I've used your advice several times and am seeking more. I have a Vanguard account and have moved most of my investments to it. However, I bought a GE Capital Corp Bond (GEB) in Jan 2013 while I was with Ed Jones. It has continued to lose money. I'm concerned about losing more if I sell it now and of course, what would I replace it with. Any suggestions?
Your choices are:
- sell the bond at a loss and put the money into a bond fund or in line with your asset allocation. This is generally the most prudent course
- hold onto the bond. We have established here that if interest rates rise, you won't get your principal back until after 2040. However if interest rates *fall* then the bond will be *called* in 2017-- you'll get your money back but have to reinvest it in some other bond or fund at a lower rate/ yield. there's also the risk GE could go broke. In the short term (next 5 years) I would give that nearly zero chance, but in the long run, who knows? GM was once the largest industrial corporation in America, the bluest of blue chips, and yet bondholders received maybe 10 cents on the dollar in its bankruptcy.
What would I do? For prudence, the former. If I felt like gambling, and this was not a large part of my portfolio, I'd sit for a few months and see if the price recovered a bit before selling it. But definitely note to self, sell by December 2014, say-- whether a good decision or a bad one to wait.
What bond fund to invest in? I would say Vanguard Total Bond Market, or an Intermediate or Short Term US Treasury Bond fund. TIPS bonds are starting to look attractive again, having had a very bad run (prices down, yields up), so the Vanguard TIPS bond fund, or the ST TIPS bond fund (safer).
It does depend on when you feel you need the money. Almost any option you choose will cut your income from this investment, as it is paying quite a good yield.
I DO NOT recommend that you put it into a High Yield bond fund-- that's taking on more risk.