I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

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neurosphere
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I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by neurosphere » Fri Nov 08, 2019 8:55 am

Upfront summary: I have two questions, the reasons for which I explain below:

1) What are the minimum face values for individual bonds of various kinds I can buy in my Vanguard brokerage accounts, to do so simply for learning (and not investing) purposes?

2) Would the total fees might I expect (e.g. bid/ask spreads and other commission like costs) on minimum purchases be stupid to pay for this exercise? I don't mind paying some reasonable cost for this "tuition".

Ok, here is the fuller explanation.

I got an email from Vanguard the purchasing CDs became "easier" and I played around with their interface. In the process, I also looked at how one might buy individual treasuries, munis, corporates, etc. Although I think I'm familiar with the general concepts about individual bonds (enough to be a prudent investor), I'm thinking I could learn a lot by actually buying individual bonds. So I'm thinking of creating a "play account" where I buy one of several different types of individual bonds. I think it would really help me (force me!) to learn about the mechanism/process for doing so, as well as various issues like bid/ask spreads, buying on the secondary market vs at auction, tax reporting (what exactly is an original issue discount, and what do I do with that!?), etc.

Here are my initial thoughts...

I would like to buy one each of a CD, Treasury bond, individual muni (highly rated and also maybe low-quality), corporate (again, perhaps a highly rated as well as a junk bond), and agency bond. Plan would be to buy relatively short term bonds (1-3 years) in order to minimize risk and also to have them mature sooner than later, for learning purposes. My money would come from the existing amount I currently have in muni bond funds which make up my long-term asset allocation (and double as an e-fund), which are currently in a combination of intermediate and long term muni funds. Although, I have significant gains in those funds currently, so I might fund this with other cash if cash flow permits.

Would appreciate all thoughts/education/guidance! I also intend to continue to do my own research. :D
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Dude2
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Re: I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by Dude2 » Fri Nov 08, 2019 9:18 am

I'm clueless too, so answers to your post will be interesting.

It doesn't seem difficult if you already have a brokerage account with Vanguard. Use pull down Investing, then CDs and Bonds. Buy CDs (specify account). Then you get a list of all of the stuff: CDs, and bonds. You can click around and learn without actually buying anything.

In terms of CDs, none of the rates come anywhere close to what I can already get with my credit union, so that's a non-starter.

For bonds, I agree, it could be interesting to play around with it. However, it might make more sense to do in a tax advantaged account.

Treasuries, it says, are usually in $1000 denominations, munis in $5000 denominations.

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leonidas
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Re: I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by leonidas » Fri Nov 08, 2019 10:02 am

I am a Schwab customer and out of the three options you are interested in I only have purchased individual treasuries mostly at auction. The CD rates at all the brokerages seem non-competitive from what can be earned at online banks. As for muni's I hear there is a mark-up and the market is not really as liquid so I only use Mutual funds (Vanguard Interm Muni) and ETFs (VTEB, MUB).

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neurosphere
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Re: I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by neurosphere » Fri Nov 08, 2019 10:21 am

Dude2 wrote:
Fri Nov 08, 2019 9:18 am
For bonds, I agree, it could be interesting to play around with it. However, it might make more sense to do in a tax advantaged account.

Treasuries, it says, are usually in $1000 denominations, munis in $5000 denominations.
I don't mind paying a little tax. I have an existing taxable brokerage account, while my Roth is still not a brokerage and I'm not in a hurry to change that.

And thank for those minimums. One of the munis I clicked on had a $100,000 minimum, so I guess it varies by issue and/or the specific offer.
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Re: I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by Dude2 » Fri Nov 08, 2019 10:25 am

I agree. It isn't the tax that bothers me, but the extra paperwork, i.e. more items for filing. In tax-advantaged it's transparent.

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neurosphere
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Re: I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by neurosphere » Fri Nov 08, 2019 10:33 am

leonidas wrote:
Fri Nov 08, 2019 10:02 am
The CD rates at all the brokerages seem non-competitive from what can be earned at online banks. As for muni's I hear there is a mark-up and the market is not really as liquid so I only use Mutual funds (Vanguard Interm Muni) and ETFs (VTEB, MUB).
I'm not worried about non-competitive CD rates. I'm willing to eat the cost of holding $1000 for a year at a rate less than I might otherwise get.

And I agree about markups on illiquid securities. I'm trying to get a feel for how bad those might be, if for example, I invest a total of $20,000 in various kinds of bonds. I'd be willing to pay 1.5% in "fees" to do this. I think it will be educational in a way that reading books, articles, and BH threads may not be.

Also, it may turn out that one day I may want to buy TIPS ladders or actually use others individual bonds in my portfolio. So the education may pay off later, if nothing else via decreased anxiety. Which reminds me, I didn't add TIPS to the list of bonds I might want to buy. Which also reminds me, perhaps I want to do some of this at Treasury Direct? I see that there are $100 minimums for all products (bills, notes, bonds, TIPS, etc). On the other hand, I'd rather have everything in one place. On the third hand, I already have savings bonds at TD, so...
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neurosphere
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Re: I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by neurosphere » Fri Nov 08, 2019 10:44 am

I just found Vanguards commission schedule: https://investor.vanguard.com/investing ... /cds-bonds

Treasuries are commission free and they don't list a minimum. I can buy these at TD as well for no fee and $100 minimum.

Otherwise, it seems non-muni new issues have a minimum of $10,000. But existing issues might have lower minimums, but with a commission of 10 or 20 basis points.

Munis have a $10,000 minimum. I don't mind that, as I can trade some of my muni fund for an individual one. But I certainly wouldn't put that amount in a high-yield muni as I had otherwise been hoping to do. Perhaps I can just "track" a high-yield muni along side a high grade one that I actually purchase. 8-)

Anyway, I'm already learning! I had never needed to know anything about commissions on these kinds of products, so never bothered to click any commission schedule before. I already feel a little more knowledgeable. :D
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Re: I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by HueyLD » Fri Nov 08, 2019 11:08 am

I wonder how good Vanguard's tax reporting is for individual fixed income securities.

It would be nice if someone with VBS and individual bonds can provide some insight on how good or bad Vanguard's tax reporting is.

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neurosphere
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Re: I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by neurosphere » Fri Nov 08, 2019 11:26 am

HueyLD wrote:
Fri Nov 08, 2019 11:08 am
I wonder how good Vanguard's tax reporting is for individual fixed income securities.

It would be nice if someone with VBS and individual bonds can provide some insight on how good or bad Vanguard's tax reporting is.
That's a great question. I have heard that Fidelity's tax-reporting for fixed income is stellar. I wonder how Vanguard's compares? I would hate for my little experiment to cause unanticipated extra work and headaches.
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ef11
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Re: I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by ef11 » Fri Nov 08, 2019 11:52 am

I am with Fidelity and buying Corporate bonds is a breeze, just have the CUSIP handy or use their fixed income screener to find bonds..

You will want to review the Depth of Book regardless which platform you are using, often times 5 bonds ($5,000 at par) is the minimum you can easily buy or sell.

You will pay the previous owner their due interest (automatically happens as part of the transaction) and then interest will accrue daily but typically pay out semi-annually. If you sell it before the interest payment dates, the new purchaser will pay you your due interest.
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rich126
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Re: I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by rich126 » Fri Nov 08, 2019 12:01 pm

I have no direct experience with Vanguard but I've been playing around with doing similar things on Fidelity's website.

1) Treasuries - At Fidelity (and I think most places other than the Treasury Direct web page) you buy in multiples of $1,000 and not $100. At least as far as I've seen. You can buy all of the varieties ( 4, 8, 13, 26, and 52 weeks). Fidelity allows you to auto-roll (i.e., when one comes to maturity it will take the proceeds and buy another one of the same duration.

2) CDs - I've only bought new CDs, and call protected ones. I'd agree that if you want the highest rates you will have to move money around and go directly to the bank with the highest yield. I've only purchased durations up to 12 months.

Sometimes it seems simpler just to leave the money in a money market account since you aren't gaining much by doing this but I have money from a house sale that I may need within 4 years and didn't want to risk it in the stock market although maybe putting it in something like Wellesley would have been easier and more profitable :)

Good luck.

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Re: I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by rasta » Fri Nov 08, 2019 12:04 pm

Fidelity would have lower costs and minimums.

VG has 10K min for CD's, Fidelity 1k.

Bond minimums are usually specific to each bond, some have a min of 1

Fidelity fees are only $1 per bond, VG starts at $2 and drops to $1 if you are Voyager Select client or above.
Fidelity also lets you set your own limit price on corporate bonds.

I do not buy individual munis so cannot comment on those.

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Re: I'd like to buy individual bonds, bills, CDs, etc. simply as a learning experience

Post by Vanguard Fan 1367 » Fri Nov 08, 2019 5:47 pm

I did exactly what you want to do a number of years ago as a learning tool. I did just fine buying those things mostly through Vanguard.

Interest rates were higher when I did my Learning.

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