Corporate, Treasury, Municipal, or Foreign

Learning how to buy bonds is a crucial part of building an investment portfolio. Also called fixed-income or debt securities, bonds offer stability and income that few other assets can match. Bonds act as a steadying force, especially when the stock market is swinging wildly.

Buying all the different kinds of bonds is easier than ever. Let’s get you started.

Why Buy Bonds?

Bonds do more than generate income—they stabilize your portfolio during market volatility, often moving counter to stocks during downturns. Your ideal percentage for bonds in your portfolio depends on your timeline and risk tolerance. Younger investors might allocate 10% to 20% to bonds while focusing on growth, while retirees often maintain 40% to 60% to protect wealth and create income. 

Even when interest rates are comparatively low, bonds remain essential. They continue to help you diversify your portfolio—putting assets in different places so hopefully not everything drops in value at the same time—and certain segments like high-yield corporate bonds or emerging market debt can offer higher yields for investors willing to accept the additional risk. As the chart below shows, bonds may not get you to the returns stocks will in a good year, but they don’t drop nearly as far:

For income-focused investors, bonds create a dependable, periodic cash flow through coupon payments. This predictability makes them particularly valuable for retirement planning, when replacing employment income is a priority.

Bonds also offer tax benefits: municipal bond interest is typically federal tax-exempt (and sometimes state and local tax-exempt for residents), while Treasury bond income avoids state and local taxes.

The Bond Menu You’ll Be Choosing From

Before diving into how to buy bonds, it’s helpful to understand the main types and their benefits, risks, and tax implications.

US Treasurys

Treasurys are the bedrock of safety in any bond portfolio. While the returns may seem relatively modest, their value often becomes crystal clear during market downturns when other investments falter:

• Treasury bills (T-Bills): Short-term bonds that mature in a year or less.
• Treasury notes: Medium-term bonds that mature in two to 10 years.
• Treasury bonds: Long-term bonds that mature in 20 to 30 years.
• Treasury inflation-protected securities (TIPS): Bonds whose value adjusts with inflation.
• Series I and EE savings bonds: Consumer-friendly bonds with small minimum purchases ($25) and special features like inflation protection or guaranteed returns when held long-term.

Corporate Debt Instruments

Companies issue these bonds to raise capital, offering higher interest rates than government bonds due to increased risk. Ratings help assess that risk:

• Investment grade (AAA to BBB): Lower risk, lower returns
• High-yield or “junk” bonds (BB and below): Higher risk, higher potential returns

Many investors use corporate bonds to boost their portfolio’s income without taking on the higher risk of stocks.

Tax-Advantaged Municipal Securities

Municipal bonds, or “munis,” are issued by states, cities, counties, and other local government entities to fund public projects like schools, highways, and hospitals. Many investors overlook municipal bonds, but their tax advantages can make them remarkably competitive on an after-tax basis.

While munis offer lower stated interest rates than corporate bonds, their after-tax yield can be higher depending on your tax situation. 

International Fixed-Income Options

International bonds add diversification to your portfolio and can provide higher yields, but they also introduce currency risk. In addition, changes in exchange rates can affect your returns. They include the following:

• Developed market bonds: From countries like the UK, Germany, and Japan
• Emerging market bonds: From developing economies, which typically offer higher yields with greater risk
• Global bond funds: Professionally managed portfolios that invest across multiple countries

Should You Buy Bonds Directly or Through a Fund?

After deciding which types of bonds you want, you need to choose how to invest. You can own individual bonds directly or invest through managed products that hold many bonds. Each approach has trade-offs.

Purchasing Bonds Yourself

Bond Mutual Funds and ETFs

Bond mutual funds and ETFs pool money from many investors to build diversified portfolios managed by professionals. These funds might focus on specific categories (government, corporate, municipal) or cast a wider net.

The funds differ in important ways. Mutual funds trade once daily at closing prices with typical minimums of $1,000-$3,000. Bond ETFs trade throughout the day like stocks, can be bought for the price of a single share, and usually have lower expense ratios.

Where You Can Buy Bonds

Once you’ve decided which types of bonds to include in your portfolio, the next step is figuring out where to buy them.

Online Brokers and Platforms

Most major platforms like Fidelity National Financial Inc. (FNF) and Charles Schwab Corp. (SCHW) offer tools to filter bonds by:

• Issuer type (government, corporate, municipal)
• Credit rating
• Maturity date
• Yield
• Minimum investment amount

While online platforms have improved bond pricing transparency, always compare offerings across several brokerages before purchasing. 

TreasuryDirect: Fee-Free Government Bonds 

If you’re interested in Treasury securities, the most cost-effective way to purchase them is directly from the U.S. government through TreasuryDirect. There, you can do the following:

• Buy Treasury bills, notes, bonds, TIPS, and savings bonds
• Set up recurring purchases
• Reinvest maturing securities
•  Zero fees or commissions—get the exact auction rate

Professional Investment Services

For investors who prefer personalized guidance, financial advisors and full-service brokerages offer bond purchasing services and advice for your specific situation. Working with a professional can be particularly valuable if any of the following fit:

• You’re investing a large sum.
• You need help creating a comprehensive strategy.
• You want access to bonds not readily available on retail platforms.
• You prefer having someone else handle the details.

Where To Buy Shares in Bond Funds and ETFs

In the past, many people started off with bonds by getting a savings bond from a relative. Now, many people find their way to bonds through bond funds. With minimums as low as $1 for some ETFs, if you already have a brokerage account, you can begin building a bond portfolio without worrying about the complexities of selecting each bond.

Five ways to buy shares in bond funds: 

• Online brokerages: Most platforms offer a broad selection of bond funds with commission-free ETF trading—ideal for smaller investors. Use their screening tools to filter by expense ratio, bond type, maturity, and yield.
• Direct from fund companies: Open accounts directly with fund families like Vanguard, Fidelity, or T. Rowe Price to buy their mutual funds without broker fees. A good idea if you’re loyal to one provider, though less convenient for multi-provider portfolios.
• Robo-advisors: Services like Betterment, Wealthfront, and Schwab Intelligent Portfolios incorporate bond ETFs into automated portfolios, handling selection and rebalancing based on your risk profile.
• 401(k) plans and individual retirement accounts (IRAs): Most 401(k) plans and IRAs include bond mutual funds among their investment options. 
• Financial advisors: If you work with a financial advisor, you can buy bond funds for your portfolio based on your financial plan and goals.

How To Buy Bonds Strategically

Once you’ve decided which bonds to buy and how to buy them, it’s time to think about strategy. How you structure your bond investments can significantly impact your returns, risk level, and how well your portfolio meets your financial goals.

Bond Laddering

One of the biggest risks bond investors face is interest rate risk—when rates rise, existing bond prices fall. Fortunately, there’s a time-tested strategy to help manage this risk: bond laddering.

A bond ladder involves buying bonds with different maturity dates spread out over time. For example, instead of putting $10,000 into a five-year bond, you might invest $2,000 each in bonds maturing in one, two, three, four, and five years.

Here’s how it works:

1. As each bond matures, you reinvest the money in a new bond at the long end of your ladder.
2. If interest rates have risen, you’ll be able to invest at those higher rates.
3. If rates have fallen, only a portion of your money is affected, while your longer-dated bonds still earn higher rates.

Bond ladders thus give you regular access to your money as bonds mature, plus protection against getting stuck with all your money invested at low rates.

How Bonds Fit Into a Diversified Portfolio

Here are some things to consider as you add bonds to your portfolio:

Age and time horizon: A long-used rule of thumb suggests subtracting your age from 100 to find your stock percentage, with the remainder in bonds. While just a starting point, the principle behind it is still sound—as you age, you’ll want to gradually shift from stocks to bonds helps protect your savings.

Risk tolerance: If market volatility keeps you up at night, you might need a higher bond allocation for peace of mind, regardless of your age.

Income needs: If you need money coming in, prioritize higher-yielding bonds over growth investments.

Interest Rate Environment: In low-rate environments, consider shorter maturities to cut risk or explore alternatives like dividend stocks.

Rebalancing your portfolio periodically—selling some of what’s performed well to buy more of what hasn’t—helps maintain the percentage of bonds you’ve chosen as the target in your portfolio.

The Bottom Line

Well-balanced portfolios typically hold a significant share of bonds. While each type seems to have its own vocabulary, navigating the bond market needn’t be overwhelming. Today’s brokerages provide straightforward access to bonds—either as individual securities or through funds and ETFs.

Understanding each bond’s features and risks can help you determine when and how much to allocate to this essential asset class.