Corporate Bonds. Anyone investing?

[1967 R50/2]

The possible places to put your money seem slim these days:

1. T-bills: Pay nothing. Literally.
2. CD/Money Market. Pay close to nothing. Plus money markets are often backed by Muni/state bonds which are in rough shape now. Also, with the possibility of "STIMULUS PACKAGE INDUCED INFLATION" coming on in a year or two, locking in to a low yield CD for 2+ years seems foolish.
3. Stocks. Very volatile to say the least. Not good for my sanity.
4. Commodities. Although these may pan out in the medium to long term, they are taking a beating right now. "Panning out" is dependent on a global economic recovery, which seems far from certain.
5. Forex. The Chinese Yuan seems like the only safe bet, but honestly don't have enough expertise in this area to make a go of it.
6. Real estate....um, right.

So that leaves Corporate Bonds as the only possible place to keep money...but then of course, companies are going under at an alarming clip. And well, the bond rating system didn't work so well for Frannie and Freddie, so who can say what is really investment grade?

Any thoughts on corporate bonds?

[RWebb]

no bonds but I bought a few stocks this week, since I like to buy things when they are on sale... this doesn't seem a good time to buy bonds -- that was last year...

Buy a Vanguard index fund a bit at a time every month (payroll deduction)
and forget it about

- wait 20 years or so

- reap rewards

of course, I always have some %% in Vanguard bond funds. short ones right now.

[1967 R50/2]

RWebb-

Already doing those things. With Vanguard no less. Sorry, to say but the past 11 years have reaped no rewards at this point. You can check the chart for VFINX and see this is true.

-Adjusted for inflation, of course, it is actually a loss.
-Also, if you dollar cost averaged in over the intervening time (like me), you also currently stand at a loss of capital, because the preponderance of entry prices were above the current price.

But to keep it on topic: Anyone care to expound more on why or why not it is a good time to buy corporate bonds?

[competentone]

Originally Posted by 1967 R50/2

...with the possibility of "STIMULUS PACKAGE INDUCED INFLATION" coming on in a year or two, locking in to a low yield CD for 2+ years seems foolish....

Any thoughts on corporate bonds?

With the levels of price inflation we'll be seeing in the economy, locking in what may seem to be a "high yield" in corporate bonds now, will seem foolish in a couple of years.

You don't want anyone owing you money at a "low" fixed interest rate when we are in the middle of a hyper inflation of the money supply.

[1967 R50/2]

Originally Posted by competentone

With the levels of price inflation we'll be seeing in the economy, locking in what may seem to be a "high yield" in corporate bonds now, will seem foolish in a couple of years.

You don't want anyone owing you money at a "low" fixed interest rate when we are in the middle of a hyper inflation of the money supply.

Good point, but let's be clear, there is obviously more than one way to invest in bonds. You could invest in a bond FUND, which will allow you in and out with no need to hold until maturity.

Any thoughts on a corporate bond FUND?

[competentone]

Originally Posted by 1967 R50/2

Good point, but let's be clear, there is obviously more than one way to invest in bonds. You could invest in a bond FUND, which will allow you in and out with no need to hold until maturity.

Any thoughts on a corporate bond FUND?

I don't trust most fund managers -- too much incompetence and corruption across Wall Street.

The idea that you will be able to "trade out of" a bond fund and avoid the negative effects from inflation is based on the idea that you will be able to see the inflation and react -- trading out of your position -- before other investors behave similarly.

Is that really possible?

With the literally trillions of new dollars being created, we all know that price inflation will be the end result.

In my opinion, it is better to start buying "stuff" -- even if one is early in such areas and experiences further devaluation of that "stuff" while the economy slows -- rather than risk getting caught in the inflation trap that is sure to come.

What worked best in the 1970s and 1980s? We are in for even worse inflation than seen then.

Heck, I'd suggest buying tons of copper @ $1.40/lb and piling it in the back yard before I'd suggest lending money to corporations at "low" interest rates.

You want "stuff," not "IOUs" payable in devaluing paper money.

[1967 R50/2]

Originally Posted by competentone

I don't trust most fund managers -- too much incompetence and corruption across Wall Street.

The idea that you will be able to "trade out of" a bond fund and avoid the negative effects from inflation is based on the idea that you will be able to see the inflation and react -- trading out of your position -- before other investors behave similarly.

Is that really possible?.

You don't need to worry about everyone else....just yourself.

1. Pick a bond index fund or ETF to avoid the incompetent fund managers you suggest.
2. If infflation get's too high, the value of the bonds in the fund/ETF will drop. To protect yourself, maintain a stop-loss at a point where your comfort zone ends.

End of story. You have minimized your down side.

If this is not enough, you could also avoid the effect of inflation by manually replicate the stop-loss by tracking a trailing indicator like CPI or a real time, real-world, indicator like the price price of gasoline.

You sell when they rise to your pre-specified comfort zone.

You just have to STICK to your plan...which most people do not.

[turbo6bar]

You state you want a place "to keep money."

Is this for preserving wealth or growth? If the former, stay away from bonds. There's still risk some companies will go under, particularly in the weak retail sector. You cannot hedge against this risk with an ETF or fund.

rwebb, why was last year a good time to buy bonds? Yields have grown as prices have plummeted. If the ETFs work as I suspect, the share prices would been down significantly from last year, while net yield has increased.

Otherwise, R50, why not? If you feel comfortable with the risk, hit it. I feel more comfortable in cash, hard assets, and RE, but I'm not saying it's ideal for you or anyone else.

[legion]

Back to the fundamentals...

What companies laid low during the latest boom? What companies sell unglamorous products that are necessary (i.e. hard to cut back on) and have strong balance sheets?

Just off the top of my head, I'm thinking consumer products and utilities. P&G and Ameren come to mind. (I haven't researched them.) Seems to me holding bonds from these companies would be relatively safe.

[Mo_Gearhead]

Utilities.

Even if the entire ' system ' collapses ... people still have to have water/electricity.

And all you Wal Mart haters ...stock up!

[einreb]

Originally Posted by 1967 R50/2

Any thoughts on corporate bonds?

Do you want individual bonds or a fund?

To a certain extent I think that some of the great values may already be gone. A few months back you could pick up good company debt for 80 cents on the dollar. Most is back near par value.

FWIW... I'm a fan of Vanguards bond funds.

[lukeh]

I'm doing great on some GMAC bonds I recently pick up.

I never understood why people invest in index funds. In a few minutes I brought up dozens of stock funds that have beat the index (S&P 500) over the past 1yr, 3yr, 5yr and 10yr periods. I'm on the investment board of our companies 401k plan. Among others we have a bunch of American Funds in our 401k. The charts they give us each quarter compare the funds to the S&P 500. In some cases over the long haul the American Fund have grown to more than double what the S&P 500 did. The standard for what makes our 401k is that it has a high Lipper ranking and consistently beats its corresponding index. With this info so readily available this is the route we go instead of just settling for average index returns.

Sure, returns change over time but if I'm going to invest my money today why wouldn't I pick option A (managed fund) if both over the short and long term it has always done better than option B (unmanaged fund)? I know the fees are cheaper but I feel this is a case of getting what you pay for. It's not about what you pay it's about what you earn after expenses.