Although the painless way to invest in bonds is with a mutual fund, those funds have trade-offs, such as management costs and lack of control over your investment. Investing in individual bonds gives you greater control over the bond portion of your portfolio. As to how much money you need to buy bonds, there are two sides to the answer: the minimum denomination of specific bonds and real-world requirements.
Bond Minimums by Type
The minimum size of a bond depends on the type of bond, and these amounts vary from issuer to issuer. At the small end are U.S. Treasury securities, which can be purchased in $100 increments. The largest minimum investment amount is to buy Ginnie Mae -- GNMA -- mortgage-backed bonds, which require at least $25,000. Tax-free municipal bonds are usually sold in $5,000 increments, and corporate bonds sell in multiples of $1,000.
Treasurys From Treasury Direct
If you want to invest small amounts in bonds, an account on the Treasury Direct website allows you to buy federal bonds in $100 increments without commissions or markup. Treasury securities allow you to pick maturities from 13 weeks to 30 years. The safety of U.S. Treasury securities means you don't have to worry as much about diversification to minimize losses. The biggest downside is that the yields on Treasurys are low compared with yields on other types of bonds.
Working With a Broker
If you purchase individual bonds through a broker, the broker can make money by marking up the price he pays for the bond and/or charging a commission. The broker does not have to disclose any markup. On smaller bond purchases, the amount the broker adds to the bond price can significantly affect the yield. You can purchase widely traded bonds such as Treasurys or Ginnie Maes through an online brokerage account. For municipal and corporate bonds, talking to a live broker will provide information you need to make smart investment decisions.
Real Bond Portfolio
Unless you plan to stick with safe and secure Treasurys, you need a significant amount of money to put together a diversified bond portfolio and not give up too much in price markups. The Fidelity Investments website recommends a minimum of $100,000 to $200,000 to invest in individual bonds. To be taken seriously by a broker who can steer you to good bond choices, you should think of buying municipal or corporate bonds in increments of $25,000, $50,000 or $100,000.
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