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How to Buy Corporate Bonds

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Luckily, your investment options are limitless. Unfortunately, it’s a little trickier to figure out where to stash your money because there are so many options. Determining which direction you’d like to go might require an in-depth risk and goal evaluation on your part. So, with that, here’s (yet another) avenue to consider: Why not add corporate bonds to your portfolio?

Best Corporate Bonds Right Now

As you shop around, you want to get it right the first time around. Check out Benzinga’s top picks for best corporate bond funds.

1. Vanguard Long-Term Corporate Bond ETF

You can always count on Vanguard for low fees, and the Vanguard Long-Term Corporate Bond ETF (NASDAQ:VCLT) doesn’t disappoint. Its expense ratio is only 0.05%, while the average expense ratio of similar funds runs you up to 0.70%. The ETFs largest issuers include industrial (69.3%), finance (16.8%) and utilities (12.2%). Its distribution by credit quality ranges from Aaa to Baa so you’ll rest assured that the ETF delivers a quality bond rating. Historical returns hover just over 8%.

2. iShares iBoxx $ High Yield Corporate Bond ETF 

The iShares High Yield Corporate Bond ETF (NYSEARCA: HYG) includes exposure to a broad range of U.S. high-yield corporate bonds and qualifies as a high-grade bond. It comes with a high expense ratio of 0.49% but offers showy returns over 5%. Its top holdings include Altice France SA, Sprint Corp., Transdigm Inc. and Ford Motor Company. 

Buying a Corporate Bond: Step by Step

A bond is a debt obligation, or in less-fancy terms, an IOU. When you buy a bond, you lend money to the corporation that issues them. The corporation then makes a legal commitment to pay interest on the principal when the bond comes due or matures. When a bond matures, you should receive the principal plus interest on the bond.

Corporations might issue bonds to fund capital improvements, expansions, acquisitions, fund research and development, pay shareholder dividends or refinance debt. They are one of the largest sectors of the U.S. bond market, which also include U.S. Treasury bonds, other types of government bonds and municipal bonds.

If you’ve read through the bond classifications, read through the nuances of risk and understand why you’d be interested in adding corporate bonds to your portfolio, you’re ready to buy. Take just a few steps to get that accomplished:

1. Set Up a Brokerage Account

You can choose to work with an online brokerage, bank, bond trader or broker to buy a corporate bond. Benzinga reviewed dozens of brokerages and has narrowed down the best online brokerage to buy corporate bonds. You can take a look at our full rankings for the best online brokerages or take a quick look at our favorites below.

Best For
Intermediate Traders and Investors
Overall Rating
Get started securely through Webull’s website
Best For
Intermediate Traders and Investors
N/A
1 Minute Review

Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.

Webull is widely considered one of the best Robinhood alternatives.

Best For
  • Active traders
  • Intermediate traders
  • Advanced traders
Pros
  • Commission-free trading in over 5,000 different stocks and ETFs
  • No account maintenance fees or software platform fees
  • No charges to open and maintain an account
  • Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight
  • Intuitive trading platform with technical and fundamental analysis tools
Cons
  • Does not support trading in mutual funds, bonds or OTC stocks
Best For
Futures Trading
Overall Rating
Get started securely through TradeStation’s website
Best For
Futures Trading
N/A
1 Minute Review

TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.

Best For
  • Advanced traders
  • Options and futures traders
  • Active stock traders
Pros
  • Comprehensive trading platform and professional-grade tools
  • Wide range of tradable securities
  • Fully-operational mobile app
Cons
  • Confusing pricing structure to leave new traders with a weak understanding of what they pay
  • Cluttered layout to make navigating TradeStation’s platform more difficult than it should be
Best For
Options Trading
Overall Rating
Get started securely through TD Ameritrade’s website
Best For
Options Trading
N/A
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Best For
  • Novice investors
  • Retirement savers
  • Day traders
Pros
  • World-class trading platforms
  • Detailed research reports and Education Center
  • Assets ranging from stocks and ETFs to derivatives like futures and options
Cons
  • Thinkorswim can be overwhelming to inexperienced traders
  • Derivatives trading more costly than some competitors
  • Expensive margin rates
Best For
Advanced traders
Overall Rating
Get started securely through Moomoo’s website
Best For
Advanced traders
N/A
1 Minute Review

Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU). Securities offered by Futu Inc., regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Moomoo is another great alternative for Robinhood. This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes.

Get started right away by downloading Moomoo to your phone, tablet or another mobile device.

Best For
  • Cost-conscious traders
  • Novice traders
  • Active/Advanced traders
Pros
  • Free Level 2 market data for all users who open an account
  • Commission-free trading in over 5,000 different stocks and ETFs
  • Over 8,000 different stocks that can be sold short
  • $0 contract fee for trading options, no commission either
  • Strong market data and analysis tools with over 50 technical indicators
  • Access trading and quotes in pre-market (4 a.m. to 9:30 a.m. ET) and post-market hours (4 p.m. to 8 p.m. ET)
  • No minimum deposit to open an account.
  • Active trading community with more than 100,000 app users
Cons
  • No phone or chat support

2. Narrow Your Bond Choices

Research sector, growth and performance and use Benzinga’s Best Bond Funds article to choose the right option for you.

3. Check Your Narrowed List for Bond Ratings

Use one of the two biggest ratings firms: Standard and Poor’s and Moody’s to check financial stability, debt and other risk factors. Look for bonds with letter grades that range from AAA or Aaa to BBB or Baa — considered investment grade. Bonds with a BB or Ba rating or below are junk bonds. Steer clear of these because they’re issued by companies with liquidity problems.

4. Place Your Order

You’ll find bond prices quoted as a percentage of the face value of the bond. Some corporate bonds trade on the over-the-counter (OTC) market as well. 

Bond Classification

Bonds can be classified in several different ways, including by their maturity, interest payment offerings and credit quality.

Maturity

Bonds all have different maturity rates, and longer-term bonds often offer larger interest rates but may contain more risk. The length of time varies, depending on the type of bond you’re considering:

  • Short-term bonds: One to three years
  • Medium-term bonds: Four to 10 years
  • Long-term bonds: More than 10 years

Interest Payments

Several types of interest payments exist for corporate bonds, which include:

  • Fixed rate: With this type of corporate bond, you receive the same payment each month until maturity. Interest payments are called coupon payments.
  • Floating rate: This type of interest rate resets periodically, and they’re based on a benchmark, such as prevailing interest rates on a bond index.
  • Zero-coupon: These types make no coupon payments. Instead, at maturity, the bond issuer makes a payment that is more than the purchase price.
  • Convertible: These are like regular fixed-rate bonds, except you can convert them to shares of stock. Because of this option, your interest rate on convertible bonds will be lower.

Credit Quality

Bonds all have different credit ratings, and it’s imperative to pay attention to the types of credit ratings. They can be considered investment grade or non-investment grade. You’ll most likely be paid on time if you invest in an investment-grade bond over a non-investment grade bond. On the other hand, if you do invest in a non-investment-grade bond, your interest rate will likely be higher to compensate you for your investment in a riskier bond.

Why Buy Corporate Bonds?

If you’re interested in a relatively “safe” investment, corporate bonds could be the way to go. They often offer higher returns than CDs or government bonds, are a good way to preserve principal and at the same time, provide yourself with a steady income. They offer you the ability to invest in a variety of sectors, and unlike CDs, are a little bit more flexible (you can take them out before they mature if you really need the money).

Like any investment, consider bonds as one part of a well-diversified portfolio. If you’re 25 years old, it might not be advisable to invest all of your assets in bonds, but if you’re 65, that might be a different story. See how retirees might consider investing in bonds in Benzinga’s Best Investments to Buy for Retirees.

Turn to Webull

0 Commissions and no deposit minimums. Everyone gets smart tools for smart investing. Webull supports full extended hours trading, which includes full pre-market (4:00 AM - 9:30 AM ET) and after hours (4:00 PM - 8:00 PM ET) sessions. Webull Financial LLC is registered with and regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). It is also a member of the SIPC, which protects (up to $500,000, which includes a $250,000 limit for cash) against the loss of cash and securities held by a customer at a financially-troubled SIPC-member brokerage firm.