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Would now be a good time to consider California bonds, since, apparently, CA seems to be at the bottom of the list, credit-worthy wise? i'm a pretty green investor so i hope you will be patient with me. might bond prices be lower now? tks for any help. pat
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Patience, ha, we're chock full of patience (assuming you don't interview DW)

Pangi,

This board is very sincere in its desire to help seasoned investors try new ideas or sort out new ideas and help investors new to the full spectrum of fixed income investing find their footing and then their way. Feel free to jump in and ask or chat as you have need.

Would now be a good time to consider California bonds

If you are speaking specifically about the State's debt the short answer, IMHO, is no. Some entities within the state may be a better choice. Many more risky bonds are not being priced where the risk/reward is in our favor, yet.

Most of the bond market, pick a rating, is overpriced right now. This makes risky choices riskier because we cannot do as much to protect our downside nor are we getting paid well for taking the risk. Sometime in the near future the bond market prices are going to head south and rates are going to head north. The good news is Cali is still likely to be a bloody mess when that finally happens; if your heart is really set on Cali munis.

jack
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Most of the bond market, pick a rating, is overpriced right now. This makes risky choices riskier because we cannot do as much to protect our downside nor are we getting paid well for taking the risk. Sometime in the near future the bond market prices are going to head south and rates are going to head north. The good news is Cali is still likely to be a bloody mess when that finally happens; if your heart is really set on Cali munis.

jack

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Jack, I have really appreciated your answers to my (rather idiotic) questions. Truth is, though I have invested for years and years and years I know nothing at all about buying individual bonds.

But it seems to me -- just looking at some that are available through Vanguard -- that you could pick one with a yield that you like and a maturity date that fits your needs and then not worry about what the bond market does. Even if bonds come crashing down, wouldn't you still be ok with the bond you bought?

I can see how you would be at risk in a bond fund - or even with a bond ETF - but not with an individual bond. Is that right? Or am I completely nuts?

I've asked Vanguard to send me some literature on how to understand and buy bonds and maybe that will help me understand what some of the items are on the Vanguard page where you actually select the bond(s) you want for purchase.

Maybe I can figure this thing out.

AM
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AM

But it seems to me -- just looking at some that are available through Vanguard -- that you could pick one with a yield that you like and a maturity date that fits your needs and then not worry about what the bond market does. Even if bonds come crashing down, wouldn't you still be ok with the bond you bought?

Click here please
http://www.entertonement.com/clips/49067/Hallelujah-Chorus-S...

Yes, unless your specific bond defaults or gets called away(if its callable). Some quality DD on our part helps hedge against this to some extent.

And if you know how to pick stocks, you aren't very far from picking bonds.

jack
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Click here please
http://www.entertonement.com/clips/49067/Hallelujah-Chorus-S......



:D


Yes, unless your specific bond defaults or gets called away(if its callable).


But....even if it gets called, you get your initial investment back, right? Can you lose anything except the future dividends when it is called?

AM
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AM,

But....even if it gets called, you get your initial investment back, right? Can you lose anything except the future dividends when it is called?

Correct, called is the same as paying off your car early; dividends come to an end an you get face value. If you bought at a premium you will lose the difference between paid price and face value, this would be true if the bond ran all the way to maturity. Early call can bite your returns especially if you paid a premium planning your yield based on maturity. On callables we check Yield to worst.

jack
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Correct, called is the same as paying off your car early; dividends come to an end an you get face value. If you bought at a premium you will lose the difference between paid price and face value, this would be true if the bond ran all the way to maturity. Early call can bite your returns especially if you paid a premium planning your yield based on maturity. On callables we check Yield to worst.

jack

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Ummmmm - what determines "face value" (since you say that changes).

When my CD matures, I get my initial investment back.
But when my bond matures (or is called) I don't?

Sounds a little bit iffy.

AM
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Oh! And what do you mean "you check yield to worst?"

(I told you I know nothing about buying individual bonds. ;o)

AM
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AM,

The typical value of a bond is $1,000 when it is first issued. Some municipal bonds are sold in increments of $5,000.

You'll sometimes see it expressed as $100. It means $1,000.

The market value of any bond goes up and down, mostly inversely to interest rates, and up and down with changes to the credit worthiness of the issuer.

If you buy a bond for $1,000, and interest rates go down, the value of the bond will go up. So it could be selling for $1,100. You might see it expressed as $110.

If you buy a bond for $1,100, you will only get $1,000 back when it matures, or is called. If it gets called before you recieve one hundred dollars in interest payments, you will lose money on the transaction.
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If you buy a bond for $1,100, you will only get $1,000 back when it matures, or is called. If it gets called before you recieve one hundred dollars in interest payments, you will lose money on the transaction.

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So, at maturity you just get back 1000 for the bond no matter what you paid for it? Issuing company doesn't care, I guess, at what level others value their bonds along the way -- they only care what the issuing price of the bond was (and that's what they return)?

And question: if price of bond is $1000, why do I see $100 in the Vanguard form? THAT'S very confusing -- why would they want to confuse people? I really don't get that. I'm always very precise when it comes to money.

AM
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....Damned if I know. Maybe bonds just go up and down in price in increments of ten dollars, so there's no reason to show the zero. Its not an uncommon practice in a lot of things.

When trying to figure out how many board feet (144 cubic inches) of lumber I can get out of a log, it gets measured in increments of ten.
So if I can get 160 board feet of lumber from a log, it gets recorded as 16, not 160.
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AM,

If memory serves, pricing using 100 is basically using a percentage. So you know what % discount or premium you are paying. Thank our lucky stars that they stopped using fractions.

Here is a quick little primer.
http://www.smartmoney.com/investing/bonds/a-bond-primer-7921...

When you buy a bond on the open market, call it second hand not original issue, we also have to split the difference on the next coupon with the current holder. So if we are suppose to receive $100 annually, that means every 6 months we get $50. If we buy a bond 1/2 way between coupon payments the prior owner is due $25. Since we are going to receive the whole $50 payment when its due, part of our purchase price is $25 of the owed interest.

Our costs include, trading fee, price of the bond and interest owed. On your Vanguard account somewhere there is a column that tells you estimated total cost or estimated settlement cost.

jack
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Thanks again, jack.

AM
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