Purchasing Bonds

Buying bonds is a lot like buying stocks. You just get in touch
with your broker, set up your account, and place your order.
If you already have an account with a
broker, whether landbased
or Internet, you shouldn’t have to fill out any additional
paperwork to buy a bond. The one account should
allow you to purchase stocks, bonds, and mutual funds as
well. Unless you are going to concentrate most of your investment
money in bonds, there’s usually no need to select a broker
who specializes in this kind of security.

You do, of course, have to pay for any bonds that you purchase.
You pay in the same way and timeframe as with stocks
(within three days of placing the buying order). Fortunately,
you don’t get charged much in the way of miscellaneous fees
when you buy bonds. These fees vary with the brokerage, but
in almost all cases they are very small (sometimes less than
$1 per transaction).

Commissions on bonds are about in the same range as those
for stocks — high with full-service brokers and lower with
discount and Internet brokers. Because investors show much
less interest in bonds, competition has not yet brought bond
commissions down to the very low levels that are paid for
stock transactions on the Internet.

The Internet doesn’t have many Web sites devoted to information
about investing in bonds. There is, however, one outstanding
site that more than makes up for the lack of
numbers: the Bond Market Association site at
www.investinginbonds.com. This Web site offers
advice on buying bonds, explains how bonds fit into a balanced
portfolio, and answers just about any question you
might have about bonds.

Bonds trade on a type of OTC market, and most trade without
securities symbols you see on securities that are traded on
an organized stock exchange, like the New York Stock
Exchange. Therefore, the investor has to tell the broker the type
(tax or tax-free), how long (time) the investor will hold the
bond, and state the investor’s risk parameters. Most brokerages
(discount and full-service) maintain a bond-trading department
in order to meet varied customer needs and preferences.