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Investing/Strategies / Bonds & Fixed Income Investments
|Subject: Re: Bond buying Newbie||Date: 10/27/2008 10:16 AM|
|Author: Lokicious||Number: 25002 of 35540|
How do you search, evaluate and buy individual bonds? I about a bond once from a bank decades ago.
Why types of bonds are preferable? I heard Warren Buffett had his money in Treasuries. I went to Treasury Direct and I see many kinds. How do I choose?
Suze Orman mentioned munis are a good buy now. She mentioned to buy and individual bond instead of a bond fund.
So...how do I do it?
As Paul said, look at the FAQs. It is especially important to know that CDs are a good alternative to bonds, even though the talking heads on TV rarely mention this.
A simple version: there are different types of bonds and there are different maturities for bonds. Maturities means how long until the bond matures and your principal is returned to you (assuming the bond doesn't default of get called). A 5-year CD returns your principal in 5 years. A 5-year Treasury Note with a maturity date of April 2013 will return your principal in April 2013, even if you buy it today—5 years in this case is from the date the Treasury Note was initially offered.
Treasuries of different sorts are generally considered safe, as are insured CDs (assuming US government doesn't go bankrupt one of these days). In addition to Treasury Bills (short maturities), Notes (intermediate maturities) and Bonds (long maturities), the Treasury offers TIPS of different maturities. TIPS provide a fixed interest component, which is lower than for regular Treasuries or CDs, but they also adjust for inflation. What we pay attention to is the fixed rate on TIPS. Historically, about 2.7% above inflation has been the average, but in recent years it has been much less. Currently TIPS are the highest they have been in 7 or 8 years.
Corporate and Municipal bonds are rated according to default risk. Ratings may not be accurate. It is certainly likely that both corporate and muni bonds right now being undervalued by the market (meaning you can get a good yield/interest rate), which is what Suzie Orman thinks. But it is possible the economy is in as bad shape or worse than the market is pricing in, so there are definite risks in trying to find which corporate or muni bonds are good reward/risk choices. This may actually be one of the rare occasions where a corporate or muni bond fund may be a good way to take advantage of bonds being undervalued, so you get diversification. But you need to be sure you get something relatively conservative—I like Vanguard in this regard (Intermediate Investment Grade Bond Fund, for example).
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