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I experimented with buying bonds about 3 years ago. I bought NYC and Westchester tax free municipal bonds (5% interest). I was surprised to find I was buying bonds for a lot more than the face value. I was essentially buying the bond and paying for the anticipated interest in advance.
As this is written, it looks like this is somehow a bad thing.
If you have a bond with a coupon of 6% then it pays 0.5% every month, but you only get the cash once every six months.
Everybody knows that the bond is going to give the owner the 3% cash on a specific date, so everybody accepts that the bond will go up about $5 in price every month.
Quote:
Originally Posted by arctic_gardener
Risk goes like this:
Government bonds < Investment-grade corporate bonds < High yield (junk) bonds < Stocks. Note that some stocks are less risky than some junk bonds.
I'm glad you wrote that last part I highlighted in brick.
I would say that almost any stock is less risky than almost all junk bonds, but this is just my opinion as what you wrote is also.
You can go to the "investinginbonds.com" website to read about bonds. Or buy a book,= such as The Bond Book, by Thau.
Most people own bonds via mutual funds, although it is practical even for people just starting out to buy Treasuries directly. You can buy nearly any maturity you want on the secondary market (through a discount broker, for example).
Yields are quite low today, and you shouldn't generally view bonds as a way to grow your wealth. They are a good mechanism for dampening your overall portfolio's volatility, as long as you own high-quality bonds.
I suggest you go to the Fidelity web site and research bonds and do a trial trade. I have bought a lot of bonds over the last 23 years. I maintain a 10 year bond ladder. When I buy a bond, my intention is to hold it till maturity, I always look at this list when I look at a bond purchase
1. Is it callable?
2. Coupon rate.
3. Yield to maturity
4. Rating. A3/A- or greater.
5. Maturity
6. Price.
I have made a few mistakes over the years, Lehman Brothers, comes to mind. So don't buy companies that are going to go bankrupt, likewise with stocks, only buy the stocks that you know will increase in value. You will be rich in no time at all.
i am in the forget a total bond fund at this point camp and go for a unconstrained bond fund that can shift around to take better advantage of situations as well as do some shorting if needed . .
a total bond fund is really a low yield gov't bond fund as that is where it's weighting is . it is more than 50% treasury's and gov't bonds and 5% totally ill-liquid bonds which don't really compensate you enough for taking the interest rate risk at this point . you can get better returns from just using a high quality corporate bond fund with about the same risk .
trying to take the easy way is likely not going to be the best way to go .
The problem with these unconstrained bond funds is they have short track records, typically charge higher fees, and so far, haven't really distinguished themselves from the rest of the bond category. You previously mentioned liquidity issues--yet these funds are also more likely to own illiquid bonds.
I agree with you on the total bond market funds, though. They are very heavy on government bonds. If I wanted a plain vanilla bond fund, I'd go with an actively managed, low cost fund such as:
Baird Core Plus Bond or
Dodge & Cox Income (Yes, I know you shot this one down due to liquidity issues).
I know you like Fidelity, so maybe Fidelity Total Bond would work (and it is highly rated by the folks at Morningstar), but I still like Dodge & Cox Income better than that one.
i like a combo of fidelity total bond and fidelity corporate bond , with short term bonds mixed in .
we really have no times like these to compare anything to since low rates and these high stock valuations never existed before . so i say what the heck , give the unconstrained bond funds a shot in this uncharted territory now that conventional bond funds are sucking wind .
i like a combo of fidelity total bond and fidelity corporate bond , with short term bonds mixed in .
we really have no times like these to compare anything to since low rates and these high stock valuations never existed before . so i say what the heck , give the unconstrained bond funds a shot in this uncharted territory now that conventional bond funds are sucking wind .
I think your strategy is reasonable, but overly complicated for my tastes.
I'd be more willing to give the unconstrained bond funds a chance if they were cheaper or if there was one that was really a standout.
Are there any unconstrained bond funds that you think are worth a look?
Me thinks the opening poster is very confused, this is a lot for someone just starting to understand bonds.
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