Buy directly from the government
Buying bonds isn’t quite as simple as buying stocks, but it’s not much harder. If you want to buy US bonds directly and are a US citizen, you can buy straight from the Treasury. UK citizens can similarly invest in auctions of UK government bonds, known as gilts, through the Debt Management Office. 🙌
Trade bonds through your broker
An easier way to buy bond issuances, especially outside of your own country, is through your broker – and this is also the place to go for secondary market trading. Not all brokers offer bonds (Robinhood doesn’t, for example), but with those who do, you can buy and sell just like you do stocks.
Take it nice & easy with bond ETFs
A third option, which is what you will do if you invest through Wealthyhood, is to invest in a bond ETF – a pot of money which buys a range of different bonds.
For example, the Vanguard UK Gilt UCITS ETF (VGOV) invests in over 50 UK Gilts across different maturity periods, while the Vanguard $ Treasury Bond UCITS ETF (VDTY) invests in more than 250 bonds issued by the US government across different maturities as well. Both ETFs, and a few more, are available through your Wealthyhood account to help you balance your portfolio. ⚖️
Investing via a bond ETF diversifies your portfolio and also lets you take a more hands-off 🙌🏼 approach to bond investing. But keep in mind that, compared to buying individual bonds, a fund or ETF has no maturity date, which means that some bonds that are held in the basket may be sold before maturity. As always, keep in mind that when investing, your capital is at risk. 🙀
Bonds for the masters 🪄
Whatever you choose, many investors will find bonds to be a useful part of their portfolio.
Ray Dalio’s All-Weather Portfolio has around 40% in long-term US bonds and 15% in 3-to-7-year Treasuries. Warren Buffett’s family money, meanwhile, is in a 90/10 portfolio: 90% in an S&P 500 tracker and 10% in short-term government bonds.
Buffett’s portfolio is riskier but will grow more if stocks keep rising. If you’re younger and can afford to potentially suffer a setback on the road to retirement, that might be right for you; but as you get older, you might begin to favour the relative stability of bonds.
Thanks to this learning guide, you’re now well placed to invest in them smartly – and help your government repay its debts at the same time, too…
In this guide, you’ve learned:
🔷 Government bonds can offer security, diversification, and consistent returns – which is why they’re often seen as crucial to forming a balanced investment portfolio.
🔷 Higher interest rates, inflation, and increased risk drive bond prices down – which means bond yields rise. But price changes for any given bond are transient: at maturity, it’ll simply be worth its par value.
🔷 Yield to maturity, duration, and credit rating are three key things to consider when evaluating a bond.
🔷 There are different ways to construct a bond portfolio depending on what maturity exposure you want, with ladders, barbells, and bullets all popular.
🔷 You can either buy bonds directly from their government issuers, trade them on the secondary market, or invest in bond ETFs. Either way, bonds’ potential percentage of your overall portfolio depends on individual circumstances.
Now see how much you’ve learned with this quick quiz!
Keep in mind that when you invest, your capital is at risk. This learning guide and the examples used in it are for information purposes only and is not intended as investment advice.