- 1). Know how bonds are paid. The coupon rate of a bond refers to the specific amount of interest that a bond pays out. Understand that bonds are traded by investors, in the same way that currencies are traded in the Forex market. Once a bond arrives at the point where it can be sold, it is cashed in for the amount that you first invested, which is known as "maturity."
- 2). Determine where bonds can be purchased and sold. If you realize that bonds are bought and sold in a number of different venues including the New York Stock Exchange (NYSE), you can purchase your bonds of choice with the assistance of your stock market broker. Keep in mind that you will be required to pay the costs of any broker fees that are normally associated with trades of this kind.
- 3). Purchase governnment or municipal bonds. If you are more of a conservative investor, consider investing in this type of bond, which is purchased directly from the government. Keep in mind that municipal bonds are issued by towns and counties to fund public works projects and are often tax-free.
- 4). Understand corporate bonds. Remember that this type of bond is more of a risk than a government bond, but you also have the potential to earn a greater return on your investment. Corporate bonds have a variety of different ratings that will depend on the economic condition of the entity that is issuing the investment vehicle. Some corporate bonds have a AAA rating. They have a lower chance of default but also a lower rate of return. Junk bonds are lower rated and they offer a greater chance to earn more on your money, but they are also more risky. Junk bonds are often issued by relatively new businesses to fund their initial costs.
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