06-29-2016, 02:48 AM
Thanks for making an indepth article.
One thing though that catches my eye... and I see this all the time in each and every single article that mentions bonds. And that is bonds and them losing value when the rates go up. Yes, it's true that the market value goes down. And I see why everyone mentions this: it's because the large majority of people own their bonds through an ETF instead of owning individual bonds.
I personally opt to own individual bonds. And when I buy a bond I will hold it until maturity. And really there are only two things to consider: yield to maturity and risk profile of the company in question. Maturity date is of course an important factor too but it doesn't really affect what you will be getting out of that particular bond, rather it just defines when you will need to reinvest that money. If I'm getting the bond with a yield to maturity of 4% / year, then I'll get exactly that no matter what the interest rates are tomorrow. They could be 0%, they could be 15%... it simply makes no difference to the bond I'm holding as the coupon payments remain the same and the facevalue remains the same.
Juggling bonds frequently is a whole other game but since most of us have a buy&hold tactic with stocks, why wouldn't we use the same tactic with bonds? When bonds are being utilized like this, the only risk really is that the company will not be able to pay back what they owe you.
One thing though that catches my eye... and I see this all the time in each and every single article that mentions bonds. And that is bonds and them losing value when the rates go up. Yes, it's true that the market value goes down. And I see why everyone mentions this: it's because the large majority of people own their bonds through an ETF instead of owning individual bonds.
I personally opt to own individual bonds. And when I buy a bond I will hold it until maturity. And really there are only two things to consider: yield to maturity and risk profile of the company in question. Maturity date is of course an important factor too but it doesn't really affect what you will be getting out of that particular bond, rather it just defines when you will need to reinvest that money. If I'm getting the bond with a yield to maturity of 4% / year, then I'll get exactly that no matter what the interest rates are tomorrow. They could be 0%, they could be 15%... it simply makes no difference to the bond I'm holding as the coupon payments remain the same and the facevalue remains the same.
Juggling bonds frequently is a whole other game but since most of us have a buy&hold tactic with stocks, why wouldn't we use the same tactic with bonds? When bonds are being utilized like this, the only risk really is that the company will not be able to pay back what they owe you.