Questions about Bonds - Your Financial Education Center

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NoPass wrote:

I have an interest in corporate bonds. They seem to be better than stocks or stock funds. Where do I go to buy them?

Dear NoPass:

I agree that there is a certain attractiveness in corporate bonds. Over the last year, they have outperformed the S&P 500, and if the economy stays under the dark cloud that it is currently beneath, they will probably continue to shine. If the stock market makes its comeback sooner rather than later, then bonds will suffer.

If you call a broker to buy bonds, he probably has them in inventory. He will mark them up somewhat and sell them to you as a commission free transaction. The brokerage house will have bought the bonds at a better price than you will find because most individual bonds are priced in an "over the counter" type of transaction. These bonds are not listed in real-time prices. If the bond you wish to buy is not traded frequently, then the mark-up could be higher than what you would expect to pay.

Bond mutual funds use the experience of frequent bond traders to navigate these treacherous waters. There are however costs in the form of fees and sales charges. The price of bond funds make regular moves based on interest rates. At the bottom of this letter is a list of no-load low expense bond funds from the corporate sector that the BlueCollarDollar finds attractive.

If you are still interested in owning bonds on an individual basis, you will need to know two things: Bonds are often sold in lots of $1,000 and that you have a sufficient relationship with who is selling you the bond, so that the price can be considered reasonable.