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Subject:  Re: individual bonds in IRA Date:  2/18/2010  11:37 AM
Author:  jackcrow Number:  30080 of 35877

Unless you have a much larger amount to invest, 35% of 50K is way too small to get a safe diversity in bonds.

I strongly disagree with this advice. If 10 stocks is a reasonable diversity than 10 bonds is reasonable diversity; any way you look at it 1/10 of the assets allotted are exposed to the risks of a single holding. Its this logic that forces people to put the capital that they want to invest in bond like objects to protect principal and earn a bit of a return into asset classes that put principal at risk.

No one argues it would be poor investing to buy 10 CDs and build a ladder while it apparently it would be poor diversification to attempt the same with 10 Federal Treasuries, heaven forbid we even consider buying A+ - AAA debt. A sharp switch in interest rates can carve 10% out of the NAV of a bond fund which would be no different than having 1 bond out of ten completely fail. The principal of the holder of the 10 CDs or the 10 Treasuries is safer than either the bond fund or the 10 corporate bond portfolio and usually priced (yielding) accordingly.