I want to diversify my bond holdings with some longer maturities. The amount I devote to this would be relatively small compared to the amount I currently have in 1-5 year maturities.
If I were considering "junk" bonds, I certainly would go with a fund rather than pick one particular junk bond because the risk would be spread out in the fund. But for non-junk bonds, I could go with a long- term bond fund or I could pick out one relatively safe (insured) long maturity individual bond. What are the pros and cons of either approach?
Me again. I just wanted to clarify my question. To be a little more specific, I can buy into a particular long-term bond fund for my state that's yielding about 4.2% and has an average duration of about 5-6 years. I was just about to do that but then thought about the alternative of just buying one or maybe two really long bonds that are yielding about 4.8%. I guess I am basically trying to understand why someone would buy a 20 or 30 year bond, and whether this might be a particularly good or bad time to do so.
Why? Because they believe rates will either be stable or fall from where they bought the bond or fund. Since I see CDs that yield 5.2% for 5 years, or 5.25% for 10, and don't believe rates will remain this low for long, I'd not be interested in a 20 or 30 yr bond. That's just my gut. All my cash is pretty short term. JOE
You want the higher yield that, most of the time, long-term investment grade bonds give, right? You should consider the following before doing so:
How old and how far from retirement are you?
The current yield curve (that is, a graph of current bond yields vs. maturity date) is highly anomalous at the moment. Most of the time in the past, the further away maturity is, the more a bond yields.
The dollar advantage of going out beyond about five years is so small that many feel the shorter maturity (and so quicker access) to the bonds is well worth the small loss in dollar value. For an excellent, historical and easy-to-follow depiction of this, see the interactive graph at
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. Here in my late 40s, with a good life expectancy, I do not go out more than about five to seven years with my bond and CD positions.
Weigh a bond mutual funds costs against holding several highly rated individual bonds.
Depending, consider a bond ladder, to give yourself more flexibility while maximizing yield.
You spoke of picking out "one relatively safe (insured) long maturity individual bond." Corporate bonds are not generally insured, to my knowledge. Certificate of Deposits, with some caveats, are. Can you explain what you mean? You spoke of
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