Buying Corporate Bonds in Vanguard account

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alanf56
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Joined: Mon Nov 29, 2010 11:31 pm

Buying Corporate Bonds in Vanguard account

Post by alanf56 » Wed Feb 01, 2012 10:45 am

I have an IRA in Vanguard that is mostly invested in a four fund portfolio. I have some money that I was considering buying CD's with but now am looking at a bond offered by Goldman Sachs that matures on 02/15/2016 that has a 3.14% yield. This seems interesting to me but I am not bond savvy so I really want to know what the downside/risks are of getting into something like this. I know they aren't FDIC insured but just wonder what the worst case scenario might be and all of the risks involved. comments please.

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hollowcave2
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Location: Sacramento, CA

Re: Buying Corporate Bonds in Vanguard account

Post by hollowcave2 » Wed Feb 01, 2012 1:43 pm

Worst case is Lehman Brothers. The bonds paid back 11 cents on the dollar.

You'll need to consider the risk. If the risk bothers you, just stick with FDIC insured CDs. Even a bond fund diversifies your risk. After seeing what happened to Bear Sterns, Lehman Bros, GM bonds, even I am cautious about individual corporates, and I consider myself an aggressive investor!

dbr
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Re: Buying Corporate Bonds in Vanguard account

Post by dbr » Wed Feb 01, 2012 3:14 pm

As suggested, the worst case is that you lose most of the money in the investment. That sort of thing is a real risk when owning individual corporates.

Taking that risk to earn that yield for four years is nuts.

alanf56
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Re: Buying Corporate Bonds in Vanguard account

Post by alanf56 » Wed Feb 01, 2012 4:21 pm

Thanks guys. I get the idea!! Looks like maybe a short/intermediate bond fund might suit my style a bit better. Or is that too much risk as well? I have seen some recent posts about VFSUX and VBILX. Either of those sound more like it?

dbr
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Re: Buying Corporate Bonds in Vanguard account

Post by dbr » Wed Feb 01, 2012 4:59 pm

alanf56 wrote:Thanks guys. I get the idea!! Looks like maybe a short/intermediate bond fund might suit my style a bit better. Or is that too much risk as well? I have seen some recent posts about VFSUX and VBILX. Either of those sound more like it?
You have to decide for yourself what amount of fluctuation in the value of the investment is acceptable. If this is a long term holding I think there is a credible argument for extending duration into the intermediate range due to steepness of the yield curve. Someone else may prefer to see less potential loss in fund value but at the cost of less yield. CD's may be a better compromise in that department than short bonds, depending on convenience, etc. It is probably a mistake to select investments in isolation and it probably does not matter a lot exactly what bond investment is made in a balanced portfolio of stocks and bonds. Relatively speaking the risk and expected return is in the stocks and the bonds dilute both with a little opportunity for benefits of lack of correlation. It will be noted that it doesn't have much effect to have an independently variable asset if the asset also has little volatility.

BC_Doc
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Location: Western Canada

Re: Buying Corporate Bonds in Vanguard account

Post by BC_Doc » Wed Feb 01, 2012 6:19 pm

Have a look at "The Bond Book" by Annette Thau. I've attached the Amazon link below. I just finished this book and would consider it a good investment when it comes to evaluating fixed income investments.

http://www.amazon.com/Bond-Book-Everyth ... 0071358625

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