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  • Buying bonds, how does it work? – READ THIS before you start!
  • Buying bonds, how does it work? – READ THIS before you start!

Buying bonds, how does it work? – READ THIS before you start!

How do you buy bonds as an investor?

You have two options, should you be interested in bonds in the investment world:

  • You buy the bonds yourself.
  • You invest in bonds through an investment fund.

This blog will explain the various pros and cons that you can find in purchasing bonds through these two options.

Option 1: You buy the bonds yourself

You can easily obtain bonds through most brokers. The biggest advantage of buying bonds yourself is that it is cheaper than investing through an investment fund. You pay fund costs when you invest through an investment fund. However, when purchasing bonds, you must have a higher capital at your disposal to prevent unhealthy diversification. The issue price, or nominal value of many government bonds is €1,000, which quickly amounts to €50,000 for corporate bonds .

The value of previously issued bonds

When purchasing previously issued bonds, you should pay close attention to the current value. This is shown as a band between the percentage and the known value. The interest rate, the value of the credit that is known to the issuer at that time and the remaining term are all factors that are constantly changing and influence the price of a bond. There are also bonds whose coupon can change (this happens, for example, after a fixed interest period). There may also be a coupon that is suspended or skipped under certain conditions, with an early redemption option. You should also pay attention to whether the bond at your current price still shows a sufficient yield percentage, if you look at your own risk profile and your alternative investments. To find out, look at the effective yield.

Spread your wealth!

There are also risks when you buy bonds. It is therefore important not to buy bonds from just one or two countries or companies. In any case, make sure that you have sufficient capital to be able to spread your options over different choices. Is this not possible? Then option 2 is a better idea for you, or buy bonds via an investment fund.

Option 2: You invest in bonds through an investment fund.

There are now enough  investment funds  where you can invest 100% or less in bonds. The biggest advantage of this: it is not necessary to independently search for suitable bonds, and you can already get started with a small and limited capital. It is possible to buy a share in an investment fund, this is possible when you have a small capital per share. There is a small downside to this: you do pay fund costs. However, these do not have to be too high. If you opt for funds that follow a cheaper index, you sometimes have to deal with a percentage of 0.15% fund costs per calendar year.

Distribution is important

Diversification is less important when you invest via an investment fund, but it is never unwise to diversify well here too. For example, do not only buy bonds with a high risk (high yield). Or choose multiple regions to place your investments in.

With which broker can I invest in bonds?

Are you excited about investing in bonds after reading this blog?  Then check out all brokers that offer bonds  and compare them to find out which broker suits you!

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