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Call Options: The Basics of Buying and Selling

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Along with put options, call options are one of the two major kinds of options, and they’re the kind most investors think of when they hear the word “option.” Call options make money when a stock rises, and they’re the kind of option employees try to wrangle when they join a company, hoping the options soar in value as the company’s stock rises.

Here’s what you need to know about call options, including how to buy and sell them. (If you need a quick refresher on how options work, see this beginner’s guide to options.)

What is a call option?

A call option is a contract that allows the owner to buy a stock at a specific price — called the strike price — by a certain future time. The buyer of the option pays the seller a fee — called a premium — for this right. If the stock price is higher than the strike price when the option expires, the call option is “in the money” and is worth money. If not, the call expires worthless.

Each option contract represents 100 shares of the underlying stock. For example, if you own five contracts, your position tracks the movement of 500 shares of the stock.

Options are a directional bet on a stock’s movement and, importantly, when it will happen. A call buyer expects the stock to rise above the strike price by expiration, ideally much higher than the strike. Conversely, a call seller expects the stock to remain flat or decline over the same time. Of course, only one of these bets on the market can be correct, so the winner’s profit comes at the expense of the loser. It’s like a side bet on how the stock will perform.

Publicly traded options are standardized, meaning the details are already specified for each possible contract. You can’t just go out and buy whatever option terms you want.

If you want to buy an option, you’ll need to evaluate it based on the following characteristics:

  • Expiration: when the option expires
  • Strike price: the price at which the option becomes valuable (or worthless)
  • Type: a call option or a put option
  • Underlying stock: the stock you’re buying the option on

Once you’ve got these details sorted, you can buy or sell an option.

How to buy a call option

If you’re buying a call, you’ll want to consider whether the stock can finish above the strike price plus your purchase price before the option expires. If so, you’ll earn a profit on the option. Even if you don’t profit, as long as the stock remains above the strike at expiration, the call will retain some value. However, if the stock is below the strike at expiration, the call expires worthless.

Investors like call options because they can magnify gains massively, and you can earn gains on much more stock than you could own outright. Here’s an example of how it works, compared to directly owning the stock.

In this example, the stock is trading at $50, a call with a strike price of $55 is available for $5, and you have $1,000 to invest. Here are the profits and losses at expiration at various prices.

Stock priceProfit/loss owning stockProfit/loss owning calls
$30-$400-$1,000
$35-$300-$1,000
$40-$200-$1,000
$45-$100-$1,000
$50$0-$1,000
$55$100-$1,000
$57.50$150-$500
$60$200$0
$65$300$1,000
$70$400$2,000

With your money, you’ll be able to buy 20 shares of stock, and every $5 rise in the stock translates to a $100 gain. If the stock falls $5, you’ll be down $100. But the payoff profile is much different for the call options, with much higher upside and downside.

With $1,000, you can purchase two contracts (2 * $5 * 100) with a strike price of $55. For every price below $55, the contracts will expire worthless and you’ll lose the whole investment. The options won’t break even until the stock is at $60 at expiration. But above that level, the calls will pay off handsomely, increasing $1,000 in value for every $5 rise in the stock price.

So that’s the attraction of buying calls — the possibility of a much larger gain than with the same investment in stock.

How to sell a call option

Selling (or writing) a call option is a much different proposition and makes money if the stock stays flat or declines in value at expiration. As an options seller, you want the option to expire worthless so you get to keep the entire premium.

Selling calls can be a dangerous trade because the potential upside is uncapped. The stock could simply keep rising, and the options seller is on the hook for any losses, potentially losing way more than the premium received from selling the call.

Using the same example as before, here are the profits and losses at expiration at various prices for the call seller. Note that the numbers are exactly the opposite of the call buyer’s.

Stock priceProfit/loss selling calls
$30$1,000
$35$1,000
$40$1,000
$45$1,000
$50$1,000
$55$1,000
$57.50$500
$60$0
$65-$1,000
$70-$2,000

Selling $1,000 worth of call options means you can sell two contracts. For every price below the strike price of $55, the call seller will retain the entire premium of $1,000. Even if the stock goes up a bit to $57.50, the call seller will make some money. But at a stock price of $60 and above, the call seller begins to lose money quickly, $1,000 for every $5 rise in the stock price.

Selling calls can be a dangerous strategy, but there’s one variation — named the covered call — that is lower-risk and potentially even safe enough for retirees. (Here are the details.)

What to watch out for

The biggest drawback of trading call options is the potential total loss if the stock finishes at the wrong place at the wrong time. It can become a complete loss of capital, and there’s no reset button.

And just as important as correctly predicting the stock’s move, you’ll have to predict the time frame too. If the stock moves higher the day after expiration, it won’t matter at all. The options will have already expired worthless. It’s like having the right lottery numbers for the wrong drawing.

Call sellers need to pay particular attention because they can lose more money than they put into a trade. Since a stock could continue rising, the call seller may lose many times more money than they receive in the premium. That could prove catastrophic.

Finally, if there’s one saving grace when buying call options, it’s that even if a stock moves against you, the option often retains some value as long as there’s a lot of time left until it expires. So that allows you to close the position and not take a complete loss.

Bottom line

Buying and selling calls can be a very lucrative way to make money in the stock market, but it’s not without important risks that should be considered before you commit any capital. Yet even more so than trading stocks, it takes an iron stomach and nerves of steel to watch options prices fluctuate, sometimes violently. Hold on to your emotions.

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James F. Royal, Ph.D.
James F. Royal, Ph.D. |

James F. Royal, Ph.D. is a writer at MagnifyMoney. You can email James here

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Review of LPL Financial

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

LPL Financial is the largest independent broker-dealer in the United States based on gross revenue. Dually registered as an investment advisor, the firm supports a network of over 16,000 affiliated advisors who operate their own businesses. LPL Financial is based in Boston, and it also has offices in San Diego and Fort Mill, S.C. The network of advisors it supports are located throughout the country. The firm’s advisors oversee nearly $159.1 billion in assets under management (AUM).

All information included in this profile is accurate as of January 23rd, 2020. For more information, please consult LPL Financial’s website.

Assets under management: $159,099,423,965
Minimum investment: Varies by service and portfolio type
Fee structure: Percentage of AUM, hourly fees, fixed fees and commissions
Headquarters: 75 State Street
22nd Floor
Boston, MA 02109
617-423-3644
www.lpl.com

Overview of LPL Financial

LPL Financial was founded in 1989 after the merger of two smaller brokerage firms, Linsco and Private Ledger. With 16,109 advisors and 17,205 licensed insurance agents on its staff, LPL has $159.1 billion in assets under management LPL Financial is owned by LPL Financial Holdings, a publicly traded firm.

Advisors often choose to affiliate with LPL to tap into the firm’s technology, investment research and business building support, for which the firm earns a fee. LPL advisors maintain their own relationships with clients and negotiate their own fees and service offerings independently. LPL does not sell any of its own proprietary financial products, so advisors are free to recommend whichever investments and financial products they believe are in their clients’ best interests.

What types of clients does LPL Financial serve?

LPL Financial’s advisors serve mostly individual investors. In addition, the firm serves:

  • High net worth individuals
  • Trusts and estates
  • 401(k) plans
  • Individual retirement accounts
  • Pensions and profit-sharing plans
  • Charitable organizations
  • State and municipal entities
  • Corporations

The minimum amount of assets required to work with an LPL advisor varies depending on the service you receive. LPL does not have a minimum asset requirement for its financial planning, consulting or research services. For customized investment advisory plans, the investment minimum is up to the discretion of the advisor and is detailed in the client agreement.

Clients who opt to use one of the firm’s portfolio programs will be subject to minimum requirements that vary by program. Minimums start as low as $5,000 for Guided Wealth Portfolios and go up to $250,000 for Personal Wealth Portfolios (see more details on these options below).

Services offered by LPL Financial

LPL’s financial advisors offer the full gamut of financial planning and advisory services, such as budgeting, financial projections and selling insurance, though not all advisors offer every type of service. Among the services LPL advisors may offer are:

  • Investment advisory services and portfolio management
  • Wrap programs
  • Financial planning
  • Insurance
  • Retirement plan and pension consulting
  • Selection of other advisors
  • Workshops and seminars
  • Brokerage services

In addition to the services that LPL advisors provide directly to clients, when advisors affiliate with LPL, they get access to a range of services to help them build and manage their businesses. This includes business building ideas, compliance and technology support, investment research and the execution of trades.

How LPL Financial invests your money

Because LPL’s advisors work independently, investment approaches and strategies vary from advisor to advisor and client to client. Advisors can offer customized investment advisory services, and LPL also provides advisors with programs for investing client funds.

One option offered by LPL is the Strategic Asset Management program, which allows a high level of customization so clients can choose to exclude certain investments or emphasize others. The program offers access to a full range of investment options, including mutual funds, exchange-traded funds, equities, fixed income and alternative investments, such as non-traded real estate investment trusts and non-traditional exchange-traded funds.

Advisors who want to take a more hands-on approach with their high net worth clients can use a separately managed account wrap program from LPL called Manager Select. With this program, LPL reviews and recommends outside institutional portfolio management firms for inclusion.

For advisors who don’t want to create customized portfolios, there is also the option to invest clients’ money in one of LPL’s model portfolios. These portfolios — which include Personal Wealth Portfolios, Model Wealth Portfolios, Optimum Market Portfolios and Guided Wealth Portfolios — are professional asset allocation strategies that are created, managed and monitored by LPL. Mutual funds and ETFs make up the investments within these portfolios, but the exact mix will depend on a client’s responses to an online questionnaire about their financial goals, investment horizon and risk tolerance.

Portfolio Name Investment Strategy
Strategic Asset Management
($25,000 minimum)
Open architecture program that allows advisors to invest client assets in mutual funds, ETFs, individual equities, variable annuities and other investments.
Manager Select
($50,000 minimum)
Separately managed wrap program for high net worth clients that uses LPL-researched and monitored institutional portfolio managers.
Personal Wealth Portfolios
($250,000 minimum)
Asset allocation investment program that combines mutual funds, ETFs and investment models for high net worth investors.
Model Wealth Portfolios
($10,000 minimum)
Program that uses strategic asset allocations to take advantage of market opportunities that will persist for the next 3 or 5 years; designed for more aggressive investors.
Optimum Market Portfolios
($10,000 minimum)
Suite of model portfolios that invests in up to six mutual funds from the Optimum Funds family.
Guided Wealth Portfolios
($5,000 minimum)
Digital investment platform for low-balance investors.

Fees LPL Financial charges for its services

It’s up to LPL advisors to determine how to charge for their services. Advisors use several fee models, including a percentage of assets under management, hourly fees, fixed fees and commissions. Fees are negotiated between clients and their advisors and detailed in the client agreement. All fees are paid directly to LPL, and LPL then shares a portion with the independent advisor representative.

That said, the firm typically charges for financial planning consulting services on an hourly or per plan basis, which is a flat rate. The maximum hourly fee that LPL advisors will charge is typically $400 per hour, while the maximum flat fee is typically $15,000.

For customized advisory services, LPL typically charges based on a percentage of assets under management. A client’s rate will be set out in their agreement with the firm. LPL states in its Form ADV that the maximum rate it generally charges is 1.50%.

For clients who opt to participate in one of the programs offered by LPL that’s laid out above, they will also pay a fee based on a percentage of assets under management. The maximum account fee is generally 2.50%.

Along with the account fees, clients may pay other miscellaneous administrative or custodial-related fees and charges. Clients are notified of these fees when they open an account, and LPL provides clients with a list of fees on its website.

LPL Financial’s highlights

  • Awards and recognition: LPL advisors consistently appear on top advisor lists. In 2019, for example, 65 LPL advisors ranked among the best advisors in their states in Forbes’ list of Best-in-State Wealth Advisors. Deborah Danielson, an advisor based in Las Vegas, ranked No. 3 in her home state on Barron’s list of 1,200 Top Financial Advisors in 2019.
  • Advisors for all types of clients: Because LPL has a vast network of advisors across the U.S., clients are likely to find an advisor whose specialty matches their needs. In addition to one-on-one advice with advisors, clients can also tap into technology-assisted portfolio management platforms similar to what they might find at a robo-advisor.
  • Inclusive workplace: Human Rights Campaign gave LPL a 100% score in its Corporate Equality Index as one of the “Best Places to Work for LGBT Equality.”

LPL Financial’s downsides

  • Advisor defections: Over the last few years, several big RIA firms have left LPL, citing the firm’s lack of service to their advisor groups. These groups included Retirement Benefits Group, which managed $10 billion, and Resources Investment Advisors, which oversaw $5 billion.
  • Potential conflicts of interest: Some LPL advisors are dually registered, meaning that they are able to charge fees for financial advice as well as for products they recommend, such as 12b-1 fees, paid to cover distribution costs for mutual funds. This could incentivize advisors to sell certain products. One way that LPL has attempted to mitigate these potential conflicts is to credit back certain fees to client accounts, thus eliminating the financial incentive.
  • Numerous disclosures: Over the years, LPL has been fined on several occasions for failing to supervise its brokers carefully, leading to sales of inappropriate and complex investment products.

LPL Financial disciplinary disclosures

LPL has had a long history of disciplinary disclosures, many of which are centered around the firm’s failure to properly supervise its brokerage practices. The firm has been ordered to pay fines and restitution as a result.

Among the most serious instances of wrongdoing, LPL was fined $26 million in 2018 for failing to establish and maintain reasonable policies and procedures to prevent the sale of unregistered, non-exempt securities to its customers.

In 2015, the firm was fined $11.7 million for “broad supervisory failures” in a few key areas, such as non-traditional ETFs, variable annuities, non-traded real estate investment trusts and other complex investment products. The firm was ordered to pay an additional nearly $1.7 million in restitution directly to clients who had bought non-traditional ETFs.

LPL Financial’s onboarding process

Advisors have their own onboarding process when they sign on new clients. LPL has recently streamlined its sign up process by reducing the number of fields clients must fill in and introducing a progress bar.

If you are interested in working with an LPL advisor, you can find one near you by searching on the firm’s website. You can either search for a specific advisor by name or take a look at the advisors in your area.

Is LPL Financial right for you?

With LPL’s vast network of affiliated advisors, potential clients should be able to find an advisor who can address their needs. However, LPL’s size does bring downsides — indeed, the firm has faced numerous disciplinary actions in recent years. Further, some of LPL’s advisors are dually registered as brokers and receive commissions for sales, which could create potential conflicts of interest. Some investors may prefer a smaller, more intimate advisory practice with fewer potential conflicts of interest and a more personalized feel.

Before choosing a financial advisor, it’s always important to do your research and compare several options to ensure your advisor is the right fit for you.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Ilana Polyak
Ilana Polyak |

Ilana Polyak is a writer at MagnifyMoney. You can email Ilana here

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Investing

Everything You Need to Know About Bonds

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

When it comes to investment news, stocks tend to dominate the headlines. Yet, bonds are just as important for investors looking to create a diversified investment portfolio. Since bonds aren’t covered as much in the news, and can be harder to understand, they can be intimidating to invest in for the first time. This guide aims to explain what you need to know about bonds as a personal investor.

What are bonds?

Government entities, public corporations and private companies issue bonds to raise money. A bond works like a loan: When an investor buys a bond, they agree to give a set amount of money to the bond issuer for a fixed amount of time. During this time period, the bond issuer pays the investor a set rate of interest, either at regular intervals or in a single installment. At the end of the bond term, the organization pays the investor back the original sum of money they lent out.

For example, you buy a $1,000 10-year bond from Google with a 5% interest rate. Every year, you will receive $50 in interest ($1,000 x 5%). At the end of 10 years, Google will give you the $1,000 back.

What’s the difference between bonds and stocks?

Companies can raise money by issuing both stocks and bonds. When you buy stock, you become a part owner of the company and get to share in their profits. When you buy a bond, you are a lender. The company agrees to pay you interest in good times and bad — it’s not based on their profits.

Stocks are riskier because your return is not guaranteed. If the company doesn’t earn a profit, you won’t receive money and your investment could lose money. With bonds, you receive the interest payments each year, plus your money back at the end of the term (unless the company runs into financial trouble). However, stocks historically have a higher long-run return than bonds. It’s a tradeoff between risk and return.

What are bond credit ratings?

Besides the interest rate, another key factor for bonds is their credit ratings. While the bond issuer promises to pay interest and your money back at the end of the term, if they run into financial trouble, they might not be able to make all the interest payments. Even worse if they go bankrupt, you might lose part or even all of your initial deposit.

That’s why as part of your research, you should check the credit rating of any organization issuing a bond. Independent agencies — Standard & Poor’s, Moody’s and Fitch are the most prominent ones— review the finances of different organizations and give them a letter score based on what they see.

If a government or company is in strong shape financially and very likely to pay the money back, they will have a high rating like AAA. Riskier bonds will have a lower rating to show they are more likely to miss payments. Bonds with a rating below BBB- on the Standard & Poor’s system lower are called junk bonds because of their extra financial risk.

Typically, a bond with a worse credit rating pays a higher interest rate — otherwise, investors wouldn’t buy them. On the other hand, safe bonds can get away with paying a lower interest rate.

How do bonds compare against CDs?

There are certain similarities between bonds and certificates of deposit (CDs). They are both I.O.U.s from an issuer, which promises to pay you interest plus your original deposit. Still, there are also some important differences between bonds and CDs.

First and foremost, CDs issued by banks are insured by the Federal Deposit Insurance Corporation (FDIC). If the issuing bank goes out of business, the FDIC will in most circumstances return your money, up to the legal limit per account. Bonds do not have this protection, so if the issuer goes bankrupt, you could lose your money.

Another difference is that you can sell bonds to other investors for a profit or loss after buying them. With bank CDs, you can take your money out early in exchange for paying a penalty fee, but generally you can’t sell the CD to another investor (unless you buy brokered CDs).

According to Steven W. Kaye, CFP and managing director of Wealth Enhancement Group, CDs are much simpler, as they only have two components, “interest rate and the term of the investment,” adding that they are “two dimensional” and “completely predictable as long as you stay within the FDIC limits.” However, he pointed out that bonds typically have better returns.

What are the different types of bonds?

The bond issuer is the main differentiator among the types of bonds: is it a company, the federal government, a state? Some of the more common bond types include:

  • Corporate bonds: Corporate bonds come from private companies like Google, Ford or Exxon. Companies in good financial condition will have a higher credit rating, whereas struggling companies will have a low credit rating.
  • Treasury bonds: Bonds from the U.S. federal government are called treasuries. They have different names based on their terms: treasury Bills have a term of one year or less, treasury notes last between two and 10 years, and treasury bonds have a term of 30 years. These are some of the safest investments in the world because they are backed by the U.S. government. You can also buy bonds issued by other national governments.
  • Savings bonds: Savings bonds are also issued by the federal government, and they pay a set interest rate on your investment. You can buy these bonds for as little as $25, much lower than other categories. Another difference is that you cannot sell a savings bond to another investor. Instead, you can redeem them early with the U.S. Treasury, in exchange for forfeiting some of your interest.
  • Municipal bonds: When state and local governments raise money, they sell municipal bonds. These can be safe, but you’ll need to check the rating, as not every state or town is in good financial shape. To help state and local governments raise money, the IRS gives municipal bonds a tax advantage: You do not need to pay federal income tax on the interest from most municipal bonds. They also may be free of state and local taxes, depending on where you live.
  • Zero-coupon bonds: While most bonds pay interest, you could also find zero-coupon bonds that do not. Instead, you buy these bonds at a lower price initially and then get more money back at the end. For example, you pay $800 and get $1,000 back in five years. That larger lump sum payment at the end can be nice, but the downside is these bonds don’t pay out interest income each year.

How do you buy bonds?

One way to buy bonds is through an investment brokerage account like Fidelity or E-Trade. If you have a retirement account like a 401(k), you could also use money in that account to buy bonds.

One way to buy bonds is directly from an organization when they release them for the first time, known as a primary issue. You can also buy and sell bonds on the secondary market from other investors. For example, you buy a 3-year old Google bond that still has seven years left of payments from an investor. This can give you more options as companies aren’t issuing new bonds every day.

Finally, there are bond mutual funds and exchange traded funds (ETFs). These are professionally managed funds that build a portfolio of many different bonds for a large group of investors. By buying into the fund, you get a small piece of the entire portfolio.

Kristi Sullivan, a CFP from Denver, thinks that funds are the best option for beginner investors because they help you get more exposure with a smaller investment.

“There are different areas of the bond market (investment grade, high yield, foreign, and various maturities) and many bond funds specialize in these sub-asset classes,” said Sullivan. “You can also buy individual bonds, but they sell for about $1,000 per bond so it takes more money to create a diversified bond portfolio that way.”

What sets the price of bonds?

When organizations issue bonds, they typically set the price for each one at $1,000. However, after the initial issue you can buy and sell bonds on the open market and the price can change.

One major factor is market interest rates. When interest rates go up, the prices of old bonds go down. If you have an old bond paying 4% but now people can go out and buy a brand-new one for 5%, you need to give them a price discount for them to accept the lower interest payments. This is called selling at a discount.

On the other hand, if interest rates go down, the price of old bonds go up. You could sell your original $1,000 bond for more than that, like $1,100. This is called selling your bond at a premium. To get an approximate value of how much your bond is worth based on its interest rate versus market rates, you can use an online calculator like this one.

Investors buy and sell bonds to each other through financial markets so the actual price you’ll receive depends on what someone else is willing to pay for your bond.

Another factor is the underlying finances of the bond issuer. If the bond issuer runs into financial trouble after you sign up, investors are going to be reluctant to buy that old bond so the price will fall to make up for the extra risk.

Are bonds a safe investment?

Bonds are a moderately safe investment, especially compared to stocks. While there is a chance you might not get your money when an issuer runs into financial trouble, if you buy higher-grade bonds you are relatively secure against facing losses. In other words, you should receive the interest plus your money back. However, as Kaye pointed out, there are other types of risk as well.

“CDs and high-quality bonds are safe in terms of default risk but have inflation risk,” he said. Recently for these kinds of investments, “rates have been so low that after you subtract income taxes and inflation, you could actually have a negative return.” Stocks, on the other hand, with their higher potential return, “provide inflation protection.” This is why a diversified portfolio has a mix of different assets, so you get all their advantages.

What are strategies for investing in bonds?

We asked financial advisors whether they had any tips for investing in bonds; here are a few they thought worth considering.

  • Stick with high-quality bonds. Kaye believes that beginners should stick with high-quality bonds, those with a high credit rating. That way you can feel confident that your interest income will come in each year and that you won’t lose your initial investment. While the higher interest rates on junk bonds may be tempting, they are more likely to lose money.
  • Avoid micromanaging: With so much research and daily news out there, beginner investors can overreact to market changes. “I am a buy-hold-annual-rebalance advisor, so I’d say don’t micromanage your bond investments,” said Sullivan. So after buying a bond, wait a year before making any buy/sell decisions.
  • Consider bond funds for lower budgets: “For those who do not have enough money to buy individual bonds, there are investments like BulletShares, which is a basket of bonds with specific maturity dates for smaller investors,” suggests Kaye.
  • Keep in mind tax breaks from municipal bonds. Marguerita Cheng, CFP and CEO of Blue Ocean Global Wealth, sometimes sees people misusing the tax breaks on municipal bonds. “It doesn’t make sense to have municipal or tax-free bonds in tax-deferred accounts, such as IRAs. The benefit to investing in municipal bonds is that they are exempt from federal & state taxes.” Since municipal bonds are already tax-free, you should keep them in a regular brokerage account while saving your retirement plan tax breaks for taxable bonds.She also says you should watch out for your state’s rules for bond taxes. “In states like Virginia, Virginia residents can purchase Virginia municipal bonds and not be subject to state or local income tax. While they can purchase bonds from another state, those would not be exempt from Virginia taxes.”
  • Consider a bond ladder. One risk with bond investments is that interest rates will change after you sign up. To get around this, you could set up a bond ladder, where you buy bonds with different maturities. For example, rather than putting all your money in 5-year bonds, you divide it up between 1-year, 3-year and 5-year bonds.If interest rates go up after you buy, you’ll be able to renew the 1-year bonds soon at a better rate. If interest rates go down after you sign up, you’ll still keep the higher rates on your longer-term bonds. By getting a mix of short and long-term bonds, you cover yourself in both scenarios.

How can someone get help investing in bonds?

If you still need some help figuring out how to trade bonds, there are ways you can prepare. First, you can see whether the broker selling the bonds can give you advice. FINRA, an investment regulatory agency, recommends that you look for a broker that specializes in bond trading so you can get this support.

Another option is to buy bond funds and ETFs. The fund prospectus will list the types of investments and fees so you can find one that’s appropriate for your situation. For more hands-on support, you could hire a financial advisor, who could recommend a suitable bond portfolio for your goals and even personally manage it for you. You would need to pay for this advice, either as an hourly fee or as a percentage of your portfolio every year.

Whichever system you use, you will be adding a valuable asset class to your portfolio that balances out your stocks. With a little research and the information in this guide, you can feel more confident about your bond investing decisions.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

David Rodeck
David Rodeck |

David Rodeck is a writer at MagnifyMoney. You can email David here