How to Search for and Buy Bonds

Bonds are considered one of the common financial instruments that many people invest in. However, researching and purchasing bonds can be complex for some individuals. In this article, we will provide some simple tips for bond investors to help them research and buy bonds easily and with a better understanding.

Rating Overview

Credit rating agencies like Standard and Poor’s, Moody’s, and Fitch rate bonds based on the ability of the issuing institutions to pay interest and fully repay the principal. Investors can review these ratings to assess potential bond risks. The ratings are briefly presented in the table below:

Study of Professionals

Investors should pay attention to choosing professional investors and following their recommendations. Investors can start researching bonds by studying the portfolios of professional investors in bond mutual funds. These professionals have the experience and ability to make good investment decisions. They also have teams of analysts to assist them in selecting appropriate bonds.

Among the well-known investment managers in bond mutual funds is Bill Gross. He managed the largest bond fund portfolio, PIMCO Total Return (PTTDX), in addition to other funds like Harbor Bond (HRBDX).

Dan Fuss, known for managing the Loomis Sayles Bond (LSBRX) fund, has 50 years of experience in bond investing. He is also a good person to follow, as his knowledge is broad and deep; he invests in nearly all types of bonds. Fuss can even invest in the high-risk bond area, which can provide insights that other investment managers may not offer.

Websites for Research

Information about bonds can be found on most mutual fund search websites. Investors can enter the ticker symbol for the bond mutual fund on the Morningstar website and go to the fund’s main information page. The link to the “portfolio” can be found there. Follow the link to “holdings” where you will find a list of the top 25 bonds in the portfolio.

There are also sites like Yahoo! Finance where you can learn more about bonds. Check the prices before buying.

Common Mistakes to Avoid

One common mistake investors make when investing in bonds is chasing overly high yields. Both novice and advanced investors can fall into the trap of searching for and buying only high-yield bonds.

While high interest yields can be appealing, these high yields come with risks. The higher the yields, the greater the risk that the issuing institution may fail to repay the debts. Investors can earn more interest if all the bonds they hold are high-yield. However, they may lose the principal if the issuing institution declares bankruptcy and fails to pay its debts.

Investors also make the mistake of repeating similarities in duration, bond types, or industry. Your portfolio may not be sufficiently diversified if you have many similar bonds. Try to include a variety of maturities such as one-year, five-year, ten-year, and thirty-year bonds, as well as different types of bonds such as treasury, municipal, corporate, and high-yield bonds. Look for diverse industries among corporate bonds, such as financial, healthcare, manufacturing, and retail sectors.

And be sure

From shopping to find the best price. Bonds have prices marked up. This means that broker commissions are embedded in the price. However, it is not necessary to pay the full commission. Prices can be negotiated to some extent. One can buy a bond for $1010 from one broker and for $995 from another. Try not to pay more than the last trading price.

Source: https://www.thebalancemoney.com/how-to-research-and-buy-bonds-2466535