How To Buy Bonds

How To Buy BondsOver time, bonds should find a place in your portfolio. How much you should have will definitely depend on your investment strategy and appetite for market swings. If you are in the market for bonds, there are a couple of ways to purchase bonds. It doesn’t matter if you have a lot of bonds or just a little bit, bonds are relatively easy to purchase.

  • Buying Bonds on the Secondary Market
  • Buying a Bond ETF or Mutual Fund

Related: Should your bonds allocation match your age?

How To Buy Bonds on the Secondary Market

On the secondary market, you need to know what you are looking for as you are going to purchase a very specific bond. The purchases usually starts with a minimum of $5,000 with $1,000 increments. Verify with your discount broker before you make the purchase.

Screening Bonds With RBC

The screening I have been able to do with RBC Direct Investing covers the following criteria. The ‘Rating’ is an important one for safety. Obviously, anything above $100 has a premium and anything below is sold under value. The maturity date and the risk usually play a factor in the second market value.

  • Description
  • Maturity Date
  • Coupon
  • Approx. Semi-Annual Yield
  • Approx. Price/100 CAD
  • Rating
  • Amount of Inventory
  • Special Term

Also part of the filtering is the type of bond that you are looking for such as

  • Government of Canada
  • Provincial
  • Municipal
  • Corporate
  • Strips

Once you start filtering, you will notice that the above list really highlight the type of risk you are willing to take along with the available yield. Often time, if you purchase bonds on your own, it’s much better to purchase when they are released than on the secondary market.

Bonds Screening

RBC Bonds Purchase

The actual purchase from my discount broker is pretty simple. Once you have selected the bond from the screening list, you just have to click buy and proceed through the steps.

Bond Purchase


In the case of this bond from Terasen Gas (a.k.a. Fortis), there is a premium to pay up front for the yield. It does expire in 24 years and you would get the $5,000 for the bond plus all the interest earned. Is it worth the premium? Some people might argue that they won’t be around and the yield is what matters now.

Buying a Bond ETF or Mutual Fund

This is probably the simplest way to have bonds in your portfolio. You let someone else pick and choose the bonds and you get the average yield of the picks. However, you can’t expect the yield to be constant as it depends on the holding unlike a bond. Below is an example of the bond ETF screening tool.

Bonds ETF Screening


Once you settle on the type of bonds you want to hold, you just have to purchase the ETF or mutual fund. It’s pretty much like purchasing a stock. The key is to decide on what type of bonds you want to hold which consequently also defines the yield range in a way.

There are strategies around bonds where you can ladder the expiration term and bond ETFs also provide the strategy so you don’t have to do it. It’s always good when you need regular cash to ladder your bonds. With ETFs, you could decide to take more risks with a high yield or junk bonds since the failure of a particular bond can be masked by all the other bonds and offset the loss.

These days, it would appear that you can easily get a bond ETF that pays above 4% so why would you buy individual bonds with a lower payout? My strategy would be to get a few bond ETFs to cover government, corporate and international. What about you?

Readers: Do you buy the bonds themselves or through ETFs / Mutual Funds?

Image courtesy of David Castillo Dominici –

3 Responses to "How To Buy Bonds"

  1. Thanks for sharing this timely post. With the markets hitting all-time highs, now is certainly a good time to consider re-balancing the portfolio. I agree with you that it is just easier to purchase a bond ETF rather than having to buy individual bonds due to their high initial investment and lack of diversification.

  2. Great post! I never invested in bonds because well, when you don’t understand fully how a financial product works it’s better to not invest in and their expiration dates make me itchy… But yes buying a bond ETF seems to be the easy way. I hesitated after reading a good post about them, by the DividendNinja, some times ago, but I think I will finally try to wet my feet with a bond ETF.
    I have a request, could you explain about the debentures in the same easy way?


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