There are several ways to invest in bonds, including purchasing individual bonds or investing in bond funds or unit investment trusts.
There is a wide variety of individual bonds to choose from in creating a portfolio that matches your investment needs and expectations. Most individual bonds are bought and sold in the over-the-counter (OTC) market, although some corporate bonds are also listed on the New York Stock Exchange. The OTC market comprises securities firms and banks that trade bonds; brokers or agents, who buy and sell bonds on behalf of customers in response to specific requests; and dealers, who keep an inventory of bonds to buy and sell.
If you’re interested in purchasing a new bond issue in the primary market (when it is first issued), your investment advisor will provide you with the offering document, official statement or prospectus. You can also buy and sell bonds in the secondary market, after they have already been in issued in the primary market.
Bond funds, like stock funds, offer professional selection and management of a portfolio of bonds for a fee. Through a bond fund, an investor can diversify risks across a broad range of issues and opt for a number of other conveniences, such as the option of having interest payments either reinvested or distributed periodically.