Corporate bonds are loans to a corporation or business issued by investors, which have a given interest rate and maturation period. Some financial experts consider investment-grade corporate bonds to be a very safe investment with a chance for high yields. There are several different ways to buy corporate bonds; choosing the best method depends on investment experience and preferred style of investing.
Before deciding to buy corporate bonds, it is important to study the market and know the basic lingo of bond trading. The trading industry uses three main ratings companies to determine the safety and performance levels of each business with stock or bonds available. These ratings, which are given from AAA-C, can help determine which bonds are a relatively safe investment and which are more speculative in nature. Corporations with “investment grade” bonds are those with a rating of BBB or higher.
It is also important to pay attention to factors like maturation period and historical performance average when trying to buy corporate bonds. Bonds mature at different intervals, such as three, five, or ten years. Those with a long-term investment strategy may prefer to choose longer-term corporate bonds to give funds a long time to build up returns. Long term bonds due carry higher risk, however, as the market gets harder to predict over long periods of time. Historical performance can give an idea of how well investments in the corporation have done overtime, which may indicate future performance.
If a person uses a broker or financial manager to handle his or her investment portfolio, discuss whether it is a good time to buy corporate bonds. Financial managers may be able to present a detailed analysis on the market and performance potential of each corporation. The downside to using a financial manager is that it necessarily tags on additional fees that can cut into profits, but the benefit of expert advice can sometimes mean the difference between a profit and a loss.
Those who are more comfortable with the market may be able to buy corporate bonds online through an Internet broker. These websites allow a person to manage his or her portfolio firsthand, and may allow trading in multiple markets and platforms. Buying corporate bonds online may help eliminate some of the middleman costs, but does require some market savvy. Most online trading sites charge fees by the trade or for going over or under a certain amount of transactions, so be sure to read the fine print before using this type of account.
It is sometimes possible to buy corporate bonds directly from the corporation. This is known as “primary source” investing, and can eliminate middleman fees entirely. Unfortunately, primary source transactions are usually only available to established investors with a very large investment limit. Some primary source transactions also require that the investor has an account with the investment bank that is handling the initial bond offering for the corporation.