investing in bonds - Trading-Lab

charlesK · #1 07-18-2007, 08:19 PM

hello all,

even though I mostly trade options, I like to look at safer investment vehicles to invest a portion of my portfolio. By researching different types of bonds and their yelds, I understand corporate bonds only pay a small premium over safer treasury bonds. in addition, treasuries are tax exempt at state level (US), so that would make their yeld basically the same as corporates'. why would anyone buy corporate bonds and get more risk when he can buy safer treasuries and get the same yeld?

ManhattanTrader · #2 07-23-2007, 06:53 PM

investing a portion of your portfolio in bonds is a sound investment choice. However, unless your investment portfolio is large enough to properly diversify risk, I would opt for bond funds rather than individual bonds. Bond funds are already well diversified so you don't have to worry about that. just an idea.....

Alchemist · #3 07-25-2007, 02:41 PM

hello,

bond funds are good for diversification purposes. However, they may behave like a mutual fund would, meaning you may find your bond fund shares showing a loss due to fluctuating bond prices. In addition, many bond fund managers do actually trade bonds on a discretionary basis with the fund capital. So you should also be ready to assume an additional discretionary trading risk.

if what you want to do is buy bonds, pocket the coupons, and hold them to maturity, I would suggest you buy bonds directly, rather than through a bond fund. this way, any fluctuations in bond prices will not affect your overall income as you will hold them to maturity anyway, pocketing the calculated yeld to maturity.

charlesK · #4 08-06-2007, 12:43 PM

thanks for your explanation, alchemist. I think I will start looking into regular bonds rather than bond funds. I don't like the idea of being exposed to bond funds share fluctuations. I would rather hold the bonds to maturity.

BlueChips · #5 08-07-2007, 09:05 PM

whether you should prefer tax exempt bonds over corporates depends on your own tax bracket. For example, depending on your tax bracket high quality munis may be a more enticing option than corporates or agencies bonds.

charlesK · #6 08-24-2007, 12:09 PM

thanks everybody for your help.

rookie · #7 08-24-2007, 03:21 PM

my knowledge on the subject is quite limited but….isn't a well diversified portfolio of bonds equivalent to a bond fund managed by a portfolio manager?

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#1 07-18-2007, 08:19 PM
charlesK Junior Member Join Date: Jun 2007 Posts: 26	investing in bonds hello all, even though I mostly trade options, I like to look at safer investment vehicles to invest a portion of my portfolio. By researching different types of bonds and their yelds, I understand corporate bonds only pay a small premium over safer treasury bonds. in addition, treasuries are tax exempt at state level (US), so that would make their yeld basically the same as corporates'. why would anyone buy corporate bonds and get more risk when he can buy safer treasuries and get the same yeld?

#2 07-23-2007, 06:53 PM
ManhattanTrader Member Join Date: Jun 2007 Posts: 45	investing a portion of your portfolio in bonds is a sound investment choice. However, unless your investment portfolio is large enough to properly diversify risk, I would opt for bond funds rather than individual bonds. Bond funds are already well diversified so you don't have to worry about that. just an idea.....

#3 07-25-2007, 02:41 PM
Alchemist founder of Trading-Lab Join Date: May 2007 Location: New York, NY Posts: 296	hello, bond funds are good for diversification purposes. However, they may behave like a mutual fund would, meaning you may find your bond fund shares showing a loss due to fluctuating bond prices. In addition, many bond fund managers do actually trade bonds on a discretionary basis with the fund capital. So you should also be ready to assume an additional discretionary trading risk. if what you want to do is buy bonds, pocket the coupons, and hold them to maturity, I would suggest you buy bonds directly, rather than through a bond fund. this way, any fluctuations in bond prices will not affect your overall income as you will hold them to maturity anyway, pocketing the calculated yeld to maturity. __________________ Happy Trading!

#4 08-06-2007, 12:43 PM
charlesK Junior Member Join Date: Jun 2007 Posts: 26	thanks for your explanation, alchemist. I think I will start looking into regular bonds rather than bond funds. I don't like the idea of being exposed to bond funds share fluctuations. I would rather hold the bonds to maturity.

#5 08-07-2007, 09:05 PM
BlueChips Member Join Date: Jul 2007 Posts: 49	whether you should prefer tax exempt bonds over corporates depends on your own tax bracket. For example, depending on your tax bracket high quality munis may be a more enticing option than corporates or agencies bonds.

#6 08-24-2007, 12:09 PM
charlesK Junior Member Join Date: Jun 2007 Posts: 26	thanks everybody for your help.

#7 08-24-2007, 03:21 PM
rookie Member Join Date: Jul 2007 Posts: 86	my knowledge on the subject is quite limited but….isn't a well diversified portfolio of bonds equivalent to a bond fund managed by a portfolio manager?