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Author: imcharliehm Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35362  
Subject: Junk Bonds, Funds, Diversification Date: 5/30/2002 10:49 AM
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On the whole I hate bond funds, but if you are going to get high yield ones, you want a bond pro doing the picking, and you want to be diversified--many issues, so if there is a mistake, it isn't 50% of your portfolio.
Best wishes, Chris


Chris,

I, too, don't like bond funds, except for emerging market debt funds and Benham's Target Maturity Trust funds. In all other cases, I think individual bonds are the better choice, and especially for speculative-grade corporates.

For the sake of discussion, what are your thoughts on diversification?
Specifically, how many issues would it take to be prudently diversified if one were attempting to put together a high-yield portfolio? (as opposed to an investment-grade one, where, presumably the threshold would be lower).

And so this doesn't come across as a leading question, but as a back-and-forth of ideas, I'll comment on the parameters I apply to my own portfolio: 30 to 40 issuers, diversifed by industry, in lots of 5 to 10 bonds each, rather than a constant dollar amounts, so that the riskier the issue is, the fewer dollars absolutely I have committed to the position, with any one position being no more than 3.3% of my total portfolio (which includes other asset classes.)

TIA, Charlie




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