Analogous to the “How do I invest in commodities?” thread, I would like to pose a newbie question about bonds. Do I open a treasury-direct account, talk to my stock broker, find a no-load bond fund (and how do I find a good one), or do something else?
Thanks in advance.
JM
Treasury-Direct is great, but of course only offers federal securities. There are some really nice advantages to tax-free municipal bonds also that you may want to look at.
Vanguard has a really great set of bond funds which are very easy to invest in. I have some money in their NY Tax-Exempt Muni fund.
Your stock broker can also sell you shares of ETFs which invest in bonds. (ETFs are like mutual funds except their shares trade on exchanges instead of being sold to investors directly.)
And I believe some stock brokers can also trade bonds directly for you, but I’ve never asked mine so I’m not sure.
Don’t bother with Treasuries if you’re just a average guy with a few thousands or tens of thousands to invest. You can get better rates then TreasuryDirect by simply driving to your bank and getting a FDIC insured CD.
The best option for you would be a bond index fund. You can withdraw your money from one easily compared to holding the bonds yourself. Since most bond funds buy from the same pool of bonds the major difference will be how much they charge you. Index funds kinda win by default here through their low expense ratios. I am assuming you’re interested in buying (mostly government) bonds for safety. If you want bonds with higher yield and higher risk then I can type some more about them in another post.
I recommend getting a online account at Vanguard and buying into their bond funds. They have a Total Market Bond Index Fund which is IIRC 70% government bonds and a mixture of short, intermediate, and long term. Once you learn more about this you can sell and redistribute your money into the other bond funds. They also have tax exempt municipal bonds, GNMA, corporate, junk bonds, etc.