Video: How to Invest in Bonds

How to Invest in Bonds

Video Transcript:

Hey, this is Anne from Magnifi, and today I want to take a look at investing in bonds.

When I started my investing portfolio, I was really excited to buy stocks, have ownership in companies, so I had a really heavily skewed equity portfolio. And since I want to add some diversification into my portfolio, I thought I might look at adding bonds in. Generally, they have a lower risk but also a lower return than equity investments.

When I look at these results, seeing a couple of different things here. Seeing treasury bonds, which is interesting, and I can go ahead and actually dive in and see what those holdings are. This one caught my eye because it's saying 20-plus-year treasury bonds, so I'm assuming that's talking about the maturity date of these bonds. And if I dive in, I could take a closer look and see when these are going to mature. So 2051, 2049, 2050. And I like the idea of investing in a bond fund because then I can get a mix of those maturities. I can probably also get a mix of credit ratings in there. And I also have the benefit of having someone who's out there managing that fund and looking at those assets for me.

One thing you can do if you want to run a search for the creditworthiness is just type that into the search bar. So I could type in something like AAA bonds. And bonds are rated based on their creditworthiness from AAA all the way down to BBB. AAA would have the highest creditworthiness, BBB the lowest. And just by running that quick search, I can see here what the exposure within that fund is to that specific credit bond.

Another thing I want to take a look at is investing in municipal bonds. One of the benefits of these is that a lot of them are tax-free, so you won't be paying any federal taxes, and if you invest in one in a state where you live, they're generally exempt from state taxes as well. I can easily just add in the state that I live in and just add that to the search bar, and then what I'll see is only those bonds that are from that state.

So, in this example, I'm even seeing the word tax exempt in the name of the fund, so that's a good sign. And when I click in, I'll see that it is exempt from federal income tax and California state personal income tax. So just a couple of different types of searches you can run to look at bonds, see if this is something you want to add into your portfolio for diversification, so a couple of different ways to do that for you.