the number of bonds purchased.

A lot of people think there is no money to be made in bonds but I am here to tell you that is not the case especially right now with the markets in turmoil. In chaos there is profit if you know what you are doing.

I hope this helps you to bond with bonds. Bonds create a river of revenue. How could anyone not want a sustainable river of revenue to fund his or her retirement budget?

I love my bonds!


Dan Clemons, author and retired Certified Financial Planner

[jIM_Ohio]

Dan-

I think I have seen you post at other forums (misc.financial-planning?). Feel free to be more specific in your posts and if the mods give you a warning, heed the warning.

I am interested in a more specific response to the question as well.

[disneysteve]

There is one broker dealer, can't mention names here on the forum because I run the risk of getting the boot, that only charges $10.95 in commission per trade no matter the number of bonds purchased.

Dan, Jim is correct. You don't need to be quite so cautious. You are allowed to mention specific companies. You need a certain number of posts to put in links, but as long as you aren't advertising your own business, mentioning brokers by name isn't against the rules.