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My Failed Try at Bond Investing

July 22nd, 2014 at 06:19 pm

(I now blog weekly on frugal living, personal finance & earlier retirement at:
retiredtowin.com)


In 2013, I took 20% of my investing capital and moved it from high dividend stocks to high yield bonds. I did that because a portfolio with stocks and bonds was supposed to be safer than an all-out stocks portfolio. Boy, did that theory go down in flames for me!

I bought into 9 corporate bond positions after doing A LOT of financial analysis of the companies involved. It was for naught. Four of the companies did unnecessary VOLUNTARY bankruptcies to get out from under their debt. Another four exercised tender offers for their bonds that left its bondholders grasping the short end of that transaction stick.

A year and a half after going into those bonds, I was all out of them. But I had incurred a $2740 out-of-pocket loss and missed out on about $9000 to $10,000 in dividends I would have collected if I had left the money in high yield stocks.

So, lesson learned. Goodbye bonds. And good riddance.

(You can read the whole gory story on my main blog at retiredtowin.com.)

4 Responses to “My Failed Try at Bond Investing”

  1. BuckyBadger Says:

    You misunderstood the case for the use of bonds in a diversified portfolio. You also used the wrong bond products.

    Please don't discourage people from using bond funds (like Total US Bond), when it was your own misuse of high risk bonds that caused your problem.

    Investing $81,000 in 9 individual high risk bonds for 18 months is a terrible idea. I agree.

  2. Another Reader Says:

    Most people's opinions of the role bonds play in your portfolio do not apply in today's asset marketplace. The losses that will accrue to bonds when interest rates normalize will be enormous. Junk bonds (the stuff you were buying) do not yield anywhere near enough to justify the risk.

    William Bernstein (The Four Pillars of Investing) will tell you to avoid bonds. My father used to say that bond prices mispriced risk and refused to buy them. Even in higher grade, lower risk paper, the risk is miscalculated.

    Stick with equities and buy treasuries when they become more attractive.

  3. Retired To Win Says:

    Hey, buckybadger... I wrote this article as a cautionary tale on what not to do. Frown
    And, as I do remind folks, I am NOT a financial advisor so do your own thinking and research. Wink

  4. Retired To Win Says:

    Another Reader...

    FYI, I no longer have ANY bonds at all in my portfolio. I've had a lot better luck with preferred shares. (I think there's a post on that in my blog if you search for "preferred shares".)

    Thanks for the comment!

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