Now that 0% interest rates are a thing of the past, bonds finally pay a decent amount of interest. And with the markets predicting rate cuts in 2024, you have a very good chance of earning a strong return on bonds, as their prices will rise if rates fall.

But I have a big problem with the bond industry.

It’s the way most investors buy bonds: bond funds. Since bond prices move in the opposite direction of interest rates, bond funds work well when rates are falling and the prices of the bonds in their portfolios are rising. But when rates rise, those same bonds fall in price and investors get crushed.

For example, the largest bond fund, the Vanguard Total Bond Market ETF (Nasdaq: BND), dropped from a high of $75 to $68 last year before bouncing in October as the markets began to believe rates had topped out. That’s a drop of more than 9%.

The iShares Core U.S. Aggregate Bond ETF (NYSE: AGG), another large bond fund, fell 9.5% from high to low last year.

Both of these exchange-traded funds (ETFs) are still below where they were a year ago.

The two funds have more than $200 billion in combined assets. That’s a lot of money that retail investors shelled out because they thought bonds were safe.

The thing is, bonds are safe… if you buy individual bonds rather than a fund or ETF.

When you buy a bond fund or ETF, you are at the mercy of the fund manager or the index that the bond is tied to. And if you want to withdraw some funds, you’d better pray that the price is higher than it was when you bought it. Otherwise, you’ll end up taking a loss.

But when you own individual bonds, you’re able to plan accordingly so you know when your cash will become available. If you needed your funds in October 2026, for example, you would buy an individual bond that matures before then.

Best of all, you know that at maturity, each bond is going to be worth par value (which is $1,000) no matter where it traded in the past. At maturity, you will receive $1,000 unless the company has gone bankrupt – which is extremely unlikely unless you’re buying the riskiest of bonds.

If you were to buy the iShares bond ETF I mentioned above, the price could be anywhere by October 2026. It could be at $98, which is where it’s at as I write, or it could be at $105 or $80. If you buy it at $98 and it’s at $80 when you need the money, you’ll collect only $800 for every $980 you invested.

Meanwhile, if you buy a bond that matures in October 2026 for $980 today, you will receive $1,000 in October 2026 – plus you’ll have collected interest along the way.

Wall Street makes it very easy to buy bond funds or ETFs. Buying them is just like buying stocks. It’s about as simple a process as there is.

Buying a bond is a little – but just a little – more complicated. Sometimes, there is no market for a particular bond, meaning your broker will have to work to find a buyer or seller for you. If they can’t, you won’t be able to make the transaction. For that reason, you should only buy bonds you intend to hold until maturity.

If the bond’s price climbs or you want to sell for another reason, you likely will be able to, but unlike with stocks, ETFs and mutual funds, there’s no guarantee there will be a buyer.

You can always call the fixed income desk at your broker if you ever get stuck or have questions. Most fixed income desks have very good customer service, as the representatives are usually bond specialists.

Individual bonds provide income and safety for your portfolio. Bond funds produce income only. There is no assurance that you will ever get your money back from a bond fund.

Stick with individual bonds for the fixed income part of your portfolio.

The post The Big Problem With the Bond Market appeared first on Wealthy Retirement.

While I continue to hold dividend stocks for the long term, lately I’ve been putting most of my cash to work in fixed income.

Treasurys are yielding more than they have since 2007. Investment-grade corporate bonds – those with very safe S&P Global ratings of BBB- or higher – have an average yield of 6.3%, their highest yield in nearly 15 years.

Meanwhile, non-investment-grade bonds, or junk bonds, are yielding an average of 9%. While these are more speculative than investment-grade bonds, they are still more conservative than stocks – even blue chip stocks.

Here’s why…

There’s a very key difference between stocks and bonds.

A stock is worth only what someone is willing to pay for it at a given time.

A bond is worth $1,000 at maturity regardless of what anyone is willing to pay for it at any time.

Here’s what I mean.

When you buy a stock, the only way to make money on it is to sell it for more than you paid. When you want to sell the stock, you have to hope the price is higher than it was when you bought it.

With a bond, you know what the exact price of the bond will be on a certain future date. On the bond’s maturity date, you will receive $1,000 unless the company has gone bankrupt. Barring that unlikely scenario, you will get $1,000, regardless of whether you paid $1,000, $900 or $500 for the bond. You’ll also collect interest along the way.

It’s important to realize that even if the price of the bond falls while you own it, that won’t affect your eventual payout. At maturity, you will be paid $1,000.

So let’s say you buy a bond with a 5% coupon that matures on November 1, 2026. Right after you buy the bond, the company posts bad news and the bond drops to $950. A year later, there’s more bad news, and the bond market starts getting scared. Your bond drops all the way to $700, which is a big move in the bond market.

As we approach November 1, 2026, the bond’s price starts moving closer to the $1,000 mark. On that date, the bond matures and you are paid $1,000. It doesn’t matter that the market lost confidence in the bond two years earlier and the bond was trading at a huge discount. The bond will pay $1,000 at maturity no matter what.

The stock market has been a mess for two years. The S&P 500 is up this year, but that’s mostly due to seven Big Tech stocks. Most stocks in the market are down… and many are down big.

And this bear market shows no signs of slowing down in the near future.

When you can earn more than 5% risk-free in the short term in Treasurys, more than 6% in safe corporate bonds or even 9% in more speculative bonds and get your money back, you have to ask yourself whether it’s worth it to risk your cash in stocks, which historically average a return of 8% to 10% per year but involve much more volatility.

My long-term money is still invested in stocks because I (hopefully) have plenty of time for those stocks to grow. But my funds that I’ll need in the shorter term are in bonds right now.

I have a bunch of bonds maturing between now and the end of the year, and I’m excited about the safe income-producing opportunities we have now that weren’t available just a year ago.

You rarely hear someone pounding the table on bonds.

I am.

The post Today Is the Perfect Day to Buy Bonds appeared first on Wealthy Retirement.

You can always find a reason not to invest. But there’s a way you can invest your cash, earn interest and not worry about losing money.

Bonds.

Notice I didn’t include the word “funds” after. Like Elvis and the hound dog, bond funds are no friend of mine. I’m not a fan.

If you invest in a bond fund and rates go higher, you are nearly guaranteed to lose money because bond prices fall as interest rates rise. As a result, the value of the bond fund will fall as well.

If you own individual bonds, the same is true (bond prices will fall if interest rates go higher), but that is irrelevant if you plan on holding the bonds until maturity.

Bonds mature at $1,000 no matter where they trade beforehand. You could own a bond that’s a real dog and trades all the way down to $800. And at maturity, it will be redeemed for $1,000.

The only way that won’t happen is if the company goes bankrupt. So barring that rare occurrence, bondholders will get their money back – or earn a profit if they were able to buy the bond at a discount – and collect income along the way.

Here’s why I’m so excited about bonds now. After years of record-low interest rates, bonds are finally sporting decent yields. You can get bonds of high-quality companies with 6% or 7% yields. I’m talking about companies like JPMorgan Chase and Ally Financial.

And the timing couldn’t be better.

Currently, the economy is strong. Despite everyone’s fears of recession, unemployment is near record lows, wages and productivity are rising, and more dollars are being invested in the U.S. by overseas companies than ever before.

Inflation is still too high, and I suspect it is not under control yet. So we could still get some more interest rate hikes, but we are likely going to see the end of the rising rate environment. And should the economy sputter and we fall into recession, rates will come down, which will make the bonds that you hold more valuable.

If you own a bond yielding 6% and interest rates drop next year, an equivalent bond may then yield 5%. So your 6% bond will jump in price because it’s more desirable. Eventually, it will rise in price enough to yield 5% – for someone else. Yet you’ll still earn 6% until maturity. Or you could sell the bond for a profit at the elevated price.

Remember, bonds are called fixed income assets. The interest won’t vary; it will stay fixed. If rates drop, you’ll continue to earn the same yield as the day you bought the bond. So today’s bond yields may be even more attractive in a year or two if interest rates decline.

I haven’t seen a better opportunity in the bond market in my 16 years with The Oxford Club. Yields are strong, and if a recession occurs, as many still expect, bonds that are bought today will be big winners, generating lots of income.

Bonds are the perfect Goldilocks investment for today’s market.

I’m loading up on fixed income in my personal account. I recommend you do the same.

The post Is This the Perfect Time to Buy Bonds? appeared first on Wealthy Retirement.

I believe so strongly in the power of investing in Perpetual Dividend Raisers that I spent two years writing Get Rich with Dividends to show investors why they must include this wealth- and income-building machine in their portfolios.

I write about dividend-growth stocks here and in various other places every week. I invest in these types of stocks for myself and for my kids.

So it may surprise you to know that I also own some bonds.

I have a mix of bonds, including corporate, Treasury and municipal bonds.

My Treasurys have extremely short maturities – less than a year. I basically treat them as a place to park my cash but earn a little extra income.

My corporates and municipals also have short maturities but not as short as those of the Treasurys. I’ll typically buy bonds with three-year or shorter maturities. Since we’re in a rising rate environment, I don’t want to be locked in at a lower interest rate for too long.

Most of the time when I buy bonds, I plan on owning them until maturity. I’m not interested in trading them.

Sure, if I get a spike in the price above par (the price at which the bond will be redeemed at maturity), I may consider selling early. But generally, I’m buying the bond to collect a consistent stream of income with the guarantee (in a Treasury) or near guarantee (in a municipal or investment-grade corporate) of getting my money back.

The important thing to remember when owning bonds is that you get the par value of the bond back at maturity… no matter what the bond, bond market or economy is doing.

For example, let’s say you buy a bond at par value ($1,000) yielding 4% that matures in two years. That means you’ll collect 4% interest each year and receive your $1,000 back at maturity.

If next year the bond declines in value to $900, that doesn’t matter. Because at maturity, you’ll get your $1,000 back. And you’ll still collect 4% interest. The interest rate you’ll receive does not fluctuate with the price of the bond.

I like that kind of stability for a small portion of my portfolio.

I keep my bond holdings fairly small because I’m still building wealth. I have years to go until retirement. Investors who have a lower tolerance for stock market risk might want to have a larger percentage of their portfolio invested in bonds than I do.

If you’re interested in bonds, I do NOT recommend bond funds or exchange-traded funds (ETFs). These investments will lose value as interest rates rise. Individual bonds may also lose value, but at maturity, investors will get their money back. There is no maturity on a bond fund or ETF, so you will very likely lose money in a rising rate environment.

It’s important to note that your bond positions aren’t likely to grow your wealth much, unless you buy bonds that are undervalued. You’re not going to get rich buying bonds. But you may stay rich.

Bonds are a useful way to generate some good income while preserving your capital. Just keep your maturities short while rates are still rising and buy bonds that are high quality.

Take it from the dividend guy.

The post Why This “Dividend Guy” Relies on Bonds appeared first on Wealthy Retirement.

You should have a variety of stock types – such as small caps, large caps, international stocks, etc. – in different sectors. But a diversified portfolio should also have fixed income, precious metals and real estate holdings.

This helps smooth out volatile periods in the stock market, like we’ve been experiencing for the past year.

Until recently, the problem was that interest rates were so low that fixed income investments were simply not attractive. Treasurys paid next to nothing, and there was a time when you had to buy junk bonds just to earn 4%. For many investors, that was too much risk to earn a paltry 4%.

But that’s changed in a very big way in the past few months.

Just six months ago, a 10-year Treasury yielded 2.6%. Today, it’s 50% higher, just shy of 4%.

Investment-grade corporate bonds are yielding as much as 7.5% for two- or three-year maturities, and non-investment-grade bonds yield 8% or more.

Earning 7.5% on a pretty safe investment-grade corporate bond goes a long way in making up for downturns in stocks. Considering that the average annual stock market return is between 8% and 10%, earning 7.5% in a bond is pretty attractive.

Over the past 93 years, there were only four times when bonds and stocks were down in the same year.

Furthermore, since 1926, stocks have ended a year down 25 times, with an average loss of more than 13%. Bonds were down 15 times with an average loss of just 2.4%.

Last year was a terrible year for bonds – the worst in more than 40 years. Should we expect a repeat performance this year?

Since 1926, bonds have had negative returns two years in a row only twice. And the cumulative losses of those two-year periods were just 3.7% and 2.4%.

So if you’re worried about a recession, you definitely need to own bonds. Over the past 50 years, bonds have outperformed large cap stocks during economic downturns.

When it comes to the bond portion of your portfolio, I strongly recommend individual bonds rather than bond funds. With individual bonds, you know how much they will be worth on a certain date. At maturity, bonds are worth $1,000, regardless of what you paid for them or where they were trading at an earlier date. Unless the company declares bankruptcy, you will receive $1,000 for the bond at maturity.

Bond funds are worth only the price at which they are trading. If bonds are down, bond funds will be down. And if you sell, you will lose money.

If you own individual bonds, you’ll get $1,000 per bond when they reach maturity – even if the whole bond market is down at the time.

Bonds can sometimes be less exciting than stocks. But they’re not supposed to be exciting. They’re supposed to make you money – especially when other things aren’t working – and provide safety in your portfolio.

If you don’t have bonds in your portfolio, now that interest rates are higher, this is the time to start buying.

You can earn some solid yields while protecting your wealth at the same time.

The post How to Protect Investments in Volatile Markets appeared first on Wealthy Retirement.

There are no investments out there that reliably grow wealth over the long term like stocks.

Over decades, stocks are even safer than bonds, which goes against conventional thinking. Jeremy Siegel’s book Stocks for the Long Run shows that not only do stocks outperform bonds – which is not a surprise – but also, over periods of 10 years and longer, stocks’ worst performance was better than the worst performance of bonds.

Between 1802 and 2021, the worst 10 years for stocks showed a decline of 4.0%, while bonds dropped 5.4%. Over a 20-year period, stocks never lost money, while bonds’ worst performance came in at a loss of 3.1%.

So why am I “quitting the stock market” in favor of bonds?

In the short run, bonds – especially those of quality companies – are safer than stocks.

I Can’t Take Much Risk

I’m currently paying college tuition for two children. My wife and I have diligently saved and invested for more than 20 years for this moment. Over the next couple of years, we will pay an insane amount of cash to institutions of higher learning. And I’m not willing to take much risk with that chunk of money.

The closest you’ll come to a guarantee of getting your principal back is an investment in Treasurys. That said, owning quality corporate bonds is a pretty safe bet.

Junk bonds, the riskiest corporate bonds, have a historically low default rate of just around 1%.

And investment-grade bonds have a minuscule average default rate of around 0.44%.

So your chances of getting your money back are extremely high.

When I invest in bonds, I’m not planning on selling them at a profit. If their prices go up and there’s an opportunity to sell them, great – but my bond positions are intended to produce income and protect capital. I expect to hold a bond until maturity.

I buy bonds with short maturities because I need the money soon.

I am creating a bond ladder where various bonds will mature in each of the next few years. I’ll earn some interest on the bonds while the money is invested, and each year, as the bonds mature, the money will become available to pay tuition.

While I love my dividend stocks, anything can happen in the short term. And if the market falls, I want to be able to buy more dividend payers.

Should the bond market tank in the next few years, I really don’t care. I don’t plan on selling my bonds, so the price doesn’t matter to me. When the bonds mature, I’ll cash them out.

Corporate bonds are not risk-free, but they are a pretty safe way to earn some interest and count on all of your investment being available to you when you need it, as long as you time it right with the correct maturities. In other words, if you need the cash in December 2023, make sure your bond matures before then.

The good news is the bond market is so large that you shouldn’t have a problem finding bonds with the maturity date you want at the risk level you’re comfortable with.

If you can’t tolerate much risk on your short-term funds, corporate bonds are a great way to invest.

The post Quit the Stock Market and Buy Bonds appeared first on Wealthy Retirement.

Most investors should own some in their portfolio to help ride out tough stock markets – like the one we’re currently in – because bonds provide some ballast and safety.

Bonds have a par value of $1,000. The only way you won’t get paid $1,000 at maturity is if the company declares bankruptcy. Otherwise, no matter what is going on in the markets or the economy, you’ll get paid $1,000 per bond at maturity.

Now that interest rates have climbed up off the floor, bond investors can finally earn some real yield.

You can earn 5.5% by owning investment-grade bonds that mature in two years. Or 4.6% in a tax-free municipal bond with the same maturity. That’s a taxable equivalent of more than 6% if you’re in the 32% tax bracket.

And as the Fed continues to raise interest rates to fight off inflation, the yields should get even better.

Not only will you earn strong yields for the first time in years, but those bonds should increase in price once the Fed stops raising rates and starts lowering them.

Bond prices move in the opposite direction of interest rates.

It makes sense when you think about it.

If you can buy a bond for par value ($1,000) that yields 5%, when interest rates rise, no one will buy the bond that yields 5% if they can get a similar new bond that yields 5.5% because interest rates just went up.

So in order for that 5% bond to be able to be sold, the price has to come down to push the yield higher.

A bond with a 5% coupon pays out $50 per year ($1,000 x 5%, or 0.05 = $50). But you can’t just raise the interest on a bond the way you can raise a dividend. The interest rate is fixed. So the market will adjust the price of the bond so that the same $50 now yields 5.5%. In this example, the bond will fall to about $909 because $50 in interest divided by $909 is 5.5%.

Similarly, if rates drop, a bond with a 5% coupon will become more valuable because a new bond won’t have as attractive a yield. If a new bond pays 4.5%, then the 5% bond will climb to $1,111 because $50 divided by $1,111 equals 4.5%.

So investors who buy bonds next year will have the opportunity to earn strong yields. If the Fed eventually lowers interest rates, the value of the bonds will go up as well, and they can then be sold for a profit or held until maturity, collecting a high rate of interest.

I have a few rules for investing in bonds that I strongly recommend investors follow.

• Buy only bonds you plan on holding until maturity. If the price goes up and you have the chance to take a profit, you can, but you should feel very comfortable owning the bond until the maturity date and collecting your interest.
• Don’t watch the price of your bond every day. If you’re going to own a bond until maturity, who cares where it’s trading today or tomorrow? You know that when it matures, it will pay out $1,000. So if the bond drops to $900 or rises to $1,050, it really doesn’t make much of a difference. You’re probably not going to sell it anyway.
• Understand the risks. Bonds are very safe. Investment-grade bonds (rated BBB- or higher) have a default rate of just 0.1%. Junk bonds, or non-investment-grade bonds, have higher yields but carry higher risk. They have a historical default rate of 4.22%, with most of those occurring in bonds rated CCC or lower. So even if you buy a junk bond rated BB, you can earn a higher interest rate than you would with an investment-grade bond, without taking on too much risk. Unless you’re willing to speculate, I recommend buying bonds rated BB or higher to drastically decrease the likelihood of default.
• Keep the maturities fairly short (for now). Don’t buy bonds with maturities more than five years out. It’s a good idea to have maturities staggered so that there is always some capital being freed that can be used for expenses or to invest in new bonds. So you may want to buy some that mature in two years and others that mature in three years, four years and five years.

I’m going to be putting more of my own money to work in bonds in 2023 to take advantage of higher yields and the safety that bonds provide.

I recommend investors do the same.

The post Why I’m Buying Bonds in 2023 appeared first on Wealthy Retirement.

By day, I analyze stocks and provide income ideas for my readers. I’m known as the dividend guy because of my international bestseller Get Rich with Dividends, which has been published in four languages.

By night, I am singing in a rock band or ring announcing world championship boxing matches on TV.

I know, it’s weird.

What many people who follow my dividend work may not know is that I’m also a big advocate of investing in bonds, especially now. Most investors don’t own individual bonds, but they absolutely should.

Bonds are sold in increments of $1,000. What’s great about bonds and so different from stocks is that you know exactly what a bond will be worth on a specific date. On the day the bond matures, you will be paid $1,000 – no matter what you paid for it. Maybe you paid $1,000 for the bond and collected interest for several years and then simply got your money back.

Or maybe you bought the bond at a discount and paid only $850, collecting interest until and then receiving $1,000 at maturity. So you’d earn a $150 profit in addition to the interest.

For years when interest rates were at rock bottom, it was tough to find attractive bonds because the interest was so low. You had to take on a good amount of risk to get any kind of yield. At one point, in order to earn 5% on a bond that matured in a few years, you had to invest in low-rated junk bonds.

Today, you can earn 5% or more on very safe investment-grade corporate bonds. And if you are willing to take on more risk, you can easily earn 7% to 9% or even more on non-investment-grade bonds.

Keep in mind that even non-investment-grade bonds rarely default, especially if they’re not the lowest-rated bonds. So unless you’re choosing the junkiest of the junk bonds – I’m talking about the rusted-out shell of a 1975 Ford Pinto of bonds – you can feel very confident you’ll get your money back and finally earn a decent amount of income.

Right now, I recommend investors buy bonds with maturities in four years or less. That way, their money is not locked up for a long period of time. I also recommend that you buy bonds only with the intent of holding until maturity. If a bond’s price goes up, you can always sell at a profit if you choose. If it doesn’t rise, you simply collect your interest and then your $1,000 per bond at maturity.

There are lots of interesting opportunities in the bond market these days.

For example, you can earn nearly 6% annually through an April 2024 bond from Ally Financial, a household-name financial services company. The bond is rated a safe BBB- by S&P Global Ratings.

Even safer, the A- rated Credit Suisse bond that matures in August 2024 earns 7.5% annually.

If you’re willing to take on a little more risk, a BB rated bond offered by QVC, maturing in April 2024, earns you 9% annually. And one from the same company with the same rating but maturing in February 2027 earns more than 13.5% per year.

Stocks come with no guarantee that they’ll earn 13.5% per year, 9% or even 6%. But these bonds basically do. As long as the companies don’t go bankrupt, bondholders will get paid $1,000 per bond at maturity.

It’s a great time to be a bond investor, and I expect it to get even better over the coming months as rates continue to rise and bonds offer investors even higher returns.

Good investing,

Marc

The post A “Secret” Income Source appeared first on Wealthy Retirement.

At least that’s what I believed when I joined an institutional trading desk more than a decade ago.

As a stock jockey, I worked with hedge funds slinging around shares to capture a quick profit. We traded around binary events, like earnings releases and drug trial results. You know, events that really make a stock price move.

I had no interest in bonds. To me, they were conservative investments that only grandpas would buy. Sure, they offered some income and principal protection, but with no price appreciation, there was no way to make your money grow. Or so I thought…

Years later, I found out that everything I thought about bonds was wrong.

Here are three of the biggest bond myths people fall for and why it’s essential to have a portion of your nest egg in corporate bonds.

1. Savings Bonds Are the Only Kind of Bond Out There

If you mention bond investing to most people, their eyes glaze over.

That’s because they have fallen for bond myth No. 1 – the ol’ “savings bond mentality.”

They remember the savings bonds many of us bought from the U.S. Department of the Treasury when we were younger.

You buy a savings bond at a fixed price, say $25, and then hold on to it for a minimum number of years to avoid redemption penalties. Savings bonds are essentially zero-coupon bonds. They are issued at a deep discount to their face values but pay no interest.

Corporate bonds are often completely overlooked.

Corporate bonds are debt securities issued by corporations and sold to investors. They’re issued at par value, which is $1,000, and they have a coupon payment structure. Interest is paid semiannually. As long as you own the bond, you’ll receive the interest payment from the issuer until it matures.

2. Corporates Can’t Be Traded After They’re Issued

There’s no secondary market for savings bonds. They cannot be traded among investors, so the price you pay for them won’t change if you hold them to maturity.

But contrary to myth No. 2, that’s not true of corporate bonds.

Corporate bonds can be traded after they’re issued. And they are… almost every day.

They’ll move up and down in value as investors buy and sell them to each other. They fluctuate in value based on business fundamentals like stocks do, but not as much on a percentage basis.

If you buy a bond at a discount, say $900, as long as the company doesn’t go bankrupt, you’ll be paid $1,000 when it matures. That’s an extra $100 in your pocket plus all of the interest payments you’ll receive while owning the bond. Which brings me to our third myth…

3. Bond Yields Are Your Only Return

Myth No. 3 is a doozy. It’s why so many investors don’t recognize the huge profit potential that exists in bonds.

Yield to maturity is the minimum return you can expect a bond to generate if you hold it until its maturity date.

Let me say it again, it’s the minimum.

You can often earn twice that (or more) by buying a bond below par value and selling it early at a profit.

If you don’t own any bonds, you aren’t diversified. And if you aren’t diversified, you’re putting your retirement at unnecessary risk when the stock market eventually heads south.

Good investing,

Kristin

The post Three Dangerous Myths About Bonds DEBUNKED appeared first on Wealthy Retirement.

I’m talking about individual bonds, not bond funds. In fact, I strongly recommend you stay away from bond funds. If interest rates continue to climb, you will lose money in a bond fund, whereas with individual bonds, you will make money. I explain why here.

As long as rates are rising, stick with individual bonds.

Here’s exactly how to do that.

Buying individual bonds is similar to buying stocks, but it’s not exactly the same.

You can buy any stock you want that is listed on a U.S. exchange with any domestic broker. The price will be the same no matter where you look. But not every broker has every bond available to its customers.

Some brokers have bonds in their inventory that they can sell you. Other times they will have to go out into the open market to get the bonds for you. There are occasions when they will not be able to obtain the desired bonds for customers if there are no sellers.

If you don’t see the bond you want on your broker’s website, call its fixed income desk and ask it to get it for you. Don’t just speak to a representative. Call the fixed income desk so that you’re speaking with someone who specializes in bonds.

To buy a bond online, you go to the fixed income (sometimes shown as “Bonds/CDs”) section of your broker’s website. You can do a search for bonds based on certain criteria, such as maturity date, S&P or Moody’s ratings (they rate how safe or risky the bonds are), and yield to maturity (YTM) – which is essentially the annual return you will earn on the bond.

Or if you know the bond you want to buy, you can enter the CUSIP, which is similar to a stock ticker. The CUSIP is a combination of nine numbers and letters. While a stock ticker will be in the format of “ABC,” a CUSIP may look like “12345abc6.”

You enter the CUSIP, and your broker’s site will bring up all of the relevant information, including the price, the YTM and the minimum number of bonds you must buy to place an order, which is another difference between stocks and bonds. Some bonds may have no minimums, but others may have large ones – it all depends on the seller.

Here is what it looks like on TD Ameritrade if you pull up an individual bond. This is a bond for the Pacific Gas & Electric (CUSIP 694308hg5) 3.75% coupon bond maturing on February 15, 2024.

The bond was issued by utility Pacific Gas & Electric. It pays a 3.75% coupon, which means it pays $37.50 per year in interest because the coupon is always based on the $1,000 price at which nearly all bonds are issued. It matures on February 15, 2024. You can see the CUSIP next to the name of the bond.

Below that are more details, including the bond’s rating – Baa3 by Moody’s and BBB- by S&P.

While the bond pays a 3.75% interest rate, the YTM is around 6% because the price is around $97, which actually means around $970 per bond. You multiply the bond price by 10 to get how much the bond actually costs. So the interest rate is a little higher than 3.75% because the principal is lower than $1,000. The first line shows a price of $97.125, which means $971.25 per bond (remember, multiply the bond price by 10 for the actual cost). . The bondholder will also make $28.75 in profit at maturity because they paid $971.25 for the bond but it will be redeemed for $1,000. So the profit plus the interest is included in the YTM calculation.

You’ll also see that there are different sellers out there. The first one requires a 10-bond minimum at a price of $97.125. The second, also with a 10-bond minimum, is asking $97.210. If you want to buy just one bond, you’ll pay $97.317.

If you want to buy the bond, you’d click the “Buy” button under the company name and on the next screen you’d enter how many bonds you want to buy and at what price if it’s different from what’s shown on the page.

If you didn’t buy the bond and wanted to check on it the next day, you’d just go to the fixed income page and enter the CUSIP to see if anything changed, such as the price, minimums, etc.

Like anything you do for the first time, buying a bond can seem intimidating. But most of us felt the same way when buying a stock online the first few times. Once you play around on your broker’s bond page, you’ll get more comfortable and you’ll start earning safe 6% or higher yields in no time.

Good investing,

Marc

P.S. Let me know in the comments section what questions you have about buying bonds, and I’ll try to address them in an upcoming Wealthy Retirement article.

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