UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev | Next
Author: crf01 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Is Hi-Yield Bond a mistake? Date: 7/30/2007 3:19 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
I have approx. 18% of my 401(k) parked in Vanguard’s “High-Yield Corp Fund.” I started contributing to it 1.5 years ago and now have 22.5 years until I’m 59.5. My reasoning was it offers a high cash flow through dividends which are tax-deferred, and re-investing the dividends over will compound nicely over the time span.

Lately, the NAV has been plummeting and I’m now at an overall Net loss within this fund. However, the yield, as of today, is 8.13%... and seems to moving with the 10-year Treasury bond.

My gut tells me I should just remain calm and not pull the money out, I’ve got 22.5 years to wait and accumulate tax-free dividends, and the yield will probably keep going up.

But, I’ve read other sources that are very negative towards Hi-Yield Bond Funds given the current interest rate climate. It’s argued that as the underlying bonds get devalued due to rising interest rates, Fund share holders get spooked and sell off their individual shares, and forcing the fund to sell holdings at a loss. This causes a “real” loss in NAV that can only be recovered by an increase in the underlying Bond’s value (i.e. - a reduction in interest rates). Further, it’s concluded that the hi-yield is not enough to offset the “real” loss in value.

Please critique my assumptions and offer others angles I’ve missed… whether in my favor, or not.

Thanks a lot.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Looking at Currency Ratios
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement