In the investing world, you're told to invest in stocks and bonds. My question is that bonds today are not paying much. Why would we put money there? Is there a better place in this low interest world that is safe? Also I have received money from our work employee owned stock fund when it was bought out. With stocks being so high right now and the prospect for the stock market to drop, where should I put this money?Thanks,
rkf, 'Reward' is only part of the equation. Another part is 'risk'. The third part is an investor's willingness (or need) to accept risk in order to achieve his/her goals for reward. Over long periods of time, both stocks and bonds --as well as commodities, real estate, etc.-- can all play a role in properly constructed, "all-weather" portfolio of financial assets. These days, however, with all asset classes over-bought with the Fed's free money, nothing looks attractive on a risk-reward basis. So you're going to have to figure out what makes sense in your own individual situation and what you should ignore. Arindam
I look at bonds similar to stocks (or houses). Sometimes there's a bond of a particular company that's selling at a good price, and I might buy it. I don't look at bonds as one big asset class that I buy regardless of price in order to maintain a certain percentage of my assets in bonds. You're right in that bonds as an asset class in general aren't paying very much relative to what they've paid in the past.Bond valuation is easier than stock valuation. With stock valuation you have to estimate growth rates, margins, capex, competition, etc in order to come up with an estimate of fair value. With bonds you just have to estimate the company's solvency (usually not very hard if you stick with good companies) and be happy with the yield.I don't own any bonds now since I don't see any that pay enough to make me interested. That doesn't mean that some aren't out there, but based on my searches I haven't found anything I liked enough. My spare cash is currently just sitting in Ally and Synchrony savings accounts earning about 1.7%.Your second question is similar to the first. Yes, stocks in general are trading at premiums to what they've traded in the past, but that doesn't mean some stocks out there aren't good potential values. If you wanted to select individual stocks and bonds though, you'd have to be competent in stock and bond valuation. If you don't know how to value stocks and bonds and for some reason you still wanted to own individual stocks and bonds (instead of just owning an index fund or ETF, which is a great way to go), you'd need someone to do the picking for you. You'd have to find someone who was good at stock picking and you'd be depending on their ability to continue being good at it into the future. How do you invest the money you currently have (disregarding the new chunk of money you just received)?Mike
Investment grade bonds tend to be very safe investments. People often own them for security. When you are young and have lots of income ahead of you, bonds are not so important in most cases. But as you approach retirement, a bond positions becomes more important.Most will get better returns investing in stocks. Of course there are blue chip stocks that are relatively safe. A diversified portfolio of stocks is perhaps your best approach. After you are in it a while and have accumulated paper gains, in essence you play the game with other people's money. Then stock market risk is less of a concern.
" Investment grade bonds tend to be very safe investments. People often own them for security. When you are young and have lots of income ahead of you, bonds are not so important in most cases. But as you approach retirement, a bond positions becomes more important."*****************************************************************************Some folks thought that way about GM bonds.Howie52Risks that are not recognized are sometimes more severe and not priced in the buyer's views.
Investment grade bonds are rated BBB or better. They are pretty safe. Of course when a bond rating agency downgrades your bonds, you better ask why.Junk bonds rated BB or lower are a whole 'nother animal. They can accelerate market crashes as people head for safety in times of stress. They are only for the pros. Or a tiny portion of a well diversified portfolio.Junk bond rating usually means that the bond rating agency could not find assets that would cover repayment of principal. That means the proposed business must succeed or you may not get your money back at maturity. Ie risk of bankruptcy.And by the way, bond questions are best posted on the Bonds and Fixed Incomes discussion board. They are the experts and can answer your questions.
Thanks, I didn't see the group for bonds and fixed incomes.
Hi Mike,I would like to invest more in index funds. My old money is in mutual funds and some stocks that thru the years, fool recommended. I don't want to put the new money in a 500 index and then the market drops 20% or more. I didn't think the market would still be moving up. I've invested before when stocks were up and then dropped to the point of having to wait years for the price to come back. Now being 61 I don't have the time to wait out a big set back.
The best solution to this problem is to invest sooner rather than later, but set a loss limit--say 10 or 15%. If losses exceed that number, carefully review your position and consider selling. DO NOT HOLD LOSERS. In this way you limit your losses."I didn't think the market would still be moving up." This is common thinking these days, but my experience is the experts and talking heads with all their worries and concerns are rarely right. I say ignore them. Stay invested while the market performs. Don't worry about what it might do. React to what it does.
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