intermediate bond funds? - return - timing
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From: Nashville
intermediate bond funds? - return - timing
A neighbor of mine is a financial advisor. I have some $ from my rental house sales that I want to make sure I keep the principal (no stocks or stock funds). It is currently earning 4.58% in a money market.
Is a Bond Fund nearly fool proof? He said 6-7 currently but potential of 10%?
I don't know anything about this stuff. Is now a good time to get into a bond fund? I don't mind missing out on a 30% mutual fund, but i do want to make pretty sure my original $ won't drop.
Thanks for any help.
Is a Bond Fund nearly fool proof? He said 6-7 currently but potential of 10%?
I don't know anything about this stuff. Is now a good time to get into a bond fund? I don't mind missing out on a 30% mutual fund, but i do want to make pretty sure my original $ won't drop.
Thanks for any help.
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Joined: Oct 2000
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From: Toronto, Canada
A bond fund is not foolproof. A bonds are fixed-income debt instruments. The issuer of a bond can default and go bankrupt and you can lose all or part of your investment. The coupon rate (interest rate) is reflected in the issuer's credit rating. You are essentially extending a loan to a company, municipality, state or country. Interest is paid every six months and it taxed as interest income (1099-INT).
US Treasuries are paying 4.5%. They are pretty solid. As the rate goes up so too does the risk. 10%+ I would consider to be a "junk" bond which is a bond with a high coupon rate issued by a less than stellar debtor.
Honestly bonds are for old people drawing on their IRAs for income. Yes they are reasonably safe but not optimal for a younger person. I would be more inclined to send you to a strong mega cap company paying a nice stable dividend. I'd suggest a high yeilding bank, MO, IBM, GE or other reliable value stock. For one the dividend is taxed as a dividend (15%, 1099-DIV) not as interest. Two you benefit from capital gain in the price of the stock as well as a dividend (also taxed at 15%). A bond isn't going to offer you much less risk than that of a very strong large cap stock, not enough IMHO to make up for the tax benefit and potential for capital gain.
Take a look at MO, BAC, KO, ABT, BBT, CB, GE and PG for starters. You can reasonably expect a 3+% annualized return on capital, up to 5% dividend and as well as the tax savings from paying 15% tax on the return vs 30% or more on interest.
That's what I'd do anyway.
US Treasuries are paying 4.5%. They are pretty solid. As the rate goes up so too does the risk. 10%+ I would consider to be a "junk" bond which is a bond with a high coupon rate issued by a less than stellar debtor.
Honestly bonds are for old people drawing on their IRAs for income. Yes they are reasonably safe but not optimal for a younger person. I would be more inclined to send you to a strong mega cap company paying a nice stable dividend. I'd suggest a high yeilding bank, MO, IBM, GE or other reliable value stock. For one the dividend is taxed as a dividend (15%, 1099-DIV) not as interest. Two you benefit from capital gain in the price of the stock as well as a dividend (also taxed at 15%). A bond isn't going to offer you much less risk than that of a very strong large cap stock, not enough IMHO to make up for the tax benefit and potential for capital gain.
Take a look at MO, BAC, KO, ABT, BBT, CB, GE and PG for starters. You can reasonably expect a 3+% annualized return on capital, up to 5% dividend and as well as the tax savings from paying 15% tax on the return vs 30% or more on interest.
That's what I'd do anyway.
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