Russell Wild is an experienced financial advisor and writer who has been working in the finance and investment industry for more than 30 years. Russell is the principal of Global Portfolios. He is the author of Exchange-Traded Funds For Dummies and the previous editions of Bond Investing For Dummies.

Introduction 1

About This Book 2

Conventions Used in This Book 5

What You're Not to Read 5

Foolish Assumptions 5

How This Book Is Organized 6

Part 1: A Quick Guide to the Fixed-Income Universe 6

Part 2: Bonds of Many Distinct Flavors 6

Part 3: Bonds as Portfolio Cement 7

Part 4: A Manual for Smart Bond Shopping 7

Part 5: Bonds as Good Friends of Retirees 7

Part 6: The Part of Tens 7

Icons Used in This Book 7

Beyond the Book 8

Where to Go from Here 8

Part 1: A Quick Guide to the Fixed-Income Universe 9

Chapter 1: Buying Bonds: In Your Best Interest 11

Understanding What Makes a Bond a Bond 12

Choosing your time frame 13

Picking who you trust to hold your money 14

Recognizing the difference among bonds, stocks, and cryptocurrencies 15

Why Hold Bonds? (Spoiler Alert: It Isn't to Make You Rich) 16

Identifying the best reason to buy bonds: Diversification 16

Going for the cash 17

Investing in an Era of Low, Low Interest Rates 19

All this fuss about the Fed 20

Real (after-inflation) interest rates matter most 20

Don't get depressed over depressed rates 21

Introducing the Major Players in the Bond Market 22

Supporting (enabling?) your Uncle Sam with Treasury bonds 22

Collecting corporate debt 23

Demystifying those government and government-like agencies 23

Going cosmopolitan with municipal bonds 24

Buying Solo or Buying in Bulk 26

Picking and choosing individual bonds 26

Going with a bond fund or funds 26

Chapter 2: Constructing Your Portfolio's Foundation 29

Focusing on Your Objectives 30

Deciding what you want to be when you grow up 31

Picturing your future nest egg 31

Understanding the Rule of 20 (preferably 25) 32

Choosing your investment style 33

Making Your Savings and Investment Selections 34

Saving your money in safety 34

Investing your money with an eye toward growth 36

Understanding Five Major Investment Principles 38

1 Risk and return are two sides of the same coin 38

2 Financial markets are largely efficient 39

3 Diversification is just about the only free lunch you'll ever get 39

4 Reversion to the mean - it means something 40

5 Investment costs matter - a lot! 41

Chapter 3: A (Mostly) Heroic History of Bonds 43

Reviewing the Triumphs and Failures of Fixed-Income Investing 44

Beating inflation, but not by very much 44

Serving a savoir in times of distress 45

Looking Back Over a Long and (Mostly) Distinguished Past 47

Yielding returns to generations of your forebearers 48

Gleaning some important lessons 49

Realizing How Crucial Bonds Are Today 52

Viewing Recent Developments, Largely for the Better 54

Chapter 4: Interest, Sweet Interest 57

Calculating Rates of Return - Tougher than Deciphering Babylonian 58

Cutting deals 59

Changing hands 59

Embracing the complexity 60

Conducting Three Levels of Research to Judge the Desirability of a Bond 60

Level one: Getting the basic information 61

Level two: Finding out intimate details 63

Level three: Examining the neighborhood 66

Understanding (and Misunderstanding) the Concept of Yield 69

Coupon yield 70

Current yield 70

Yield-to-maturity 70

Yield-to-call 72

Worst-case basis yield 72

The 30-day SEC yield 73

Appreciating Total Return (This Is What Matters Most!) 73

Figuring in capital gains and losses 73

Factoring in reinvestment rates of return 74

Allowing for inflation adjustments 74

Weighing pretax versus posttax 75

Measuring the Volatility of Your Bonds 76

Time frame matters 76

Quality counts 76

The coupon rate matters, too 77

Foreign bonds, added risk 78

Revisiting the Bonds of Babylonia 78

Interest short run, interest long run 79

Interest past, interest future 79

Part 2: Bonds of Many Distinct Flavors 81

Chapter 5: US Treasury Bonds: As Safe as Safe Can Be 83

Investing with Uncle Sam in Myriad Ways 84

Savings bonds as gifts or small investments 85

Treasury bills, notes, and bonds for more serious investing 90

Treasury inflation-protected securities (TIPS) 91

Easing Your Fears of Default 93

Deciding Whether, When, and How to Invest in Treasuries 94

Figuring out whether you want Treasuries 94

Picking your own maturity 97

Adding in some inflation protection 99

Entering the Treasury Marketplace 99

Buying direct or through a broker 100

Choosing a new or used bond 101

Tapping Treasuries through mutual funds and exchange-traded funds 102

Chapter 6: Getting Down to Business: Corporate Bonds 103

Why Invest in These Sometimes Pains-in-the-Butt? 104

Comparing corporate bonds to Treasuries 104

Considering historical returns 106

Getting Moody: The Crucial Credit Ratings 107

Revisiting your ABCs 108

Gauging the risk of default 110

Special Considerations for Investing in Corporate Debt 111

Calculating callability 112

Coveting convertibility 112

Reversing convertibility -imagine that 113

Appreciating High Yield for What It Is 114

Anticipating good times ahead 114

Preparing for the bad times 115

Investing in high yields judiciously 115

Chapter 7: Powerful and a Tad Mysterious: Agency Bonds 117

Identifying the Bond Issuers 118

Slurping up your alphabet soup 118

Separating federal agency bonds from GSEs 119

Sizing up the government's actual commitment 120

Introducing the agency biggies 120

Comparing and Contrasting Agency Bonds 125

Eyeing default risks, yields, markups, and more 125

Weighing taxation matters 126

Discos, floaters, and step-ups 127

Banking Your Money on Other People's Mortgages 127

Bathing in the mortgage pool 128

Deciding whether to invest in the housing market 128

Considering Agencies for Your Portfolio 129

Chapter 8: (Practically) Tax-Free: Municipal Bonds 131

Appreciating the Purpose and Power of Munis 132

Sizing up the muni market 133

Comparing and contrasting with other bonds 133

Delighting in the diversification of municipals 134

Knowing That All Cities (Bridges or Ports) Are Not Created Equal 136

Dealing with the rare default 136

Enjoying low risk 137

Choosing from a vast array of possibilities 138

Consulting the Taxman 139

Bringing your bracket to bear 140

Singling out your home state 141

Matching munis to the appropriate accounts 142

Recognizing Why This Chapter Is Titled "(Practically) Tax-Free: Municipal Bonds" 142

Reckoning with the AMT tax 143

Capping your capital gains 143

Introducing the fully taxable muni 144

Buying Munis Made Easier 144

Chapter 9: International Bonds and Other Seemingly Exotic Offerings 147

Traveling Abroad for Fixed Income 148

Dipping into developed-world bonds 148

Embracing the bonds of emerging-market nations 152

Bond Investing with a Conscience 155

Having faith in church bonds 155

Adhering to Islamic law: Introducing sukuk 157

Sustainability-linked bonds 158

Playing with Bond Fire: Potentially Risky Bond Offerings 161

Rocking with Bowie Bonds 161

Cashing in on catastrophe bonds 162

Dealing in death 162

Dancing in the Flames: Derivatives and Default Bond Products 163

Daring to delve into derivatives 163

Banking on losses with defaulted bond issues 164

Catching a fallen angel 166

Evaluating Exchange-traded Notes 167

What are they? 167

Should you invest? 168

Part 3: Bonds as Portfolio Cement 169

Chapter 10: Return, Risk, and Realism 171

Searching, Searching, Searching for the Elusive Free Lunch 172

Making a killing in CDs yeah, right 172

Defining risk and return 173

Appreciating Bonds' Risk Characteristics 173

Interest rate risk 174

Inflation risk 175

Reinvestment risk 176

Default risk 176

Downgrade risk 177

Tax risk 178

Fear-of-missing-out (FOMO) risk 178

Regarding all these risks 179

Reckoning on the Return You'll Most Likely See 181

Calculating fixed-income returns: Easier said than done 181

Looking back at history: An imperfect but useful guide 182

Investing in bonds despite their lackluster returns 184

Finding Your Risk-Return Sweet Spot 187

Allocating your portfolio correctly 187

Tailoring a portfolio just for you 187

Chapter 11: The Art and Science of Portfolio-Building 189

Mixing and Matching Your Various Investments 190

Dreaming of limited correlation 190

Seeking zig and zag with Modern Portfolio Theory 192

Translating theory into reality 192

Appreciating Bonds' Dual Role: Diversifier and Ultimate Safety Net 194

Protecting yourself from perfect storms 194

Eyeing a centuries-old track record 195

Recognizing Voodoo Science 197

Comparing actively managed funds to index funds 197

Forecasting the future - and getting it wrong 198

Ignoring the hype 199

Chapter 12: Slicing the Pie: How Much Should Be in Bonds?...