Bonds can be a wise investment for your portfolio, but as with any investment, you need to know what you’re getting yourself into. For that very reason, here’s a simple primer on bonds:

Q: Why would I want to invest in bonds?

A: In a nutshell, security. Bonds can give you a level of security, because typically, there is a steady stream of payments and repayment of principal. You can predict a level of dependable income with bonds that can provide more stability to your portfolio.

Q: Where does this security for bonds come from?

A: Unless an issuer defaults, your bond will be redeemed at par if you hold it until its maturity date. Its value does not depend on current interest rates. It’s a hedge against disaster.

Q: How much money do I need to invest in bonds?

A: As little as $1000 is all you need to invest in bonds. Generally, though, because of the security, most bonds are sold in $5000 increments.

Q: Where can I buy bonds?

A: One of the most obvious places to buy bonds would be at a commercial or investment bank. Besides the offerings there, you can also check out brokers and firms that deal with selling debt securities. And how about Uncle Sam? You can buy treasury bonds (VERY secure) from the Federal Reserve itself.

Q: Can I buy just any bond?

A: Generally, if you may need to sell your bonds in the near future, you’ll want to choose bonds that are more actively traded. Also, if you pick “big name” issuers, you’ll be sure that if you choose to sell, you can find a buyer more easily. It’s something to keep in mind.

Q: Are there any up-front fees for purchasing bonds?

A: Yes, there are. Generally, one to five percent of the bond’s original value is added to the price of the bond at the time of purchase as a broker’s commission. You need to be aware of this BEFORE you sign on the dotted line.

If you keep the above points in mind, then you should be well-informed when it comes to making the decision for buying bonds. Maybe James had the right idea after all!