Bonds

Bonds are essentially loans that you extend to another party, under an agreement that they will repay you over time with interest. While acquiring bonds doesn't involve direct costs (as the borrower pays the underwriter initially), you usually have to purchase them through a broker. This process often includes a fee concealed in the spread—the difference between the prices at which they buy or sell the bond. You can minimize this fee by purchasing bonds at offering, where any fees are covered by the borrower, and then holding the bond until maturity, which can range from several weeks to over 30 years.

However, there's a risk of default with bonds, so diversification is key. That's why bond funds or ETFs are generally more suitable for most investors. Now, with the availability of zero-fee bond ETFs (like BKAG) and numerous near-zero fee bond ETFs, you can achieve the necessary diversification virtually for free.

An exception to this rule is bonds issued by the U.S. Government. These bonds come with no fees, and in fact, the borrower, in this case, the U.S. government, isn't using your money to earn additional income, as is common with banks and companies. Since the U.S. government has a significantly lower risk of default (being the least likely borrower to default), you don't need extensive diversification and can confidently purchase directly from the government.

The go-to platform for these transactions is TreasuryDirect. However, selling before maturity can be complex for most bonds on this site, so transferring them to a brokerage platform for sale might be necessary, often incurring a small, hidden fee. Ideally, you should match the bond's maturity to your financial needs. If that's not feasible, a bond ETF or mutual fund is worth considering.

Additionally, you can purchase treasury bonds at auction without fees on most major brokerage platforms, but selling before maturity might incur a small hidden fee, typically less than 0.5% (sometimes considerably less) for government securities.