How do I Buy Bonds?
Investing in bonds is a great way for investors to build a strong portfolio. Before discussing how to buy bonds, this article will take a look at the different types of bonds available to the investor. Government bonds, corporate bonds, municipal bonds, and zero-coupon bonds all offer great ways to diversify your portfolio and offer a low risk in comparison to other forms of investing.
Government bonds carry a very low investment risk and fall into three main categories including bills, notes and bonds. They are fixed income securities and are classified according the length of time before maturity. Bills are considered debt securities that mature in less than one year while notes are debt securities that mature between one and ten years. Bonds are also debt securities that actually mature in more than 10 years. To be more exact, government bonds are actually referred to as treasuries and the “Treasury bills” are technically not considered bonds due to the short duration of their maturity. Treasury bills are also known as T-Bills and are considered extremely safe, for those investors who opt to buy bonds.
Corporate bonds are issued by companies just as they would issue stock and have higher yields because they contain higher risk than government bonds. They are generally short-term, intermediate, and long-term, with short-term being less than five years and long-term over twelve years. Types of corporate bonds include callable bonds and convertible bonds. If you would like to buy bonds of this nature keep in mind that they contain higher yields because there is a higher risk of a company defaulting than the government.
Municipal bonds have the potential to be completely tax free. They are also known as “munis”, and because of the potential tax savings, the yield is typically lower than that of a taxable bond. Depending on your investment philosophy, municipal bonds can be a great investment.
Zero-coupon bonds make no coupon payments but instead are issued at a considerable discount to par value. They are another investment option that offers the entire payment at maturity and because of this they tend to fluctuate in price much more than coupon bonds. A zero-coupon bond is basically bonds that have been repackaged after they were stripped of their coupons by a financial institution.
Great, now how do I buy bonds?
Most transactions can be done through discount brokers or through full-service brokers. The type of broker that you use will depend greatly on the types of services that you would like to receive. You can also utilize the services of a bond broker however that can be very costly to new investors who may not have the funds. You may be able to go through your financial institution, or purchase bonds through a government agency. It is important to note, however, that brokers will typically mark up the price a bit and tell you that they work commission free. To ensure you are charged a fair amount, you will need to research the latest quote for a specific bond to ensure that the mark-up is not ridiculous.
Remember while bonds contain a lower investment risk than stocks, you still must be sure that you do your homework before you buy bonds. Bonds can provide great portfolio diversification if done right!
Market Direction: Can you make money in a bearish market? Obviously the answer is yes. Making money, by exploiting the direction of the markets, is the easy part. The difficult part of that equation is knowing which direction the market is moving. That is simplified by the visual characteristics provided by candlestick signals. An uptrend will remain an uptrend until it can be analyzed that there has been a change of investor sentiment. That consists of a candlestick reversal signal followed by the appropriate confirmation. The same is true for a downtrend. Once the trend of a market can be identified, analyzing whether that trend will continue becomes a very important factor.
The current downtrend, being experienced in both the Dow and the NASDAQ, can be evaluated very easily. A trend will continue until signals indicate a change of investor sentiment. Although the Dow traded positive in Monday's trading, the NASDAQ was still trading lower. Logic dictates that if a reversal has occurred in investor sentiment, it will become visible in both indexes usually at the same time. When the Dow is trading higher, and the NASDAQ is trading lower, that clearly indicates that nothing major has occurred as far as altering the current trend.
There are three methods for making money in a bearish market. The most obvious is shorting specific stocks. When putting all the probabilities in ones favor, the percentage probabilities will be much better for shorting stocks in a declining market. That is especially true when the market tops out, a candlestick sell signal is observed, and the overbought stochastics start turning back down. Unfortunately a large percentage of investors do not feel comfortable or do not have access to shorting stocks. Whether the concept is difficult to comprehend or does not feel right to many investors, the idea of selling something before you own it is difficult for most investors. Buying "short" funds becomes another alternative. Although it is facilitated the same function, many investors can understand buying something that will go up when things are going down. The basic premise for taking advantage of prices that move with the markets, is having the ability to analyze which direction the markets are moving. This is the essence of candlestick analysis. Candlestick formations allow an investor to much more clearly evaluate the direction.
A third alternative is much easier applied when using candlestick analysis. That is having the ability to search for the industry/sectors that are benefiting even during a declining market. Not to sound like a broken record, but the recommendations provided by the Candlestick Forum for the past few weeks have been concentrated mostly on two areas. The oil stocks and the mining stocks have benefited by higher crude oil prices and metal prices. It makes sense that if something is causing negative sentiment in the markets, there may be sectors that are benefiting from that negative influence. Currently crude oil prices are putting a damper on the market. Oil drilling stocks are greatly appreciating due to the higher crude oil prices. The same is true with many of the raw metal materials.
The benefit derived from candlestick analysis is twofold. It pinpoints which sectors are acting well, instigating the investment into those sectors. Secondly, the analysis of the trend movement for those stocks in those sectors can be better assessed as far as whether the trend is continuing or it is time to take profits. Finding the right positions at the right time is fairly difficult. Analyzing whether to stay in or get out of a position is a continuous evaluation process. This combination is where most investors do not have a viable trading program. Candlestick analysis makes this process very easy. Take the time to learn what the candlestick signals are revealing and you will overcome the difficulties associated with investing for the rest of your life.
Chat session tonight at 8 p.m. ET for members - it will be hosted by Rick. Learn some of the indicators Rick uses to fine-tune his trading techniques. There will not be a chat session Thursday night due to the Fourth of July weekend holiday.
The Candlestick Forum Team