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broker when ordering securities. Of course you would also need to send
in a check to cover the cost of your order. TreasuryDirect can also be
accessed online, where you can even use a credit card to place your
orders.
Finally, you should keep in mind that some bonds are callable (a.k.a.
redeemable). This means that the issuer has the option to pay off the
bond before maturity. In most cases there are pre-determined dates
when the bond can be called (redeemed) so the element of surprise is
somewhat tempered. The 30-year Treasury bond, for example, normally
has two callable dates per year until maturity. Bond investors must be
prepared in advance that the bond may be called in any of those dates
with an advance notice. This means that the bondholders would receive
the face value of the bond, and the bond in effect would no longer exist.
Final Notes
As can be seen, bonds offer a variety of options for the investors to
suit their preferences. Bonds are also great tools to diversify one’s
portfolio. A popular technique practiced by many bondholders and
investors is to have a ladder portfolio of bonds. In this scenario a certain
amount of money is divided into a number of portions and is invested
in bonds with increasing lengths of maturity, let’s say from one to five
years. As each investment matures, the proceeds can be re-invested in a
bond with the maturity length beyond (for example, one year beyond)
the last maturity date in the portfolio, while the rest of the portfolio
moves one period (e.g., one year) closer to maturity. This process can
be repeated indefinitely like climbing an infinite ladder one rung at a
time. The advantage is that the investor is not locked in one investment
for an extended period of time. In our example the investor would have
one investment maturing every year indefinitely for as long as this
strategy is followed. This keeps the portfolio relatively liquid, giving the …
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