No. of Recommendations: 0
I'm in the process of setting up an account with TreasuryDirect. But these 'zero coupon' corp bonds interest me.

Is there an on-line address where 'Corporate Bonds' can be purchased?

Any thoughts or alternatives will be helpful.


Thanks.
Allan
Print the post Back To Top
No. of Recommendations: 0
Is there an on-line address where 'Corporate Bonds' can be purchased?

There is no centralized marketplace for corporate bonds. You need to approach your broker and see what bonds they offer. Since each broker prices and sells bonds from their own inventory, some suggest shopping around with several different brokers to find the best deals.
Print the post Back To Top
No. of Recommendations: 0
Thank you.
Print the post Back To Top
No. of Recommendations: 5
Allen,

I've said it before, and I'll stand by my claim. If you're looking for an online bond broker, E*Trade is the best.

If you're looking for a full-service broker, who likely is no more expensive, you could be well served by any of big houses. (Ask Chris about her experiences with Merrill.)

But, no matter who you choose, read and think very carefully before you buy anything. Fixed-income mistakes are very expensive to fix, like 5 times what they are compared to stocks, because of atrocious commisions, a gaggle of add-on fees, wide spreads, illiquidites, a dearth of pricing info, no historical data apart from Treasuries and then not convenient, etc.

The bond market is the private club of the institutions and small investors are not welcome and at a huge competitive disadvantage compared to conditions available to the stock geeks. That's the landscape. Go into bonds with your eyes wide open. It's a jungle where you have to fight for every basis point.

Charlie
Print the post Back To Top
No. of Recommendations: 0
I will heed <sp?> your warning.

I'll take a cruise over to eTrade and see what there is to see.

I'll report back.

Allan
Print the post Back To Top
No. of Recommendations: 0
Charlie,

You're scaring me. I'm talking with a broker at Washington Mutual Financial (recommended by our accountant) about creating a five to seven year bond ladder with over $400 K of my 89-year old mother's money. I'd feel more comfortable buying Vanguard's Total Bond Market Index (VBMFX), Short-Term Bond Index (VBISX), or Intermediate-Term Bond Index (VBIIX), but I'm concerned about buying at a near peak NAV, given the unusually low interest rates.

Her portfolio, after removing the IRA I inherited, is about $850 K. My thinking has been 40% in Vanguard's Total Stock Market Index (VTSMX), 10% in Vanguard's REIT index (VGSIX), and the remainder in fixed income investments. Our accountant and the broker question the wisdom of 50% in equities for an 89-year old women. Mom has brothers 102 and 96, as well as a sister 97.

Advice is welcome. I know nothing about buying bonds.

db
Print the post Back To Top
No. of Recommendations: 0
I'm talking with a broker at Washington Mutual Financial (recommended by our accountant) about creating a five to seven year bond ladder with over $400 K of my 89-year old mother's money. I'd feel more comfortable buying Vanguard's Total Bond Market Index (VBMFX), Short-Term Bond Index (VBISX), or Intermediate-Term Bond Index (VBIIX), but I'm concerned about buying at a near peak NAV, given the unusually low interest rates.

This is the advantage of buying individual bonds, or ladder of bonds, instead of bond funds. Buying the bonds yourself will ensure that you will not incur losses, regardless of the movement of interest rates, as long as you hold the bonds until maturity (and assuming the bonds do not default). With a bond fund, you lose much of the control, and may take losses when you sell.

Her portfolio, after removing the IRA I inherited, is about $850 K. My thinking has been 40% in Vanguard's Total Stock Market Index (VTSMX), 10% in Vanguard's REIT index (VGSIX), and the remainder in fixed income investments. Our accountant and the broker question the wisdom of 50% in equities for an 89-year old women. Mom has brothers 102 and 96, as well as a sister 97.

A 50% equities portfolio for an 89-year old is certainly outside the common wisdom for portfolio management, even with evidence of longevity. The amount involved would seem sufficient to sustain her for the rest of her life, if invested conservatively. There is no real need for her to take excessive risk, and it would be in her best interest to avoid risk as much as possible.
Print the post Back To Top
No. of Recommendations: 1
Also forgot to mention: while Charlie's claims about the bond world being "dog-eat-dog" might be true for the world of high-yield or even some corporate bonds, there are few worries with government bonds or even high-grade corporates. Treasuries are very liquid, and there is little a broker can do to mark up their prices, either directly or indirectly through fees and commissions, since the broker knows the exact same bonds will be available everywhere else at a lower price. Alternatively, you can do your purchasing of treasuries directly from the government itself, cutting out the middleman completely. If you don't have experience with bond trading, it might be best to stick with higher-quality issues, to avoid the traps that Charlie has pointed out.
Print the post Back To Top
No. of Recommendations: 0
Okay, I understand that there isn't a wide market for bonds like there are for stocks. That's kinda crazy, but then the variations in types of bonds and special features etc would make it harder to operate the market openly. Stocks, heck, they're all the same, that is each common stock share represents the same kind of thing .. 1/n ownership right to the company in question .. no special features etc, unless you get to preferred shares and then you have to dig a bit, usually in the 10K where there's a table listing the special features. But bonds, well, they come in all kinds of shapes and sizes and special features like convertability etc.

Anyway, I find it interesting that Yahoo has an excellent bond finder page, which has some small correlation with E*Trade's bond finder page. So if there's no regular open market for bonds, then what's Yahoo tapping into for it's data? Are they going to a specific broker and getting data from them?

- David
Print the post Back To Top
No. of Recommendations: 0
Anyway, I find it interesting that Yahoo has an excellent bond finder page, which has some small correlation with E*Trade's bond finder page. So if there's no regular open market for bonds, then what's Yahoo tapping into for it's data? Are they going to a specific broker and getting data from them?

"Quotes" for bonds can be obtained from tracking inter-dealer trading. There are a few large bond trading networks which are used by dealers, and the necessary data can be collected relatively easily from these. Note that such quotes are different than stock quotes: your broker may choose to mark up the price of bonds before you can purchase them, for instance.
Print the post Back To Top
No. of Recommendations: 3
db

A few thoughts on your mom.

First, in deciding about stocks and bonds (and cash), you should be thinking about her expenses and how much income she will need (including social security, if any) to sustain her, factoring in inflation, long term care insurance, etc. I'm guessing she won't come close to spending down half of her savings over the next 10-15 years, so having 50% in a conservative stock fund, such as the Vanguard Total Market, makes perfectly good sense, in case she lives even longer or to take advantage of the inheritance provisions in which her legatee gets a new tax basis for stocks (the system is rigged so stocks could return significantly less than bonds between now and when she dies and her inheritors still do better). I'm afraid most of those giving advice come up with generic answers (such as the elderly staying away from equities) without paying attention to specific circumstances. If she were younger, I'd actually be more cautious. But if she has good medical coverage and her house paid off, her expenses can't be very high at this point. I know my in-laws, who are a little younger, spend considerably less than we do, and we're very frugal.

On the bond thing: Treasury of high grade corporate individual bonds are less risky to principle than bond fund right now, if you never sell the bonds. If you do sell the bonds, then you have risk to principle. I don't know why so many of the bond advocates think in terms of living off of the income—most folks will never have that much in income producing assets and will eventually have to use the principle, which means selling.

Obviously, the broker won't suggest options that don't involve commissions, but if it were me, I'd be thinking about a CD-ladder and/or EE bonds for about half the money, with about half in the Total Market Index Fund (and to he!! with the REIT, which has been too hot for my taste). Without knowing her expenses, it's hard to be precise, but I'm guessing a CD ladder with $425,000 would take her 15 years or more to spend down (roughly the same with EE bonds), especially if she's also got social security. That leaves the stock fund for her inheritors, and you can always do a rebalancing thing by selling some of the stock fund, instead of CDs, over the next few years, if the cash starts looking too low. There's a lot to be said for cash (and Savings Bonds)—there's no hassle, no being called in, no having to buy or sell, and if you ladder, the interest you get is in the ball park with intermediate treasuries and high rated corporates.
Print the post Back To Top
No. of Recommendations: 1
Addendum on mon

This may actually be a place where a fixed annunity could be a good option for part of the money. Does she have a favorite (highly stable) charity, like a big university? At her age, she should be able to get a good rate, with the idea that the charity keeps the capital when she dies. I don't know what rate she would get, but if she got something like 7% on $200,000, combined with CDs/EE bonds and stock fund, that might help the income stream, while still leaving a good chunk for inheritance. (She should actually get over 10% at her age, given life expectancy—at 10%, it would take about 15 years, if the charity invested the money in a treasury bond, before she outlived the donation.)
Print the post Back To Top
No. of Recommendations: 0
Does she have enough in non-equities to pay her expenses until she dies?

If so, then the rest of the portfolio should be allocated as if it were part of the heirs' portfolio.
Print the post Back To Top
No. of Recommendations: 0
Okay, I understand that there isn't a wide market for bonds like there are for stocks.
Some bonds are exchange-traded.

That's kinda crazy,
In order to have an exchange, you need to have a certain level of volume and demand. A whole lot of people who buy bonds hold to maturity, so there is no need for an exchange. Also, stocks are exciting--you can look at the stock and say "Since I've held it it's gone up 10x in value". Bonds don't have the same appeal to one's greed.

but then the variations in types of bonds and special features etc would make it harder to operate the market openly

I'd argue that one bond is more similar to another than one stock is to another, at least in terms of their performance. Unless the company is in trouble, most bonds in a market perform similarly. Not so with stocks.
Print the post Back To Top
No. of Recommendations: 4
Holy Sh*t, db.

If you're talking that kind of money, you've got no business hanging out here listening to a bunch of amateurs, me included.

Run, don't walk, and find yourself at least three smart, savvy financial advisors. Run your situation past them and if any of them talks platitudes, stop the conversation, get up, walk away, and find another candidate.

What you should look for is someone who will pay exact attention to the very specific details of your situation, especially and including the personalities of all people involved, so that each person can be made to feel comfortable with it in the sense of being able to sleep at night.

The benficiaries don't have to understand all the intricate details of the plan, but they must understand its broad strategy well enough that they won't get shaken out of it when the market does its usual ugly things and friends are second-guessing events and giving bad advice.

Then take those plans to your tax advisor and then to your lawyer and then a couple of trusted family councilers. When a consensus is achieved --recognizing there is often a difference between a good decision and a good outcome-- then put the plan into place or have it implemented and get on with your life.

To repeat, less than $100k is easy for an individual to manage. Less than $250 is doable if you're willing to do the work. When the amount pushes over $500k, you are a fool not to buy the best advice you can.

How do you find good financial advisors? The same way you find a good family doctor or a good mechanic. You ask the smart people you know who they use; you interview the candidates; you ask to see samples of their work. You pull the Better Business Bureau files on them or the equivalent, etc.

I think you have no business managing that much money. If you had to come here for advice, it's obvious you are too inexperienced to do a good job of it. But the fact that you are looking for advice is a strength you can build on. Presumably you make executive-type decisions in the non-financial areas of your life. Use that experience and judgement to put togther a team of experts for your financial needs.

Best wishes, Charlie

Print the post Back To Top
No. of Recommendations: 0
Treasuries are very liquid, and there is little a broker can do to mark up their prices, either directly or indirectly through fees and commissions, since the broker knows the exact same bonds will be available everywhere else at a lower price.

Absolutely true, foobar73. I love the liquidity of the Treasury market: its fair, both-sides pricing and the instant executions. My remarks apply to corporates only, though in all credit ratings, not just junk where the difficulties are truly adverse.

Charlie
Print the post Back To Top
No. of Recommendations: 6
Charlie,

I have to disagree somewhat on your "get professional advice" suggestion. I am not opposed to seeking advice from a professional financial advisor (in this situation), presuming we mean a paid financial advisor not a brokerage "financial advisor" (i.e., broker) paid on commissions. However, quality is hard to come by (I'd probably think about using Vanguard's service) and I believe it is absolutely necessary to come armed to any discussion with your own knowledge of opitions, and their pros and cons. Once you've done that, I'm not sure you need an advisor.

Quite frankly, I think the collective wisdom (and ignorance) of this board (plus the retiree board) is probably as good as most financial advisors, especially if we have the specifics, and at least our suggestions can help set parameters for a discussion with a paid financial advisor. When I look at most planning for retirement advice (I know you agree with this), I find the assumptions pretty questionable—I'm pretty annoyed with what TMF has been hyping, lately, for instance.
Print the post Back To Top
No. of Recommendations: 0
Okay, I understand that there isn't a wide market for bonds like there are for stocks. That's kinda crazy, but then the variations in types of bonds and special features etc would make it harder to operate the market openly.

Nice try, reikiman, but no cigar. Open and deep markets are a function of demand, not the intricacies of what is traded. As presently constituted, the bond market serves its primary constituents, which aren't retail investors. In dollars traded, debt markets are five times bigger than equity markets. But in terms of the number of participants, way smaller. It's a private club and they want to keep us riff-raff out, with the Treasury market being the lone exception.

Anyway, I find it interesting that Yahoo has an excellent bond finder page, which has some small correlation with E*Trade's bond finder page. So if there's no regular open market for bonds, then what's Yahoo tapping into for it's data? Are they going to a specific broker and getting data from them?

For $50/month, anyone can see the specialist's book and the depth of orders on the NYSE. For free or cheap, you can see the order books of ECN's/market makers, etc. for the NAZ (aka, Level II quotes). For bonds, you're lucky to see half the inside price, just the offer, almost never the bid, and certainly no depth, nor even a report of volume traded in the issue that day if it's not a listed issue.

Get involved with the bond market on a daily basis and you'll find out how blindfolded you are trading as a small retail investor compared to the huge amount of info available to stock guys.

Charlie
Print the post Back To Top
No. of Recommendations: 1
When I look at most planning for retirement advice (I know you agree with this), I find the assumptions pretty questionable

I have to agree with this. I rarely see professional advice approaching anything I would consider reasonable, and to pay for this kind of advice would add insult to injury... just imagine all of the people who were 80-100% in equities based on professional advice and the thumping those people have taken (or still are taking, to be precise)... imagine paying 1-2 % fee on top of that, which is pretty much the going rate. Maybe some professionals recommended lower stock allocations than 80% (haven't seen many though). I would most like to see the professionals that steered people out of equities at an appropriate time. These are the people that would get my business, but there probably wouldn't be very many to interview.

-hack
Print the post Back To Top
No. of Recommendations: 0
Thanks for the advice, Lokicious and Jrr7,

I forgot to mention that I am the beneficiary of my mother's trust, thus I feel a special fidcuiary responsibility because there is the appearance of a conflict of interests: Growing the estate versus her financial security.

I'm still uncomfortable about the mechanism for buying individual bonds that we will hold to maturity.

Thanks,
db
Print the post Back To Top
No. of Recommendations: 2
quality is hard to come Yes, definitely. But in my travels, I've come across people whose head and heart were in the right place, who were shrewd and savvy, who loved the game, and by whom I would have been well served were I to entrust my money to them. Few and far between, yes, and certainly not the average brokerage "advisor", but they are out there.

I believe it is absolutely necessary to come armed to any discussion with your own knowledge of options, and their pros and cons. Once you've done that, I'm not sure you need an advisor.

Yes to the first half, Loki, a frown to the second half. I'm a smart guy and I work hard at this stuff,, but what I know about managing big money --as opposed to my puny little $300k account-- is peanuts compared to the tools and experience big money advisors have. Big chunks of money enable instuments and strategies that just aren't available to little accounts. Using a professional advisor enables discounts on fees not available to an individual. Size matters. db should use it to his advantage.

A little guy like me, especially when I was first starting, has to beg for help and accept leftovers. db has the assets to hire good help and to benefit from their expertise.

Yes, there a lot of smart people who hang out at TMF, but are we local to db and can we do the quarterly and yearly follow up his plan requires? The plan has to be built and it has to be managed. That's why I think he needs to build a team, not do the work himself. Yes, an informed consumer is a better consumer, be it for medical services, educational service, or financial services. db should learn all he can.No question about it. But the bottom line, I think, is that he starting very late and needs good help, now.

I'm pretty annoyed with what TMF has been hyping, lately, for instance Yes, the noise to signal ratio in financial advice -bullsh*t to commonsense, as tested against the historical record-- reflects the chaos and randomness of financial markets themselves. Most advisors are guessing, because they don't know. They don't trade their own money and use the same sorry, cookie-cutter ideas as their peers.

But there are good people out there. I've meet some of them.

Charlie

Print the post Back To Top
No. of Recommendations: 1
I'm talking with a broker at Washington Mutual Financial (recommended by our accountant) about creating a five to seven year bond ladder with over $400 K of my 89-year old mother's money. I'd feel more comfortable buying Vanguard's Total Bond Market Index (VBMFX), Short-Term Bond Index (VBISX), or Intermediate-Term Bond Index (VBIIX), but I'm concerned about buying at a near peak NAV, given the unusually low interest rates.

Please realize that the broker at Washington Mutual may not be ummm "aligned" with your interests. His goals may be totally different.

In at least one of the financial magazines ("Worth" magazine in this case), every year they feature an article on some of the highest rated money managers for individuals, classified by city, with nice little snippets on each one. It's a nice read, and may be worth persuing if you can't get a good money manager that's recommended to you by someone who has used the person.

-upatnite2
Print the post Back To Top