How to Buy Commercial Notes
Open an account with a brokerage firm., Compare the credit ratings of companies that issue commercial paper., Compare the interest rates offered by several large companies., Issue a "buy" order to your broker.
Step-by-Step Guide
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Step 1: Open an account with a brokerage firm.
Commercial paper is rarely issued directly to individual investors, so you will need to do business with a broker in order to make a purchase.
You can choose from a full-service brokerage firm or a no-frills online broker; both will allow you access to commercial notes.
If you don't already have an account with a stockbroker, consider avoiding commercial notes for a while.
This type of debt is unsecured, and thus shouldn't be used as the foundation of an investment portfolio.
Before investing in commercial paper, build a strong portfolio with lower-risk investments like government bonds. -
Step 2: Compare the credit ratings of companies that issue commercial paper.
Because commercial notes are unsecured, it is important that the issuing company has excellent credit.
These companies will present a lower risk of default.
The 2 main companies that issue credit ratings for corporations are Moody's and Standard and Poor's.
Look up the ratings for several large companies; anything less than an "AAA" rating should be passed over when purchasing commercial notes. , Once you have decided on several companies that have attractive credit ratings, determine the interest rates they are offering on their commercial notes.
This information is available online or through your brokerage service.
Remember, longer maturities tie your money up longer, and therefore need to offer a higher interest rate. , Once you have decided to buy a certain company's commercial paper, issue an order to your broker to buy the paper.
Minimum investment amounts are often quite hefty for commercial paper
- in U.S. dollars, commercial paper cannot usually be had for less than $1000, and often sells at a minimum of $100,000.
Remember that this type of unsecured investment should not form the foundation of your investment portfolio. -
Step 3: Compare the interest rates offered by several large companies.
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Step 4: Issue a "buy" order to your broker.
Detailed Guide
Commercial paper is rarely issued directly to individual investors, so you will need to do business with a broker in order to make a purchase.
You can choose from a full-service brokerage firm or a no-frills online broker; both will allow you access to commercial notes.
If you don't already have an account with a stockbroker, consider avoiding commercial notes for a while.
This type of debt is unsecured, and thus shouldn't be used as the foundation of an investment portfolio.
Before investing in commercial paper, build a strong portfolio with lower-risk investments like government bonds.
Because commercial notes are unsecured, it is important that the issuing company has excellent credit.
These companies will present a lower risk of default.
The 2 main companies that issue credit ratings for corporations are Moody's and Standard and Poor's.
Look up the ratings for several large companies; anything less than an "AAA" rating should be passed over when purchasing commercial notes. , Once you have decided on several companies that have attractive credit ratings, determine the interest rates they are offering on their commercial notes.
This information is available online or through your brokerage service.
Remember, longer maturities tie your money up longer, and therefore need to offer a higher interest rate. , Once you have decided to buy a certain company's commercial paper, issue an order to your broker to buy the paper.
Minimum investment amounts are often quite hefty for commercial paper
- in U.S. dollars, commercial paper cannot usually be had for less than $1000, and often sells at a minimum of $100,000.
Remember that this type of unsecured investment should not form the foundation of your investment portfolio.
About the Author
Samuel Ruiz
Dedicated to helping readers learn new skills in DIY projects and beyond.
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