IF you search Amazon.com for a book on investing in stocks, you could scroll through nearly 20,000 titles. But if you want to learn more about bonds, you can pretty much memorise the titles. In fact, if you type “bond” into the search engine, plenty of the hits would involve Agent 007.

It’s rare for anybody to bother writing a book about bonds, and it’s even more unusual for these titles to be worth preserving on your bookshelf.

The reason for this literary bond bust is easy enough to understand.

Fixed-income investments are complicated and hard to track. An investor interested in placing a bet on a stock has about 8,000 choices, but bond investors face more than 1.7 million choices, and that’s just in the municipal bond market.

If you want to learn about the stock of Chiquita Brands International or La-Z-Boy, a few clicks of your mouse will unleash a deluge of information. If you want to research port authority bonds in Cuyahoga County, Ohio, well, um, good luck!

Because of the complexity, it’s a great relief that a book has hit the shelves that can enlighten bond investors on the vicissitudes of the fixed-income universe. The Only Guide to a Winning Bond Strategy You’ll Ever Need provides thorough explanations of bonds, how they should be used, which ones are as welcome as a tetanus shot, and how you can avoid getting ripped off.

The co-authors are Larry E Swedroe, a nationally known investment adviser who has written several other investing books, and Joseph H Hempen, a bond expert at Buckingham Asset Management in St Louis.

One of many topics the book tackles involves misconceptions regarding bond costs. Many people think that they only pay US$25 or US$50 to a brokerage firm when buying or selling bonds.

If only this were true.

Actually, these transaction fees are often as insignificant as the sprinkles dusting a chocolate sundae compared to what they’re really paying. Firms make their serious cash on “markups” and “markdowns.” A markup refers to the amount of money added to the wholesale price of a bond that a brokerage firm sells its customer. The markdown is the amount subtracted from the price the buyer pays the individual selling a bond. While a modest markup or markdown is justified, a firm can charge any amount it wants – or can get away with.

“Large, hidden markups are amoral, but unfortunately they are legal,” Swedroe laments.

It’s harder, however, to hide the lard bucket when a trade involves a short-term bond. Suppose you were eager to buy a bond with one year left until maturity that is yielding three per cent and trading at face value. If the markup is one per cent, it would be easier to spot. The bond’s yield to maturity would drop to about two per cent.

It would be even more audacious for a firm to slap a four per cent markup on the same bond. The yield to maturity, in this case, would turn negative. If the bond had a face value or par of $1,000, you’d pay $1,040 to buy it and, in return, get $30 back in interest. Investors who get lured into one of these nutty transactions would pay for the absolute certainty of losing money.

To discourage investors from spotting Waldo quickly, brokers prefer hawking bonds with longer maturities. Swedroe uses a variation on the previous bond example to show how easy it is to fool investors with the industry’s devilishly opaque pricing.

Suppose the bond has a 25-year maturity and the investor is slapped with a four per cent markup. The yield to maturity would drop to 2.79 per cent, which would hardly prompt the new owner to hurl a shoe at the guy who sold it to him. But it remains the same Porky Pig markup.

Besides getting your pockets picked, there’s another danger of hanging around brokers who keep the shelves stocked with longer bonds. These bonds are riskier, but historically they have not generated higher returns. Consequently, it’s best to limit your fixed-income portfolio to short-term bonds, which have a maturity of one year or less, or intermediate bonds, which mature between one and 10 years.

Luckily, ways exist to escape the bond industry’s dunking booth. For starters, you can gravitate to the one seller who will never pad the bill: the federal government. If you’re in the market for US Treasury bills, notes and bonds, you can purchase them at www.TreasuryDirect.gov. By eliminating the middleman and dealing strictly with the Treasury, you avoid commissions and other transaction-related fees.

If you’re interested in other types of bonds, Swedroe advises that you restrict your purchases to new issues. Spanking-new bonds are offered to all investors – whether buyers are little guys or institutions – for the identical price. Go this route and you can skip the commission and markup.

If you prefer holding individual bonds, make sure your commitment is strong. Because of the high cost of trading, you certainly don’t want to incur the expense of purchasing a bond only to get smacked with a markdown later on when your enthusiasm for the investment evaporates.

In other words, don’t purchase individual bonds – Treasuries are the exception – unless you are absolutely positive you will be able to hold them until maturity.

For many investors, particularly those who don’t have at least $500,000 to diversify into non-Treasury bonds, the easiest and best way to own bonds will be through mutual funds and exchange-traded funds. The key, however, is to avoid what the authors characterise as mutual funds that charge Georgia O’Keeffe prices for paint-by-number pictures. Steer clear of any bond funds that charge a load or commission. Instead, stick with bond index funds or ETFs that offer extremely low expense ratios.

Vanguard Short-Term Bond Index Fund, for instance, charges 0.18 per cent annually and the cost drops to 0.11 per cent for large investments. Another option is the Lehman 1-3 Treasury Bond Fund, which is an ETF with a expense ratio of 0.15 per cent.

Lynn O’Shaughnessy is the author of The Retirement Bible and The Investing Bible. She can be reached at LynnOShaughnessy@cox.net.