Bond myths

For people who have become disillusioned by the stock market but still can't see the value in putting all of your money in low yielding CD's, bonds could be a nice compromise. Let me dispel a few myths about buying bonds. A lot of people think that you have to have a lot of money to buy bonds. This is not true. Bonds are sold in increments of $1000. Now while it is not practical to buy one bond, you don't need to pony up $50,000 or $100,000 to get in the game either. Ask your broker to find you some odd lots. These are small baskets of bonds sold on the secondary market in weird or odd increments, like 8 or 13. Someone who needed to sell their bonds prematurely, sold them back to their broker, who in turn placed them in inventory. Since most big players don't want odd lots, they typically sell at a deeper discount, so you can get a good buy if you find some available. Another common myth is that you have to own bonds for 20 or 30 years. While bonds are typically sold in the primary market with 15, 20, or even 30 year maturities, you can find bonds in the secondary market that mature in 5 years, 3 or even next year. Remember, the bond market is huge, way bigger than the stock market. Ask your broker to search for the time frame you need. One strategy is to set up a bond ladder. It works like this: Buy a portfolio of bonds with staggered maturity dates. Some that mature in 3 years, some in 4, some in 5, and so on. That way, you will have money come available in each time period that you can use for something else or reinvest in new bonds. Then you won't be in a position to have to sell something at a loss in case of an emergency. Most brokers don't deal in bonds that much, that's why they peddle stocks and mutual funds, but if you find a broker that knows about bonds, he can make you some money without the downside risk of the stock market.