Although sites that post offerings for sale may be helpful with regard to pricing, they may also be quite misleading. The offering levels will not automatically change with the fluctuation of interest rates. Just like the offering sheets that were mailed out weekly, the posted prices of the bonds given on the site might be out of date. When you click to purchase the bond, the bond might not be there anymore, or the price might have changed. The broker might be just testing the waters to see what kinds of offers are made for the bonds.

Even dealers have problems with bond purchases on the Internet. If there is an offering of 100 bonds, and someone sells 50 bonds on the telephone in the office, there are now only 50 bonds left. Before the broker can update the screen, someone else is clicking on the 100-bond offering online. The selling broker is now "short 50 bonds." They can either cancel the trade in the office, try to find the bonds somewhere else, or tell the wire service: "I am such an idiot! I have only 50 bonds to sell." Customers and the wire service are not happy when the broker tells them that they have to break the trade. They can do that only so often.

Although you may have access to online trading, it is best if you find your bonds online but talk to a broker to purchase them. A broker might be able to offer you a discounted price or a better deal on bonds owned by the firm. Particularly attractive deals may never be posted online because they can be easily sold, thus, saving the broker the cost of posting the item. Some firms charge extra to talk to a broker. You will have to decide what is in your best interest.

The best online databases allow you to set the criteria and limit the number of offerings that pop up. For municipals, for example, you might want to choose a state and a maturity and yield range, AMT or not, and so on. The more restrictive your criteria, the fewer offerings you will see. At www.fidelity.com, you can access screens of all the major bond categories. You can check their offerings even if you are not an account holder there. Go to Research, Fixed Income, and then pick the individual bond type you want to review. Set your criteria, and away you go.

A good online service will give you detailed call information, including sinking funds and extraordinary calls. If a corporate bond has a make-whole call or a survivor option, that information should also be listed. However, no matter how good the Web site, there may be details that you are missing that a broker can tell you.

How do you find a good bond brokerage firm? You can check with friends and family to find out if they have a firm they like working with. Firms advertise on the Bond Market Association Web site at www.bondmarkets.com; click on the type of bond you're seeking to buy and you'll see a listing of the members and their specialties in that category. Ask if the brokerage firm is a member of the Securities Investor Protection Corporation (SIPC). This member-supported insurance company provides limited customer protection in case of bankruptcy, although it does not protect against trading losses. The brokerage firm may also have additional insurance, adding protection above the levels provided by SIPC.

It is probably not a surprise to hear that all brokerage firms are not alike. As in every other field, there are specialists, in this case, those who deal in particular kinds of bonds. While any broker can purchase bonds on your behalf, not all can execute the purchase or sale at the same price. Remember, most bonds trade in an over-the-counter market.

Seek a brokerage firm that trades the kinds of bonds you want to buy and is willing to accommodate your investing style. You need to shop around in order to determine which firm has the kind of inventory you require. Some brokerage firms make the retail municipal market their specialty, though they may also offer other kinds of securities. They may have a specific regional orientation, specialize in national market bonds, or specialize in lower-quality bonds. Retail firms deal in smaller lots of bonds, and their sales-people are usually quite knowledgeable. The brokerage firm may tell you that it handles all kinds of securities, but once you see the firm's offerings you will know whether it provides the kinds of bonds you want along with good service and prices. The firm may not be able to offer you new issues if it does not participate in the selling syndicate.

Final steps in a thorough due diligence might be to ask for a description of the broker's typical client and then ask to talk to some of the broker's longer-term clients. The SEC provides a toll-free hotline operated by the National Association of Securities Dealers (NASD) for a background check of the broker or sales representative (800-289-9999), or visit their Web site.

The broker can screen bonds to meet your specifications. If you are in a high-tax state, for example, you may want to see bonds only from that state. You might have a particular maturity or rating in mind. Similarly, you would customize your search on the Web by selecting the criteria that match the kind of bond you seek. The broker will help you think through your options and then will show you the offerings that might match.

Once you've gathered a list of potential candidates, begin thinking in terms of the relationship. A brokerage firm may be outstanding, but it is a flesh and blood person with whom you will be dealing. To find a good individual broker, speak to the sales manager and ask for a recommendation. Then ask about the broker's experience with and amount of time allocated to bond trades. That experience is important because when choosing a broker, you are seeking to establish a mutually profitable, long-term relationship. And because this relationship is founded on money (your principal and their income) it's worth taking some time to make sure it's a solid one.

The first step in establishing such a relationship is gathering information. What you learn will let you know if you can develop a rapport with the broker or whether there is a complete absence of chemistry between the two of you. Tell the broker what your goals are and ask how he or she thinks you might best achieve them. Do this long before you're prepared to make an investment so you can consider the recommendations. Ask what kinds of investments other clients have been purchasing. How does the broker evaluate those investments? Does the broker see a place for those investments for you? You do not wish to be hurried into taking actions that do not support your goals.

Find a broker whose basic philosophy aligns with yours or one who at least respects your perspective. The broker should inform you when bonds come due, or when there are substantial amounts of cash in your account. The broker should keep you up-to-date on marketplace swings and have the patience to answer your questions. Remember, there is no such thing as a dumb question, and you should not feel that your questions are out of place. The suggested securities should support your investment objectives. We recommend that you purchase plain-vanilla bonds. When you're offered an intricate investment and your eyes glaze over, don't stick around to try to understand it. If you're in a casino, the cards are stacked in favor of the house. Despite the deal's seeming attractiveness, you're likely to come out the loser. It is okay if you miss an opportunity; there is always another.

Just because you purchase stocks from a particular broker, don't assume that broker is the wisest choice for purchasing your bonds. Many stockbrokers do not know about or have little interest in bonds. Stock buyers who use discount stockbrokers believe that they can also purchase bonds at a discount from the same source as well. Unfortunately, there are no discount bond brokers. Bond brokers generally act as principal in a sale, which means that they buy the bonds for their own account and then sell them for a profit. Contrast that procedure with the purchase of stock, in which the broker acts as an agent, bringing together the buyer and seller for a disclosed fee, called a commission.

If you're convinced that you want to purchase individual bonds, be wary of any broker who tries to shift you into stocks or who strongly suggests packaged investments like mutual funds, unit investment trusts, and exchange-traded funds. This kind of recommendation indicates that the broker is not really interested in bonds, either from a lack of expertise or a belief that bonds don't generate enough money to warrant attention. However, as we explained, mutual funds do make sense if you're buying certain securities such as junk bonds, Ginnie Mae mortgage securities, or TIPS for some income as well as inflation protection.

The deterioration in profits among major brokerage firms in the early 2000s has led to a change in the way brokerage firms sell bonds to individuals. Some firms now penalize brokers for trading individual bonds by either charging them a fee or not compensating them for certain types of trades. Instead, brokers are encouraged to have their customers move their assets into fee-based accounts. One such account is called a "wrap" account. It is managed by your broker for an annual fee that is equal to a fixed percentage of assets and is unaffected by the number of trading transactions. Alternatively, your broker might suggest what is commonly called a managed account if you have at least $500,000 in assets. This is an account managed by an outside adviser.

If you are a buy-and-hold investor doing limited transactions, these accounts are not a plus for you. The incentive for the broker is that he or she personally earns more. The reality is that the firm management has substantially reduced a broker's incentive to sell you bonds on a per-transaction basis. Despite all the yachts the brokers are supposed to have, many of them still need income to pay off their mortgages. Ask for a copy of the firm's commission and compensation schedule if you're curious about how the firm's policy affects your broker. As one broker said of fee-based accounts, "One of my clients said to me that they have been dealing with me for years on a transaction basis, and they see no reason why they should increase their expenses and pay me a fee. I can't even talk to them about it."

This emphasis on fee-based accounts is in part the result of the success of the National Association of Personal Financial Advisors (NAPFA). That organization's advertising pointed out the conflict of interest that commission-based advisers have. The ads ask whether advisers are doing what is in the best interest of the client or instead giving advice that generates the most personal revenue. The media gave great press coverage to NAPFA, and the public responded by seeking those advisers.

The big investment houses were caught on the wrong side of the issue and moved to co-opt the fee-only position by creating the wrap account. However, correctly applied, fee-only service means providing for the client what is in the client's best interest by charging a fee for advice and letting the client decide what is best.

The brokerage firms prefer that new clients pay a fixed annual fee instead of paying per transaction for bond purchases. The minimum account size is usually $100,000. The annual payment may be collected at the beginning of the year or quarterly. There are two types of accounts: one in which the in-house broker makes the investment decisions either independently or in conjunction with the investor; the other is the so-called discretionary managed accounts, for which outside money managers make all the decisions. Although a fee account might make sense for the active trader, it extracts a heavy price from the people who want to purchase a few medium-term bonds and let their funds accumulate.

An advantage of a managed account is that you might receive a bond allocation from a new issue that you might otherwise not have gotten. A possible disadvantage is that you will get small pieces of many issues, which will make selling more expensive. Remember, the firm is creating a mini–mutual fund just for you. Some broker or dealer is also making a spread when the bonds are traded, in addition to the up-front annual fee that's charged. There may also be penalties if you decide to leave the managed account.

If you think a managed account would be a good idea because you do not have the time to do the work, you might ask what happens if it doesn't work out. For example, some brokerage houses impose exit fees on in-house accounts, and these often include a closing fee that will not be more than the annual fee plus 1 percent of various eligible assets. In addition, they will not waive certain fees on mutual funds or closed-end funds.

To assess how well your investments in a managed account are doing, look at how much money you put in and how much is there at the end of a year rather than focusing on the benchmarks and other razzle-dazzle numbers and percentages. And be sure to ask your accountant how the account activity has affected your taxes.

The bond market is a dealer-to-dealer market, one in which firms hire traders to deal in specific types of bonds. A brokerage firm might have Treasury, corporate, and municipal bond desks. The desk is a euphemism for a group of traders sitting in a room in front of computer monitors, who specialize and trade in a particular portfolio sector of bonds. The broker, often referred to as the account manager, discusses the bonds with you, and the trader is the person who actually buys and sells the bonds. When the account manager wants to give you a price break, he consults with the trader who is the one who must agree to it.

When the broker owns the bonds being sold to you, there can be some flexibility in the price, depending on the price the trader paid and the current market direction. For example, if a broker owns thirty-five bonds and you want only twenty-five ($25,000), he might give you a price break if you bought all thirty-five instead of leaving him with an odd lot of ten. If the broker owns twenty-five bonds, they might be sold all or nothing (AON). If you're shown equally interesting bonds from different dealers, one of them might be willing to give you a break on the price. Remember that brokers want to sell you bonds, but they need to make a living, too. They won't work for nothing, no matter how nice a person you are.

If a trade is "done away," meaning that the broker has to purchase the bonds from another brokerage firm, you will pay two spreads in the transaction instead of one. Discount brokerage firms tack on a fee in addition to the spread because they purchase most of their bonds from other firms.

The bond marketplace is divided into wholesale or institutional markets and retail markets. In the wholesale market, corporate, agency, and Treasury bonds trade in million-dollar blocks, with $100 million blocks not infrequent. Municipal bonds trade in $100,000 blocks by comparison.

In an odd twist, bigger is not necessarily better when it comes to buying bonds. In buying small odd lots of an issue, individual buyers often get a better price than institutional traders buying large blocks. That's especially true for municipal bonds. As the broker Stoever Glass announces on its Web site, www.StoeverGlass.com, "Rather than focusing on larger lots, you should consider smaller lot sizes where you can get higher yields." At the same time, do not assume that you're getting a better deal just because it's an odd lot. Volume discounts do not apply to municipal bonds when you're buying, but if you're selling, size does matter. Larger lots fetch a much better price.

You can do better purchasing off-the-run Treasuries, the older issues that trade less frequently than new-issue Treasuries in the secondary market. That's because newly issued Treasuries are used as trading vehicles because of their large lot size and liquidity. Your best Treasury deal, however, is the new issue, if you can time your purchase with the auction. If your broker charges you a fee, you can always go to TreasuryDirect and purchase your bonds there if it is worth your time and effort.

New-issue municipal bonds may also be well priced because often, though not always, you're getting an institutional price and structure. A bond structure refers to the coupon size, (for example, 4 percent or 5 percent) and whether the bonds are selling at par or a premium. Institutions prefer premium bonds because they have better trading value. Premium bonds are priced to the worst-call yield, often resulting in a higher yield-to-maturity than discount bonds. Individuals tend to like par bonds selling close to face value because they like to know their semiannual interest payments are just that—all interest—instead of a mix of interest and return of principal. New-issue bonds may also have longer call protection than secondary market offerings.

Bonds of similar quality and maturity will trade in the same range. If you don't like the yield on the AAA-insured bonds, maybe you'll prefer lower-quality bonds with higher yields. Ask yourself if the added risk is worth the return. For example, assume two bonds are selling at par, one rated AAA and the other BBB. Although one has a higher yield, its interest payments are only $25 more per year, or $250 for the ten-year holding period. Is that worth the risk and any subsequent loss of sleep?

You can tell how any market is doing by watching the spreads. Are they widening or shrinking? Although there is much greater yield in junk than in higher-rated bonds, the downside risk of losing your principal is also much greater. If your broker tells you that the spread between the plain-vanilla bond and the junk bond is historically low, you know that you're not being paid much for the higher risk. If the spreads are really wide, then you know the market believes the bonds are very risky right now. When the market speaks, listen! Then decide how to act.

When you put in an order to buy bonds of a new issue, which is called an expression of interest, you legally commit to buy the bonds if they're issued as described. Should interest rates rise between your order date and the bond's issue date, you're still expected to accept them. If the bond offering changes in any way, the broker will come back to you to describe the terms of the deal. If you like the new terms, you buy the bonds. If not, you're no longer obligated to purchase them.

Once you've made your bond selection, you'll receive a confirmation in the mail. Although each broker confirmation is slightly different, they all contain the same information. The bond description includes the amount purchased, trade and settlement dates, the unit price, accrued interest, total cost, and whether the bond is callable or not. Treasury bonds settle the next day, whereas corporate and municipal bonds settle three days after the trade, although the broker may be able to arrange for extra days to settlement if you ask. All bond issues are assigned a CUSIP number, the equivalent of a Social Security number for the bonds. Your account number printed at the top of the slip should be put on your check if the cash is not already in your account.