Corporate Bond Question (brokers, mutual fund, puts, credit rating)
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At age 68, I have about 59% in equities and the rest in fixed income, CD's and small amount in cash. I want to reduce the amount in equities and are considering corporate bonds. I'm wondering if it's a smart move in regards to risk and overall costs? Is there a way to research which corporate bonds are best? At this point in time I primarily want to avoid high risk. Thanks
Definitely agree..for the pros. I was just wondering when suggestions are made is there a good site to read up on the specific corporate bond funds? PIMCO and MFS were suggested.
Your public library may have the paid subscription version with the more detailed fund reports. Many years ago I went to the library to read Morningstar. Or you might be able to try the free trial period for the premium online service.
Remember in a bond fund you can lose money as the interest rate increases. I would look toward individual tax free (depending on your tax rate) municipal bonds. You can get bond ratings from your brokers site.
Question(s) on bond funds. Say I buy into a bond fund and it has some nice corporate bonds whose underlying creditworthiness has improved. Say from BBB to A yet it historically has the better yield. What terms are used if someone new buys into the fund:
1. New money enters the fund and gets placed at the rates of the moment, if yields are down, then they fall for all.
2. New money can't enter the fund, only the share price is affected and the underlying price someone is willing to pay.
3...either of the above but the interest gain on the bonds is reinvested.
Question(s) on bond funds. Say I buy into a bond fund and it has some nice corporate bonds whose underlying creditworthiness has improved. Say from BBB to A yet it historically has the better yield. What terms are used if someone new buys into the fund:
1. New money enters the fund and gets placed at the rates of the moment, if yields are down, then they fall for all.
2. New money can't enter the fund, only the share price is affected and the underlying price someone is willing to pay.
3...either of the above but the interest gain on the bonds is reinvested.
I’m not entirely sure of your question. Like any mutual fund, the net asset value is calculated every day, and shares are purchased and redeemed at that price. So if I buy shares today at 10.00/sh, and then all of the holdings were upgraded tomorrow, I’d have to pay more for those shares tomorrow (assuming that is the only significant change).
Bonds and bond funds lose or gain value when interest rates change.
Rates go up, bond prices go down and you lose value. Rates go down, prices are up and you gain value.
The longer the bond, known as duration, the more pronounced prices changes impact value. So a note that has two years to maturity will move less in value than a bond with 30 years given the same nice in interest rates.
Yield will generally be higher for longer duration. Yield will also be higher for credit risk. The lower the companies credit rating, the higher the yield.
This is important with rates so low you can find yourself chasing yield, which puts you in long duration opening yourself not only to interest rate risk but also credit risk.
Most people view bonds as a lower risk investment and they can be. However people tend to chase bond yield and think it's safer for some reason than chasing yield in equities, despite the fact that as they reach for yield they are opening themselves up to immense risk
Invest cautiously, individual bonds when held to maturity are, in very simple terms, binary risk. Default or paid. You start looking to get out early or buy funds, chase yield and otherwise juice returns under the guise of reducing risk and you'll probably get bit by how volatile bonds can be.
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