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Can Individual Investors Buy Corporate Bonds?

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Can Individual Investors Buy Corporate Bonds?

Many investment pros swear by the concept of diversifying their investments, not only across various sectors but asset classes — especially corporate bonds.

Here is how investors can invest directly in corporate bonds.

As a reminder, a corporate bond is as its name implies: a bond issued by a corporation. In essence, the corporation borrows money from the investor to fund part of its operation or enter a new market in exchange for repayment of the principle (also known as the face value) plus a certain amount of interest, which varies from company to company and is typically paid to the investor every six months.

Other types of bonds available for investors are issued by government entities ranging from the federal to municipal lender.

Investors who want to purchase corporate bonds can do so quite easily if the bond trades on the over-the-counter (OTC) market. This can be done through a standard brokerage account, which many investors already use for their investments in stocks.

Related Link: Shorts Are Running To Cover Some Of This ETF's Holdings

Bond prices are quoted as percentage of its face value with $100 being the benchmark. For example, a bond trading at 90 implies it could be purchased for 90 percent of its face value — a $10,000 bond could be bought by an investor for $9,000.

Regardless of the trading price of the bond, the interest payment stays the same.

Bottom line, corporate bonds offer an attractive alternative to investing in stocks given the consistent interest payments. However, there are many stocks that offer investors a similar percentage payout through the form of dividends. As is always the case, novice investors should seek out the expertise of a trusted financial adviser before making any commitments.

A Few ETFs In The Space

  • iShares Barclays 1-3 Year Credit Bond Fd (NYSE: CSJ).
  • iShares IBoxx $ Invest Grade Corp Bd Fd (NYSE: LQD).
  • Vanguard Short Term Corporate Bond ETF (NASDAQ: VCSH).
  • Vanguard Intermediate Tm Cpte Bd ETF(NASDAQ: VCIT).

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