If you are new to bonds, or even if you know a fair bit about them, you may wonder where someone actually gets their hands on a bond and which method for purchasing bonds is preferable (or easier).
You can buy and sell U.S. Treasury Bonds directly from the U.S. Treasury on their website through regular auctions. There are no fees here like there are if you were to purchase them through a bank or a broker.
Although this is the more attractive option, there are several reasons why you might consider using a broker. If you are planning to buy a large number of bonds, planning to buy at regular intervals, and especially if you are planning to buy other securities in addition to bonds, a broker will be helpful to aid in managing your investments.
When choosing a broker, there are two main types to consider.
A full-service broker is someone who offers advice and investment strategies. With this service, you will likely work with a licensed agent who will personalize your portfolio according to you preferences. This person may even buy and sell bonds on your behalf.
A full-service broker is so called because of the variety of services they may offer. In addition to investing in bonds, this broker could aid in retirement planning, tax tips, etc.
Such a service will command higher commission fees, but may well be worth the price when balanced with the gains from having experts guiding your investments. In addition, full-service brokers have a physical office where their clients can visit.
They often offer unique products to their clients such as funds developed in house, or proprietary access to Initial Public Offerings and the like. The bottom line, is that a full-time broker is essentially a one-stop shop for all of your investment and financial management needs — If you can afford it.
A discount broker will naturally offer lower commission rates, but lack the level of advice and information that a full-service broker offers. In addition, they usually do not have a physical location that you can visit.
The best thing about discount brokers is that they (along with the connected technological advancements) allowed people will lower levels of capital to get a foot in the door in the stock market.
Despite their limited offerings, discount brokers usually do offer some kind of learning material for you to study. This means that you are not entirely on your own when it comes to your investments, but it certainly does mean that you do not have expert advice concerning particular investment strategies and how they may or may not suit your needs.
Discount brokers are a good choice for people just starting to invest in bonds because their lower prices offer more flexibility for you to invest. You can read our review of our pick on the industry’s top 3 online brokerage firms here.
Further, they let you make and learn from mistakes entirely on your own. You may lose more money in the beginning, but when you are fully responsible for your own investments, you are likely to take the time to really understand what you are doing and do your research before making any investments.