Talk:Video: Why bother with bonds?

I suggest revisiting the last section on high-yield bonds, as I think the advice is in conflict with High yield bonds and may be over-simplified. It's not a matter of correlation with stocks. High-yield bonds are a hybrid security - they have the volatility of stock with the credit risk of bonds.

May I recommend removing the discussion about high-yield bonds? At this "new investor" level, the concept may be confusing; especially when the last paragraph talks about "high-quality" bonds. Jumping from high-yield to high-quality without a mental break between the concepts (need more description, which will complicate the matter) could appear confusing. --LadyGeek 21:06, 21 October 2013 (CDT)

Hi and thank you for your comment, but it was my intention to reflect comments regularly stated by Larry Swedroe. And this is the point that correlation with stocks shows up at exactly the wrong times. Here are two references from his book "The Only Guide To A Winning Bond Strategy You'll Ever Need":

"Given that a high (if not the highest) priority for investors, whether in the accumulation or withdrawal stage, is safety or stability of principal, the prudent choice is to restrict holdings to only the two highest investment grades, AAA and AA. One of the major reasons is that as the credit rating decreases, the correlation with equity returns increases. This is a strong negative feature of lower-rated bonds—they are more likely than higher-rated bonds to perform poorly at the same time that stocks are performing poorly." (p.123)

"The main purpose of fixed-income securities for most investors is to provide stability to their portfolio, allowing them to take equity risk. While it is true that high-yield debt has nonperfect correlation with equities, the correlation may increase at just the wrong time—when the distress risk of equities shows up." (p.128)

My take away is that beginner investors should not be investing in high-yield bonds at all and I intended to convey that. --Stickman 00:39, 22 October 2013 (CDT)


 * In support of the Swedroe position, we have a similar judgement expressed in ,The Boglehead's Guide to Investing p. 103 "High Yield Bonds". --Blbarnitz 02:16, 22 October 2013 (CDT)