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DNaquin 
LSU Fan
Right here
Member since Nov 2011
3873 posts
| Buying bonds in laymans terms (Posted on 12/5/12 at 10:53 am)
What am I looking for? Is buying them through my online brokerage account ok? Keep it simple. I slept through my Finance class at LSU and the only exam I didn't make an A on was the one on bonds (made a C, did not get that shit). I have about 15k that I don't want invested in anything risky right now. I've put all I'm comfortable with into stocks.
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Tmacelroy12
LSU Fan
Houston
Member since Aug 2012
5489 posts
| re: Buying bonds in laymans terms (Posted on 12/5/12 at 11:20 am to DNaquin)
Bonds, as you may now, are fixed-income investments. Their income comes in forms of payments in fixed intervals. These payments may come from a variety of sources, detailing the type of bond it is. For instance, companies may issue a bond to raise money for a revenue-generating project. That income would be how the debt would be paid off, i.e. your income. Government bonds, usually tax-free at certain levels, are usually paid with revenue generated by taxes.
With that being said, there are a multitude of bonds out there. Of course, the riskier the bond (chances of it defaulting) will yield a higher interest payment to account for the risk.
You can invest in foreign bonds, municipal bonds (don't have to pay taxes at all on these) or corporate bonds.
You may also want to look at some bond funds that diversify holdings in different types of bonds. It all depends on your financial strategy really and what you are looking return.
Let me know if you have any questions.
This post was edited on 12/5 at 11:23 am
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Nawlens Gator 
Florida Fan
louisiana
Member since Sep 2005
2070 posts
| re: Buying bonds in laymans terms (Posted on 12/5/12 at 11:45 am to Tmacelroy12)
I'm thinking of liquidating my equities in the near future for a while til I get a better grasp on future economic growth potential. I need a safe harbor for a yr or 3. I've never owned any bond funds. Would the vanguard ginnie mae fund fit this bill? Is there much risk? Pays 2.4%, 3.4 duration, and low expense. It's a taxable broker account at vanguard.
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LSURussian
LSU Fan
Baton Rouge
Member since Feb 2005
63239 posts
| re: Buying bonds in laymans terms (Posted on 12/5/12 at 11:57 am to Nawlens Gator)
quote:
Is there much risk?
Credit risk? No.
Interest rate risk? Yes...a bunch. Even with a duration of 3.4 you could see an entire year's worth of income wiped out in a loss of market value if rates spike up at all.
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Broke
LSU Fan
AKA Buttercup
Member since Sep 2006
49525 posts
| re: Buying bonds in laymans terms (Posted on 12/5/12 at 12:12 pm to LSURussian)
quote:
Credit risk? No.
Interest rate risk? Yes...a bunch. Even with a duration of 3.4 you could see an entire year's worth of income wiped out in a loss of market value if rates spike up at all.
Ditto. You could also see the value of the bond possibly fall to 80 cents on the dollar or worse if it's a considerable spike
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BennyAndTheInkJets 
Arkansas Fan
NYC
Member since Nov 2010
2826 posts
| re: Buying bonds in laymans terms (Posted on 12/5/12 at 12:19 pm to DNaquin)
I fully believe corporate and emerging market bonds will provide higher returns over the next 3-5 year time horizon than stocks.
Don't buy treasuries, not anywhere near the return profile right now to compensate you for your risk. I could go into a multitude of reasons but you said to keep it simple.
This post was edited on 12/5 at 12:20 pm
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BennyAndTheInkJets
Arkansas Fan
NYC
Member since Nov 2010
2826 posts
| re: Buying bonds in laymans terms (Posted on 12/5/12 at 12:22 pm to Nawlens Gator)
quote:
Would the vanguard ginnie mae fund fit this bill? Is there much risk? Pays 2.4%, 3.4 duration
Low risk from your duration and the explicit government guarantee but there is no upside in price anymore and you're only picking up 2.4%. Any investment grade corporate bond fund would do you better over the next couple years.
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Dr Rosenrosen 
Tulane Fan
Member since May 2006
878 posts
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What about high yield? Still a value?
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DNaquin
LSU Fan
Right here
Member since Nov 2011
3873 posts
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Thanks fellas 
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TheHiddenFlask 
Clemson Fan
The Welsh red light district
Member since Jul 2008
16386 posts
| re: Buying bonds in laymans terms (Posted on 12/5/12 at 1:10 pm to Dr Rosenrosen)
quote:
What about high yield? Still a value?
High yield, short duration still has to be one of the few decent havens out there.
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LSURussian
LSU Fan
Baton Rouge
Member since Feb 2005
63239 posts
| re: Buying bonds in laymans terms (Posted on 12/5/12 at 3:40 pm to Broke)
quote:
You could also see the value of the bond possibly fall to 80 cents on the dollar or worse if it's a considerable spike
That would take an interest rate increase in the range of 5% annually with a duration of 3.4. So, 10 year bond rates would have to go from their current 1.6% to nearly 6.5%+ in a short period of time. which is not likely anytime soon.
'Not likely,' but I'm old enough to not rule out anything these days, especially if the morons ('morans' for you Rant & O-T Lounge readers) in congress don't accomplish something soon on the deficits.
This post was edited on 12/5 at 4:14 pm
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The Easter Bunny 
Georgia Tech Fan
ATLANTA, GA
Member since Jan 2005
40344 posts
| re: Buying bonds in laymans terms (Posted on 12/5/12 at 11:42 pm to TheHiddenFlask)
quote:
High yield, short duration still has to be one of the few decent havens out there.
not asking for a recommendation, this is just for clarification
Can you name an ETF or fund I can look at as an example of this?
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