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How to Buy Bonds

The quickest and easiest way to purchase a bond is to contact your financial adviser or broker and have him or her discuss with you which types of bonds to select for your portfolio. They can do all the legwork for you and help you sort through all the different types of bonds quickly.

Most bonds are sold in what's called the over-the-counter or OTC market, and a broker can help you with this. If you want to purchase a bond at its initial offering--known as the primary offering--you'll also need to go through a broker to help you with buying that bond.

Otherwise, you can purchase bonds in what is called the secondary market.

How to Buy Bonds From the US Treasury

You can buy US Treasury bonds directly. To do this you would want to start by visiting the website http://www.treasurydirect.gov. Here, you can create an account and read all about the auction and purchasing process from the US Treasury.

How to Purchase Corporate Bonds

To purchase corporate bonds, you will likely need to visit the company's website or call the investment department of the particular company to learn more information and then purchase the bond of your choosing. Remember, when you purchase a piece of stock in a company, you are actually becoming an owner in a very small piece of that company. If you purchase a bond, you are in essence loaning that company money, and that company is promising to repay you with interest. You do not own any piece of a company when you purchase a bond.

Because corporate bonds require a little bit more work to purchase than a common stock (which can be done with a few clicks of a mouse in your online investment account), you'll generally need to go through a broker or your financial adviser to add bonds to your portfolio.

However, if you're a "do-it-yourselfer" and prefer to manage your investments on your own, you might want to consider a Bond ETF as an addition to your stock portfolio.

We've talked about exchange-traded funds, or ETFs for short, before, and--you guessed it!-- there are plenty of bond ETFs for you to choose from!

Bond ETFs are NOT just like bonds; unlike bonds, bond ETFs do not have maturities and you are not returned your full investment at the end of a specified period of time. Like any ETF, bond ETFs fluctuate or change value in price over time, so these are more risky than buying the bond itself. Bond ETFs invest in bonds and try to replicate bonds including interest payments as closely as possible.

Some Bond ETFs pay out interest into your account monthly or quarterly, so be sure to read the entire prospectus and get as much information as you can before rushing out to purchase a bond exchange-traded fund.

Remember that ETFs are bought and sold just like stocks, which means you can buy and sell them anytime during trading hours in your online trading account without a broker.

Which Bond ETFs Should You Invest In?

Probably the most popular bond ETF trades under the symbol TLT which is the iShares Barclay's 20 year plus Treasury bond. TLT currently has an annual yield of 3.8% or just under 4% which is just like a dividend that you would get from a stock. This reflects the interest you would get if you went out and purchased a 30-year bond from the U.S. Government. Remember that the price of this ETF will change each day-- though the fund is much less likely to see wild swings like a typical stock over time--and that means you could lose value if you buy the TLT and then sell it later when the price has declined. You would lose money if the price declined more than the percentage you received in yield over the life of your investment. That will be true with all bond ETFs.

Other Popular Bond ETFs

Another popular bond-style ETF is the Treasury Inflation-Protected Security which trades under the symbol TIP. This fund is designed specifically to protect you from inflation, as the yield is intended to increase as adjusted with the rate of inflation, which helps protect your money.

Remember, if you buy a bond that yields 2% and the annual rate of inflation for the year is 3%, then you've actually lost money in terms of buying power at the end of the year. That's why investors like the protection of the TIP fund. Remember, though, the fund can lose value too.

If you want to invest in a municipal bond ETF, check out SPDR Barclay's Municipal Bond ETF which trades under the symbol TFI.

For those okay with more risk and volatility who want ETF exposure to the corporate bonds, take a look at the Powershares High-Yield Corporate Bond ETF under symbol PHB. This is a relatively low volume ETF, so be sure to read all about it before choosing to invest in this fund.

Visit Yahoo Finance, Google Finance, MSN Money, or any other popular financial online website for information about these bond-related exchange traded funds. Remember, though these can be bought and sold just like stocks, they still aren't stocks, so be sure to study more about these unique opportunities available to you.