Choosing from types of corporate bonds

When governments large and small anywhere in the world need money, they can tax or borrow. If they borrow, it's a bond, which is paid back with interest. Since it's government and generally safe, the interest paid is low, even zero when adjusted for inflation (although government bonds are normally tax exempt). Corporate bonds, however, are loans by investors to companies. Here, depending on the company's financial history, interest paid is higher, even competitive at times with stock market returns.

I recommend: The Financial Industry Regulatory Authority offers a decent database to explore investing in corporate bonds.

Buying and selling corporate bonds and high-yield debt

Most of us won't buy individual corporate bonds, instead investing in a mutual fund that buys bonds or as part of a so-called "targeted fund" investment that includes an increasing portion of less-risky corporate and government bonds as the investment target date nears. However, one can buy and sell bonds like any stock in a normal brokerage account.

I recommend: Among the bigger mutual funds companies that market corporate bonds in funds and individual corporate bonds, consider Fidelity, Vanguard, Schwab and TD Ameritrade.

Want more risk and return? Corporate bonds can do that

Even a few decades ago, corporate bonds were a pretty sleepy investment. Then Wall Street took companies down on their luck, rechristened their high yield fixed income instruments "junk bonds" and made a killing selling high yield bonds debt to a market hungry for something new. Junk bonds are out. They now call junk bonds "high yield bonds" or "high yield fixed income."

I recommend: Check out eye-popping double-digit returns on junk bonds on the Yahoo! Finance page on high yield bonds or this screen from MSN Money on high yield bond funds.

Track your risk when investing in corporate bonds

The upside of corporate bonds and high-yield fixed income like high yield bonds is better returns. The downside, of course, is the potential for a given corporation to go under, making those corporate bonds worthless paper.

I recommend: Watch your risk while investing in high yield bonds by researching the ratings of corporate bonds through ratings agencies, like Moody's, Standard & Poor's and Fitch Ratings.