How to Invest in
Bonds

There are three basic ways to invest in bonds. You can buy individual bonds, bond funds or unit investment trusts.

Individual Bonds:

There is an enormous variety of individual bonds to choose from. Your investment advisor can help you find a bond that matches your investment needs and expectations.

Most individual bonds are bought and sold in the over-the-counter (OTC) market, although some corporate bonds are also listed on the New York Stock Exchange.

The OTC market comprises hundreds of securities firms and banks that trade bonds by phone or electronically. Some are dealers that keep an inventory of bonds and buy and sell these bonds for their own account; others act as agent and buy from or sell to other dealers in response to specific requests on behalf of customers.

If you're interested in purchasing a new bond issue, your investment advisor will provide you with the security's offering statement, or prospectus ? the official document that explains the bond's terms and features, as well as risks that investors should know about before investing.

You can also buy and sell bonds which have already been issued. This is known as the secondary market. Many dealers keep inventories of a variety of outstanding (i.e., previously issued) bonds.

Bonds sold in the over-the-counter market are usually sold in U.S. $ 5,000 denominations.

In the secondary market for outstanding bonds, prices are quoted as if the bond were traded in $100 increments. Thus, a bond quoted at 98 refers to a bond that is priced at $98 per $100 of face value, or at a 2% discount.

Bond prices normally include a markup, which constitutes the dealer's costs and profit. If a broker or dealer has to seek out a specific bond that is not in their inventory for a customer, a commission may be added to compensate for the costs and efforts of serving the customer's special needs.

Each firm establishes its own prices within regulatory guidelines, which may vary depending upon the size of the transaction, the type of bond you are purchasing and the amount of service the firm provides.

There are a number of services to help investors compare current prices of bonds. The Bond Market Association's investor Web site, www.investinginbonds.com, offers recent and historical price data on corporate and municipal bonds.

Bond Funds:

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All about Bonds

Bonds: Fundamental Investment Strategies