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That 6% yield will be falling as the underlying investments fall in yield with recent rate falls and you can't get to it anyway.
Foreign-based interest investments have a lot of risk due to currency.
Your best shot is probably high-yield corporates - yield 5.5% now and with a duration of 4 years, it would take a rise of 0.75% in underlying Treasuries to wipe out the yearly yield in price loss. Another recession would be what hurts a high-yield investment (spread to Treasuries widening). Buy HYG or JNK to avoid fund fees.
actually funds like fidelity new market income have done just fine for decades in international bonds and they have no currency risk at all. all bonds are denominated in us dollars.
it is volatile but not as volatile as equities.
the case for international gov't bonds especially emerging market has been very strong. their balance sheets as countries are looking better and better actually being in better shape then we are all though thats not saying much.
many international companies have grown so much they are looking for financing to go global so even the old guard countries look pretty good making regular international bond funds appealing as well.
most international bond funds except the one i mentioned above will be both a bond and a currency play as they are not denominated in us dollars.
you really can not pit high yield against treasuries to see what a rate rise would do as high yield have credit risk and prices jump around like stocks do and they are not tied to just interest rates like treasuries..
it is hard to say what any rise in yield treasuries would need to undo the high yield market as it varies alot..
one word of caution about HYG as well as JNK.
usually there is very little premium or discount in an etf . it generally tracks what it holds very tightly.
thats not true of high yield etf's like HYG and JNK. the buy and sell price of the bonds hyg holds can vary by alot..arbitraging has the price spreads jumping around like crazy unlike stock etf's were arbitraging keeps prices tight.
the result is high yield etf's can sell for more then the assets they hold are worth or less then the assets they hold are worth at any given time.
you may actually buy hyg at a premium to its assets it holds one day only to sell it in a downturn at a BIG discount to the assets it holds on another..
the drop can be alot more then the underlying issues get hit with exaggerating your losses.
Last edited by mathjak107; 12-30-2012 at 10:13 AM..
I felt like I read a page long horror stories. So to my understanding, I should stick to foreign investment in a steady economy to minimize currency fluctuations. Because in local currency, I can yield 8% yearly and still be protected from minimal changes to currency. The worst of the best is keeping money in us dollar and still get 3% (so protected from currency changes) yield, which is still way more than high-yield companies and plus the associated risk.
I don't consider whole life insurance as a great asset as I'm not getting hot liquid money. My only concern would be transfer fees among two countries.
Any suggestions on that? AFAIK, Citibank allows you to send/receive free wires to other Citibank accounts in Europe.
>Looking at jnk it traded at one point at a premium of 3.61% and at another time a 3.22 discount.
> With no change in underlying asset value an investor could have lost 6% .
This is highly misleading. You would have had to buy and sell at exactly those points and you have completely forgotten about the interest you would have earned over this undisclosed time frame, which if over a year, would have more than offset the ultimate horrible timing of a trade.
I would eyeball/estimate that over 80% of the days this year, JNK has traded between a 0.00% and 0.50% premium. The "risk" of fluctuating premiums/discounts to NAV is really a rounding error. You definitely should try to buy on those down days when JNK/HYG stock prices fall more than the underlying bonds/NAV but to call it some big risk is fiction.
actually it is quite important those who buy high yield etf's know they act more like closed end funds than true etf's.
no one really wants to pay more then something is worth so you want to be careful about buying at times it is at a premium.
you can choose when to buy but not always choose when to sell.
you can not always decide the conditions you want to sell under. those that panicked and jumped ship in 2008-2009 couldnt give a hoot whether things were at a discount when they pushed the sell button.
in downturns big discounts are very common and it is there you can get hit harder then you should have.
it is no different then the pro's and con's of buying closed end funds . you want to be very careful at buying at a premium.
>Looking at jnk it traded at one point at a premium of 3.61% and at another time a 3.22 discount.
> With no change in underlying asset value an investor could have lost 6% .
This is highly misleading. You would have had to buy and sell at exactly those points and you have completely forgotten about the interest you would have earned over this undisclosed time frame, which if over a year, would have more than offset the ultimate horrible timing of a trade.
I would eyeball/estimate that over 80% of the days this year, JNK has traded between a 0.00% and 0.50% premium. The "risk" of fluctuating premiums/discounts to NAV is really a rounding error. You definitely should try to buy on those down days when JNK/HYG stock prices fall more than the underlying bonds/NAV but to call it some big risk is fiction.
HIGHLY MIS-LEADING ? NAY NAY I SAY
If you thought my example was exagerated ,far from it. just check out sept. 2008 when PHB dropped to a whopping -22% discount and HYG and JNK to A 10% discount to what it actually held.great for buyers but a nightmare for sellers which there were far far FAR FAR more of.
thats a double whammy. spreads between bids and asks widen in downturns and that creates bigger losses , then to have the fund throw more of a loss on top of those losses can be quite painful. in 2008 for hyg the difference in losses between their index and hyg was an extra 7-1/2% loss to sellers because of the discount bringing their total return to a -23%. .
of course it is difficult to compare funds since they all hold different issues.
vanguard high yield which is a regular mutual fund was down 21% , not a big difference from hyg . in fact the catagory average was around -26% so in that regards hyg did not do to badly when compared to others.
but the fact is it would have done less bad against itself if there was not such a big discount.
IN PHB'S case the news was alot worse and they got hit even harder by the whopping discount of minus 22% falling 33% in total return...
just because the recent daily trend has been a tight range does not mean we won't see huge swings again if things get nuts.
to be forewarned is to be forearmed. it is great when it works in your favor but it can be more painful then a regular mutual fund if it does not go in your favor.
check out morningstar data
Last edited by mathjak107; 12-31-2012 at 05:11 AM..
Well, your FNIMX did worse in 2H 2008 than either JNK or HYG.
Risk is usually very small in ETFs of premiums/discounts, 0.0-0.5%. That risk can be abruptly higher in once-in-a-generation times of market distress but then asset prices of anything illiquid blow out - that includes your favored emerging market bonds.
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