Buying Bonds on TD Ameritrade’s App: A Seasoned Investor’s Guide

Want to diversify your portfolio beyond stocks and delve into the world of fixed income? TD Ameritrade’s mobile app provides a convenient platform to buy bonds, but navigating the process requires understanding the nuances involved. Here’s a detailed guide on how to do just that:

To buy bonds on the TD Ameritrade app, follow these steps:

1. Log in to the TD Ameritrade App: Launch the app on your smartphone or tablet and log in using your credentials (username and password or biometrics).
2. Navigate to the “Trade” Section: Look for a “Trade” or “Trade Stocks/Options” button, often located at the bottom of the screen. The exact labeling may vary slightly based on app updates.
3. Select “Bonds”: Within the “Trade” section, you’ll usually find different asset classes like stocks, options, mutual funds, and bonds. Select the “Bonds” option.
4. Bond Search and Screening: This is where the magic happens. You can either search for a specific bond by its CUSIP (Committee on Uniform Securities Identification Procedures) number, or you can use the bond screener to filter bonds based on criteria like issuer type (corporate, municipal, treasury), credit rating (AAA, BB, etc.), maturity date, and yield. Become familiar with these criteria; they’re crucial for finding bonds that align with your investment goals.
5. Review Bond Details: Once you’ve found a bond that interests you, tap on it to view detailed information. This includes the current price (quoted as a percentage of par value), yield to maturity (YTM), coupon rate, issuer details, credit rating (from agencies like Moody’s and S&P), and minimum investment requirement. Thoroughly review this information before proceeding. Don’t skim!
6. Place Your Order: If you decide to buy the bond, enter the quantity (typically in increments of $1,000 par value). Review the order details, including the estimated cost (principal + accrued interest + any commissions or markups).
7. Confirm and Submit: Once you’re satisfied, confirm the order and submit it. Keep in mind that bond prices can fluctuate, so the price you see might change slightly before the order is executed.
8. Order Confirmation: After submitting, you’ll receive an order confirmation. You can also monitor the status of your order in the “Order Status” section of the app.

Understanding the Bond Market Terminology

Before diving headfirst, familiarize yourself with key bond market terms to make informed decisions. These include:

• Par Value (Face Value): The amount the bond issuer will pay back at maturity, usually $1,000.
• Coupon Rate: The annual interest rate the bond pays, expressed as a percentage of the par value.
• Yield to Maturity (YTM): The total return you can expect to receive if you hold the bond until maturity, considering interest payments and the difference between the purchase price and par value.
• Credit Rating: A measure of the bond issuer’s creditworthiness, assigned by agencies like Moody’s and S&P. Higher ratings (e.g., AAA) indicate lower risk.
• CUSIP: A unique identifier for each bond, similar to a stock ticker symbol.

Key Considerations When Buying Bonds

Here are some vital aspects to consider when venturing into bond investing:

• Risk Tolerance: Understand your own risk appetite. Government bonds are generally considered safer than corporate bonds, but they typically offer lower yields. High-yield bonds (often called “junk bonds”) offer higher returns but come with significantly higher risk.
• Interest Rate Risk: Bond prices are inversely related to interest rates. When interest rates rise, bond prices tend to fall, and vice versa. Longer-maturity bonds are more sensitive to interest rate changes than shorter-maturity bonds.
• Inflation Risk: Inflation erodes the purchasing power of fixed interest payments. Consider inflation-protected securities (TIPS) if you’re concerned about inflation.
• Credit Risk: The risk that the bond issuer will default on its payments. A lower credit rating indicates higher credit risk.
• Liquidity: Some bonds are more difficult to buy and sell than others. This is especially true for smaller issues or bonds with low trading volume.

FAQs about Buying Bonds on the TD Ameritrade App

Here are 12 frequently asked questions to enhance your understanding of bond investing via the TD Ameritrade app:

1. What types of bonds can I buy on the TD Ameritrade app?

You can typically access a wide range of bond types, including Treasury bonds, municipal bonds (munis), corporate bonds, and agency bonds (e.g., Fannie Mae, Freddie Mac). The availability might depend on market conditions and specific issuer offerings.

2. What is the minimum investment required to buy bonds on the TD Ameritrade app?

The minimum investment varies depending on the specific bond. Many bonds have a minimum purchase quantity of $1,000 par value, but some may require higher minimums.

3. Are there any fees or commissions associated with buying bonds on the TD Ameritrade app?

TD Ameritrade typically charges a markup or markdown on bond transactions, rather than a traditional commission. This markup/markdown is built into the price you see. Always check the order details carefully to understand the total cost.

4. How do I find the CUSIP number of a specific bond?

The CUSIP number can be found on various financial websites, bond prospectuses, or by contacting the bond issuer directly. It’s also often displayed within the TD Ameritrade platform if you know the issuer and a general description of the bond.

5. How do I calculate the yield to maturity (YTM) of a bond?

The TD Ameritrade app typically calculates and displays the YTM for you. However, you can also use online bond calculators or consult with a financial advisor to understand how YTM is derived. YTM is a complex calculation considering the bond’s current price, coupon rate, face value, and time to maturity.

6. What are the risks associated with investing in bonds?

Key risks include interest rate risk, inflation risk, credit risk, and liquidity risk. Understand these risks before investing in any bond.

7. How do I sell bonds on the TD Ameritrade app?

The process is similar to buying: navigate to the “Trade” section, select “Bonds,” find the bond you want to sell in your portfolio, and place a sell order. Be aware of current market prices and potential market markdowns.

8. What is accrued interest, and why am I charged it when buying a bond?

Accrued interest is the interest that has accumulated on the bond since the last interest payment date. As the buyer, you’re essentially compensating the seller for the interest they’ve earned but haven’t yet received. You’ll receive this amount back in the next interest payment.

9. How are bonds rated by credit rating agencies?

Credit rating agencies like Moody’s, Standard & Poor’s (S&P), and Fitch assign ratings based on their assessment of the issuer’s creditworthiness. Ratings range from AAA (highest) to D (default). Investment-grade bonds are typically rated BBB- or higher by S&P and Baa3 or higher by Moody’s.

10. What are Treasury Inflation-Protected Securities (TIPS)?

TIPS are bonds whose principal is adjusted based on changes in the Consumer Price Index (CPI), a measure of inflation. They offer protection against inflation risk.

11. Can I set up a bond ladder using the TD Ameritrade app?

Yes, you can purchase bonds with varying maturity dates to create a bond ladder. This strategy helps to mitigate interest rate risk and provides a more consistent stream of income.

12. Where can I find more information about bond investing?

TD Ameritrade offers educational resources on its website and within the app. You can also consult with a financial advisor or refer to reputable financial publications for more in-depth information. Remember that bond investing requires careful research and understanding.

Investing in bonds through the TD Ameritrade app requires a blend of platform knowledge and a solid grasp of fixed-income principles. By understanding these steps and considering the FAQs, you can navigate the bond market with greater confidence and make informed investment decisions that align with your financial goals.