Investing in Corporate Bonds: A Comprehensive Guide

How to Buy Corporate Bonds. Corporate bonds are a way to make loans to a specific company that will be paid back over a predetermined amount of time. By using a variety of financial resources, you will be able to locate and purchase the corporate bonds that will best benefit your financial portfolio.

Step 1

Ask your financial advisor to prepare a prospectus on corporate bonds that are highly recommended. Your advisor should be able to provide ratings on each type of corporate bonds, ranging from AAA (the most secure and low-risk bonds) to C (the riskiest investments), based upon the financial strength of each company.

Step 2

Buy corporate bonds from the bank or financial institution of your choice. Some banks may actually waive fees or commissions on the sales of such bonds if you meet certain criteria as a customer, such as maintaining a specific minimum balance in a savings or money market account. This should give you a financial advantage over dealing with a bond broker.

Step 3

Approach a specific corporation directly to find out about how to buy bonds straight from the source. This is another way to circumvent the paying of fees and commissions, although you may receive a biased view of the performance of the bond. Make sure you do your homework before you contact the company, and find out the specific bond rating from an impartial source, such as your bank.

Step 4

Determine which type of bond is best for your needs. For instance, a short-term bond may mature in 3 years or less, and may fit in better with your financial plan. Buying a long-term corporate bond increases the risk involved, since many things can happen to a company over a longer period of time, such as corporate takeovers, mergers and bankruptcies.

Step 5

Purchase corporate bonds from an online trading company, such as eTrade.com (see Resources below). While this is an easy and convenient way to deal with all types of securities, you may not receive the same level of service and advice as with more conventional services, and you will still pay fees and commissions.

Tip

Many people purchase corporate bonds in conjunction with other types of securities, such as stocks and stock options. This way, you can combine a higher-yield type of security that may pay more interest with a bond, which usually involves a lower level of risk.

Things You'll Need

• Financial advisor

• Bank or financial institution