How to buy bonds Bonds are typically seen as a lower-risk accessory to a stock portfolio. But bonds aren't just for those nearing retirement: They have a place in every portfolio. The question that confuses investors is just how much of their savings should be in bonds. Given bonds' relatively high trading costs, and with giant investors like pension funds dominating the market, the best way for most people to own bonds is through a mutual fund or ETF, which hold baskets of bonds, rather than competing for individual bond sales. The most well-known bonds are those issued by the U.S. Treasury. There are short-term bills and notes and longer-term bonds and their inflation-protected versions called TIPS. You can buy government bonds through the TreasuryDirect program, but there is also a wide array of funds that specialize in Treasurys from which to choose. Other types of bonds that can help diversify a portfolio include corporate bonds, junk bonds, municipal bonds and foreign government debt instruments. Here are some of the caveats of bond investing: Elusive pricing: Individual bonds do not trade like stocks so it can be difficult to find a specific issue's current market value. Besides inflation risk, bond pricing depends on time to maturity, interest-rate outlooks and whether the bond is "callable" by the issuer. Risk: Default risk is the biggest, the chance an issuer won't pay the interest or principal agreed upon at maturity. Interest-rate risk makes your bond less attractive when higher yields are available and you face reinvestment risk when your bond matures. Fees: Expenses cut bond returns even more than stocks. You have to watch your bond fund's charges carefully.via marketwatch