Did you know that you can invest in bonds without going through a broker or other middleman that charges fees?
You can! I recently learned about this option, though I haven’t the spare cash to buy any yet.
It is great to have options when investing and staying away from fees is always a good thing!
What is a Bond?
A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate.-Investopedia
As always with investing, make sure that you understand where you are putting your money. Make sure to check with your financial advisor to make sure bonds fit into your overall investing strategy. If you need to choose an financial advisor read this first- How do you Choose an Investment Professional?
Go directly to the source for government bonds- The U.S. Government of course! treasurydirect.gov
1) To open an account you’ll need these handy: social security number, banking information, driver license, and email address. This is only for electronic bonds, no paper versions here as of Jan 1, 2012.
2) Choose what type of bonds you want to buy. Here are a few options:
- I-Bonds- This is an intriguing bond, especially now as it as a hedge against inflation. Within the I-bond is portion that pays a fixed rate and a portion that pays a annual variable rate based on the inflation rate. This is a 30 year bond with penalties if you cash out before 5 years.
- Treasury Inflation-Protected Securities (TIPS)- TIPS are a more advanced version of I-bonds and are bought and sold on the market. The return rate depends on the specific auction. You can purchases TIPS through financial institutions and ETF’s, though you’ll have to pay fees.
- EE/E Bonds- This is a fixed rate bond and can be designated specifically for education. Purchasing EE bonds online will no longer get a bonus for holding, only for paper. If you purchase $50 face value, the redemption is also $50.
3) Set up automatic payroll deductions- If this is a way you’d like to save/invest, then make it a no brainer. You can set up automatic payroll deductions from your weekly or bi-weekly check. Click here to set up an automatic savings program to buy bonds on a regular basis.
Are buying bonds directly the right decions for you? Perhaps not now or ever, but it’s good to know you have options. Ask you financial advisor about it at your next meeting.
Would you ever purchase bonds directly as part of your savings/investment plan?
Photo Credit Mark Holloway (Creative Commons)