Do any of you invest in individual corporate bonds? I have Treasuries, and a couple of individual corporate bonds that I found in investing newsletters, but it is not something I know much about and I always feel nervous about trying it.
I also bought a New York hospital bond because it seemed like a solid thing to do and it is up 39% and earns 4.7% so I got really lucky with that one.
If you do or don't, why or why not, and what parameters do you use?
Thanks!
No, I don't.Originally Posted by Tybee
Buying individual bonds can be a safe profitable way to invest, but it requires a specific set of skills and knowledge that I don't possess.
If I were going to do it, I would stick with big companies that dominate their field and pay a good but not outrageous interest rate. When bonds pay an outrageous interest rate it means professional bond investors are skeptical about getting their money back.
Of course on an old bond like your New York hospital bond, if the stated rate is 4.7% and the price of the bond has gone up 39% since you bought it.... The price you're paying to hold it is 139% of what you paid for it but the interest is still just 4.7% of the original price. IOW the bond price went up because inflation went down. If inflation goes up and bond yields follow, the price of your bond will go down. Since 39% capital gains equals 8.3 years of interest at 4.7%, you're betting that inflation will stay at the current historic lows. Is that a good bet? Or should you cash our and thereby eliminate your inflation risk? Or should you cash out and put your money in an inflation-resistant investment?
Beats me! That's why I stick to what I know: investing in individual stocks. Specifically I buy big-name companies with good dividends that have been paying (preferably raising) their dividend for a long time. S&P 500 Dividend Kings and S&P Dividend Aristocrats are a good place to look for such stocks.
So are the Dow Underdogs https://dowunderdogs.horizonpublishing.com/ with the caveat that a DJIA 30 stock that has a big dividend because its price has fallen, may be in financial trouble and about to eliminate that dividend. GE and DISNEY are two recent examples of big names that cut their dividend and their stock price fell as a result.
I also keep about 20% of my portfolio in "Deep In The Money" option spreads, which allows me to buy stock for a fraction of its current price in exchange for limiting my potential profit. It's a high yield, low risk way to invest, but not totally risk free. I lost money last year because the Covid market crash killed some of my option positions and thereby wiped out all of my stock profits plus an extra $5000. So it's not a game for amateurs or people who get nervous when their account balance goes up or down $3000 in a single day for no apparent reason.
"Since 39% capital gains equals 8.3 years of interest at 4.7%, you're betting that inflation will stay at the current historic lows. Is that a good bet? Or should you cash our and thereby eliminate your inflation risk? Or should you cash out and put your money in an inflation-resistant investment?
Beats me! That's why I stick to what I know: investing in individual stocks."
Right, that has been my take on it, too. I also buy individual stocks the way you do, with much of the same criteria. So I am quite comfortable buying individual stocks--that is why I am asking about bonds. I don't have the same comfort level with bonds that I do with stocks.
Thanks!
The closest I have come was buying specific municipal bonds for two library systems.
I have recently sold most of the corporate and municipal bonds in my portfolio, primarily because they were trading at premiums that would all disappear when the bonds matured in 2023-2025. For the bonds and CDs that remain I intend to hold as a portfolio stabilizer until maturity.
I was a buyer of Treasury I Bonds (I bought my legal limit for the year) from Treasury Direct. I have been buying my limit for 6 years now. I see the I Bonds as a last ditch reserve in case of a financial shock. The real return on them would probably be about zero when I cash them in, but zero is better than the negative real return that is available in other types of fixed income or savings/CDs.
As an old croc, my main objective is capital preservation and income. with capital appreciation secondary.
Good points, Dado. Maybe I should sell the hospital bond, just don't know where to put it then.
I only buy them through mutual funds. I’m willing to pay a bit more to have somebody else do the credit research and bookkeeping, and to be more broadly diversified than I could manage on my own. I might feel different if my portfolio was significantly larger.
Mutual funds only here, too. I don't pick individual stocks; I don't pick individual bonds.
Success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome. - Booker T. Washington
For what it's worth I just bought a few shares of Chevron Oil. It's been beaten up and it's had a rough ride because of the oil glut and Covid and general fear about Biden pushing eco-friendly energy to the detriment of oil. But there are also some reasons to like it and to believe it will stay profitable for a long time. CNN Business https://money.cnn.com/quote/forecast....html?symb=CVX predicts Chevron's stock price will go up 18% during the next 12 months. Moreover Chevron goes ex-div $1.29/share on Feb 17th (5.78% annual yield).
By contrast AT&T, which I also own, has a 7.1% dividend yield and a flattish stock price.
I'm not specifically recommending either of these, just holding them up as examples of the bigger risk/reward ratio in stocks vs bonds.
Disclaimer: I am not a lawyer, accountant, professional investment advisor, or anything else like that and I don't even play one on television. I'm a self-taught investor and I'm probably not the sharpest tool in the shed. So do your own research and please be aware that any advice you read on the internet or hear from a friend of a friend is likely to be over-optimistic or out of date by the time you get it.
When I bought library bonds it was a significant amount of money: $25,000 invested in the bonds for the library system I worked for.
Later, my broker called to see if we were interested in a suburban library bond and so we put $10,000 into that. Both of them paid nicely, but then they cashed out.
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