Interested in bonds but not sure where to start? In four easy steps below, we’ll help you figure out:
Which types of bonds to consider for your goals
What time frame and risk tolerance is right for you
And how involved you want to be in managing your bonds
First, learn which types of bonds may be right for you by deciding your investment goals.
Setting money aside for a near-term expense? Then you’ll probably want to choose from these types of bonds:
Short-term CDs (Certificates of Deposit)
Short-term Treasuries
Short-term investment-grade municipal or corporate bonds
Short-term bond funds
Are you saving for a future goal or trying to potentially protect your portfolio against some of the ups and downs of the market? These are the bonds you should consider:
Short- and intermediate-term Treasuries
Short- and intermediate-term agency bonds
Short- and intermediate-term international developed-market bonds
Short- and intermediate-term investment-grade corporate or municipal bonds
Agency mortgage-backed securities
Are you looking to maximize your income and willing to accept additional risk? Consider a combination of these types of bonds to generate higher interest income:
High-yield bonds or bond funds
Long-term Treasury or corporate or municipal bonds
Emerging market bonds or bond funds
Preferred securities or preferred securities funds
Bank loan funds
Second, consider how long your investing horizon is.
Traditionally, longer-term bonds produce higher yields but also have higher interest rate risk—the risk that the value of a bond will fall if interest rates rise. Thus, your time frame may be one factor in determining the amount of interest rate risk you’re willing to take on.
LOW INTEREST RATE RISK
0 – 4 years average maturity
MEDIUM INTEREST RATE RISK
4 – 10 years average maturity
HIGH INTEREST RATE RISK
10+ years average maturity
Third, determine the level of credit risk you’re comfortable with.
Credit risk is the chance that the issuer of a bond will not be able to repay its debt obligations. With riskier lenders, the return may be higher, but the odds of an investor losing their principal rise.
MEDIUM CREDIT RISK = Investment-grade corporate or municipal bonds, international developed market bonds
HIGH CREDIT RISK = Preferred securities, emerging market debt, high-yield bonds, bank loans
Finally, determine how involved you want to be in managing your investments.
If you prefer to make your own investment decisions, we have the tools to help you research, select, and monitor your own bond portfolio.
Schwab BondSource® automatically compares prices from multiple dealers and shows you the lowest price available to Schwab. We provide trade history and market depth to help you choose the right bond at the right price.
If you’d like further guidance determining which bonds are right for you, get one-on-one guidance from a Fixed Income Specialist. They can help you with questions you may have about strategy, placing orders, or specific bonds.
If you would prefer to leave decisions about bonds to a professional, you can turn to specialists who will professionally oversee your individual securities based on your investment style and strategy.