What factors should I consider in picking a bond?
just pick a good bond and invest all your money there (since they're fairly low risk) No. That is basically throwing away your money and why would you do that. And who told you they are low risk. That is a very wrong premise. What factors should I consider in picking a bond and how would they weigh against each other? Quite a number of them to say, assuming these aren't government bonds(US, UK etc) How safe is the institution issuing the bond. Their income, business they are in, their past performance business wise and the bonds issued by them, if any. Check for the bond ratings issued by the rating agencies. Read the prospectus and check for any specific conditions i.e. bonds are callable, bonds can be retired under certain conditions, what happens if they default and what order will you be reimbursed(senior debt take priority). Where are interest rates heading, which will decide the price you are paying for the bond. And also the yield you will derive from the bond. How do you intend to invest the income, coupon, you will derive from the bonds. What is your time horizon to invest in bonds and similarly the bond's life. I have invested in stocks previously but realized that it isn't for me Bonds are much more difficult than equities. Stick to government bonds if you can, but they don't generate much income, considering the low interest rates environment. Now that QE is over you might expect interest rates to rise, but you can only wait. Or go for bonds from stable companies i.e. GE, Walmart. And no I am not saying you buy their bonds in any imaginable way.
It sounds like you are soliciting opinions a little here, so I'll go ahead and give you mine, recognizing that there's a degree of arbitrariness here.  A basic portfolio consists of a few mutual funds that try to span the space of investments.  My choices given your pot: I like VLTCX because regular bond index funds have way too much weight in government securities.  Government bonds earn way too little.  The CAPM would suggest a lot more weight in bonds and international equity.  I won't put too much in bonds because...I just don't feel like it.  My international allocation is artificially low because it's always a little more costly and I'm not sure how good the diversification gains are. If you are relatively risk averse, you can hold some of your money in a high-interest online bank and only put a portion in these investments. $100K isn't all that much money but the above portfolio is, I think, sufficient for most people.  If I had a lot more I'd buy some REIT exposure, developing market equity, and maybe small cap.  If I had a ton more (several million) I'd switch to holding individual equities instead of funds and maybe start looking at alternative investments, real estate, startups, etc. Possibly you could use it as a hedging instrument if it's correlated in some way with another asset you're holding.  Even though it seems you're losing money with such a bond, that loss might be less than the hedging costs associated with other instruments. Perfect super clear, thank you /u/xlct2  So it is like you buy a bond for $X, start getting interest, sell bond for $X :)  I was thinking there could be a possibility of a bond working like a loan from a bank, that you going paying as time goes by :D There is no single 'market interest rate'; there are myriad interest rates that vary by risk profile & term. Corporate bonds are (typically) riskier than bank deposits, and therefore pay a higher effective rate when the market for that bond is in equilibrium than a bank account does. If you are willing to accept a higher risk in order gain a higher return, you might choose bonds over bank deposits. If you want an even higher return and can accept even higher risk, you might turn to stocks over bonds. If you want still higher return and can bear the still higher risk, derivatives may be more appealing than stocks. tl,dr: I-bonds do not fit well into most personal finance plans. First the questions (succinct reference): I like your thought process weighing your liquidity and risk versus your return.  This is very important.  However, I think you might be sidetracked a bit by I-Bonds.  I-Bonds are not generally good for personal investment as they are not marketable when necessary, have redemption penalties and hold lower overall yields in general.  Finally, they are significantly harder to trade as you can buy and hold a TIPS ETF and get exposure to all maturities and get the current competitive rate all in one purchase. Inflation protection is in general an interesting problem.  While inflation-protected bonds sound like they are great for inflation protection (after all it is in the name), they may not be the best instruments for long/medium term protection.  It is really important to remember that inflation protected bonds have significantly lower returns and one form of inflation protection is to just have more money in the future.  TIPS really protect against large inflation changes as normal bonds have the future expected inflation already baked in their higher rates. Also, when you own a stock you own part of a company and inflation will increase the value of the company relative to the inflated currency.  Foreign stocks can give even more protection if you think inflation in your local currency is going to be higher then the foreign currency.  Stocks in the past have had significantly higher return overall than inflation protected bonds but have higher risk as well. As a medium term, low-risk portfolio, it is worth looking into some combination of TIPS, normal bonds and a small to medium allocation of local/foreign stocks all done through low-fee mutual funds or index ETFs. "Bonds might not be simple, but in general there are only a few variables that need to be understood: bid, coupon (interest) rate, maturity, and yield.  Bond tables clearly lay those out, and if you're talking about government bonds a lot of things (like convertibles) don't apply (although default is still a concern). This might be overly simplistic, but I view ETF's primarily as an easy way to bring somewhat esoteric instruments (like grain futures) into the easily available markets of Nasdaq and the NYSE. That they got ""enhanced"" with leveraged funds and the such is interesting, but perhaps not the original intent of the instrument.  Complicating your situation a bit more is the fee that gets tacked onto the ETF. Even Vanguard government bond funds hang out north of 0.1%. That's not huge, but it's not particularly appealing either considering that (unlike rounding up live cattle futures), it's not that much work to buy US government bonds, so the expense might not seem worth it to someone who's comfortable purchasing the securities directly.  I'd be interested to see someone else's view on this, but in general I'd say that if you know what you want and know how to buy it, the government bond ETF becomes a lot less relevant as the liquidity offered (including the actual ""ease of transacting"") seem to to be the biggest factors in favor. From Investopedia's description: The bond ETF is an exciting new addition to the bond market, offering   an excellent alternative to self-directed investors who, looking for   ease of trading and increased price transparency, want to practice   indexing or active bond trading. However, bond ETFs are suitable for   particular strategies. If, for instance, you are looking to create a   specific income stream, bond ETFs may not be for you. Be sure to   compare your alternatives before investing." As observed above, 1.5% for 3 years is not attractive, and since due to the risk profile the stock market also needs to be excluded, there seems about 2 primary ways, viz: fixed income bonds and commodity(e,g, gold). However, since local bonds (gilt or corporate) are sensitive and follow the central bank interest rates, you could look out investing in overseas bonds (usually through a overseas gilt based mutual fund). I am specifically mentioning gilt here as they are government backed (of the overseas location) and have very low risk. Best would be to scout out for strong fund houses that have mutual funds that invest in overseas gilts, preferably of the emerging markets (as the interest is higher). The good fund houses manage the currency volatility and can generate decent returns at fairly low risk. There are some useful comments about the tradeoffs of the decisions in front of you.  Intertwined with the financial choices, hopefully you can see a map opening up.   Make a little chart if it helps.  Benefit and Cost.  If you're looking for financial options, you will have to also add more columns to that chart:  Option and Cost. An example is the comment on making connections with rich kids.  Trust fund babies are everywhere in this country.  Did you know any rich kids while growing up?  How were those rich kids you knew of back then... in your school... in your town?  How did they treat you?  Were you ever invited to their parties or gatherings?  Now there's an opportunity for the privilege to pay a lot of money to sit in a classroom next to them?  Even in the early days of American history with merit based millionaires... tycoons who made it rich by the seat of their pants.  At fancy dinner parties and soirees, a new term emerged to put each other again out of reach: old money (the deserving) and new money (uncultured climbers).   That's my bias.  You'll have some of your own.  What is important to YOU has to come through because these days, the price tag of any higher education implies a considerable piece of your life's timeline will be committed to... something.  Make sure you get what you feel is worth that commitment. Take stock of what has been said here by the others, but put a value on those choices and seriously consider what you're willing to pay for... and what you're not.  There is no formula for your success as there's been thousands of exceptions... ESID (Every Situation is Different). Bond MF/ETF comes in many flavour, one way to look at them is corporate, govt. (gilt/sovreign), money market (short term, overnight lending etc.), govt. backed bonds. The ETF/MFs that invest money in these are also different types. One way to evaluate an ETF/MF is to see where they invest your money. Corporate debts are by the highest coupon paying bonds, however, the chance of default is also greater, if you wish to invest in these, it is preferable to look at the ETF/MF's debt portfolio financial ratings (Moodies etc.). Govt. bonds are more stable and unless the govt. defaults (which happens more often than we would like to think), here also look for higher rating bonds portfolio that the fund/scheme carries. The govt. backed bonds are somewhat similar to sovreign bonds, however, these are issuesd by institutions which are backed by govt. (e.g. national railways, municipal bodies etc.), any fund/scheme that invests in these bonds could also be considered and similarly measured. The last are the short term money market related, which provides the least return but are very liquid. It is very difficult to answer how you should invest large sum on ETF/MFs that are bond oriented. However, from any investment perspective, it is better to spread your money. If I take your hypthetical case of 1M$, I would divide it into 100K$ pieces and invest in 10 different ETF/MF schemes of different flavour: Hope this helps. Short-term to intermediate-term corporate bond funds are available. The bond fund vehicle helps manage the credit risk, while the short terms help manage inflation and interest rate risk. Corporate bond funds will have fewer Treasuries bonds than a general-purpose short-term bond fund: it sounds like you're interested in things further out along the risk curve than a 0.48% return on a 5-year bond, and thus don't care for the Treasuries. Corporate bonds are generally safer than stocks because, in bankruptcy, all your bondholders have to be paid in full before any equity-holders get a penny. Stocks are much more volatile, since they're essentially worth the value of their profits after paying all their debt, taxes, and other expenses.  As far as stocks are concerned, they're not very good for the short term at all. One of the stabler stock funds would be something like the Vanguard Equity Income Fund, and it cautions: This fund is designed to provide investors with an above-average level   of current income while offering exposure to the stock market. Since   the fund typically invests in companies that are dedicated to   consistently paying dividends, it may have a higher yield than other   Vanguard stock mutual funds. The fund’s emphasis on slower-growing,   higher-yielding companies can also mean that its total return may not   be as strong in a significant bull market. This income-focused fund   may be appropriate for investors who have a long-term investment goal   and a tolerance for stock market volatility. Even the large-cap stable companies can have their value fall dramatically in the short term. Look at its price chart; 2008 was brutal. Avoid stocks if you need to spend your money within a couple of years. Whatever you choose, read the prospectus to understand the risks. I'll get to my answer in a moment, but first need to put focus on the two key components of bond prices: interest rates and credit risk. Suppose that the 10-year treasury has a coupon of 2% per year (it would be paid as 1% twice per year, in reality). If you own one contract of the bond which we suppose has a so-called face-value of $100, then this contract will over the ten years pay you a total of $20 in coupons, then $100 at redemption. So $120 in total. Would you therefore buy this 10-year treasury bond for $120, or more, or less? Well, if there were bank accounts around which were offering you an interest rate of 2% per year fixed for the next 10 years, then you could alternatively generate $120 from just $100 deposited now (if we assume that the interest paid is not put back in the account to earn 2% per year). Consequently, a price of $100 for the treasury would seem about right. However, suppose that you are not very confident that the banks that offer these accounts will even be around in 10 years time, maybe they will fail before that and you'll never get your money back. Then you might say to yourself that the above calculation is mathematically right, but not really a full representation of the different risks. And you conclude that maybe treasuries should be a bit more expensive, because they offer better credit risk than bank deposits.  All of this just to show that the price of bonds is a comparative valuation of rates and credit: you need to know the general level of interest rates available in other investment products (even in stocks, I'd say), you need to have a feel for how much credit risk there is in the different investment products. Most people think that 'normally' interest rates are positive, because we are so familiar with the basic principle that: if I lend you some money then you need to pay me some interest. But in a world where everyone is worried about bank failures, people might prefer to effectively 'deposit' our savings with the US treasury (by buying their bonds) than to deposit their savings in the local bank. The US treasury will see this extra demand and put up the prices of their  bonds (they are not stupid at the US treasury, you know!), so maybe the price of the 10-year treasury will go above $120. It could, right? In this scenario, the implied yield on the 10-year treasury is negative. There you go, yields have gone negative because of credit risk concerns. Bonds have multiple points of risk: This is part of the time value of money chapter in any finance course.  Disclaimer - Duff's answer popped up as I was still doing the bond calculations. Similar to mine but less nerdy. "Looking at the list of bonds you listed, many of them are long dated. In short, in a rate rising environment (it's not like rates can go much lower in the foreseeable future), these bond prices will drop in general in addition to any company specific events occurred to these names, so be prepared for some paper losses.  Just because a bond is rated highly by credit agencies like S&P or Moody's does not automatically mean their prices do not fluctuate. Yes, there is always a demand for highly rated bonds from pension funds, mutual funds, etc. because of their investment mandates. But I would suggest looking beyond credit ratings and yield, and look further into whether these bonds are secured/unsecured and if secured, by what. Keep in mind in recent financial crisis, prices of those CDOs/CLOs ended up plunging even though they were given AAA ratings by rating agencies because some were backed by housing properties that were over-valued and loans made to borrowers having difficulties to make repayments. Hence, these type of ""bonds"" have greater default risks and traded at huge discounts. Most of them are also callable, so you may not enjoy the seemingly high yield till their maturity date. Like others mentioned, buying bonds outright is usually a big ticket item. I would also suggest reviewing your cash liquidity and opportunity cost as oppose to investing in other asset classes and instruments." "TL;DR - go with something like Barry Ritholtz's All Century Portfolio: 20 percent total U.S stock market 5 percent U.S. REITs 5 percent U.S. small cap value 15 percent Pacific equities 15 percent European equities 10 percent U.S. TIPs 10 percent U.S. high yield corp bonds 20 percent U.S. total bond UK property market are absurdly high and will be crashing a lot very soon The price to rent ratio is certainly very high in the UK.    According to this article, it takes 48 years of rent to pay for the same apartment in London.  That sounds like a terrible deal to me.  I have no idea about where prices will go in the future, but I wouldn't voluntarily buy in that market. I'm hesitant to invest in stocks for the fear of losing everything A stock index fund is a collection of stocks.  For example the S&P 500 index fund is a collection of the largest 500 US public companies (Apple, Google, Shell, Ford, etc.).  If you buy the S&P 500 index, the 500 largest US companies would have to go bankrupt for you to ""lose everything"" - there would have to be a zombie apocalypse. He's trying to get me to invest in Gold and Silver (but mostly silver), but I neither know anything about gold or silver, nor know anyone who takes this approach. This is what Jeremy Siegel said about gold in late 2013: ""I’m not enthusiastic about gold because I think gold is priced for either hyperinflation or the end of the world.""  Barry Ritholtz also speaks much wisdom about gold.  In short, don't buy it and stop listening to your friend.   Is buying a property now with the intention of selling it in a couple of years for profit (and repeat until I have substantial amount to invest in something big) a bad idea? If the home price does not appreciate, will this approach save you or lose you money?  In other words, would it be profitable to substitute your rent payment for a mortgage payment?  If not, you will be speculating, not investing.  Here's an articles that discusses the difference between speculating and investing.  I don't recommend speculating." There are two main factors at play to consider.   Also, realize that no advice is universal. You need to evaluate your exact situation and do what is best for you.