Your Questions About How To Invest In Bonds

Maria asks…

Invest more in Bonds (Mutual Funds)?

I am 24 and currently have some money invested in a Vanguard Target Retirement mutual fund.

I am considered investing in another fund through Vanguard, and I was looking at the performance of the Total Stock Market fund and the Total Bond Market Fund:

https://personal.vanguard.com/us/funds/snapshot?FundId=0084&FundIntExt=INT

https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT

I hear repeatedly how someone my age should invest primarily in Stocks, and roughly 10% bonds, if any.

However the way the market is going, and judging by the performance of the two find linked above, someone who invested in Bond funds would be much better off, even if the market didn’t go as sour (the yield on the Bonds fund is greater than even if you extrapolate the growth of the Stocks prior to the recession).

Is it a wise move to invest a bit more in Bond funds such as this or should I stick to stocks?

John answers:

I would invest in a dividend and growth stock fund outside of your IRA.

Paul asks…

How Safe Is It To Invest In Bonds Right Now?

I want to invest in coupon bonds, so I have income from them – but my friend in San Jose, CA told me the town of Half Moon Bay has gone bankrupt, and no longer have a police force (Half Moon Bay is – or used to be – a seaside town for the idle rich). I looked it up on Wikipedia, and found this:

“Due to the financial setbacks from a large legal settlement and a poor economy, Half Moon Bay is currently considering major cuts to city services and possibly dis-incorporating.[7] Under a dis-incorporation plan, Half Moon Bay would revert to an unincorporated area within San Mateo County. Tax revenues would flow to the county, which would remain responsible for police and road maintenance. Current Half Moon Bay residents would remain responsible for the bond payments resulting from the legal settlement, which would be added as a lien on their properties.” – Wikipedia, updated April 8, 2011.

That doesn’t sound as bad, but our US Government nearly shut down last Friday! If it had, I don’t know how long that would have lasted. I’m wondering if investing in US bonds is still a good idea? Should I go oversees? Should I just forget about saving altogether? What should I do?

John answers:

Municipal bonds often carry private insurance against such defaults. If you are buying the municipal bonds of lesser governments then be sure to ask if they are insured and what the terms of the insurance might be. The US Treasury bonds are backed by the full force of the US government and therefore are considered as risk free as possible but yes, the local governments and even State governments have been known to default however it’s not really too bad as there’s usually subsequent provisions to provide for the funds that just may take an inordinate amount of time to collect. Foreign bonds are not as risk free as the Treasury bonds though some are fairly risk free, certainly Canada has a more stable financial system than the US but lacks the sheer size of the US, China has several times the size of the US in terms of population but lacks the average affluence so overall the US economy still has the most overall mass. I wouldn’t worry about it too much, as long as you don’t get greedy and go for high yield bonds, you’re reasonably safe with bonds with the exception of losing out on the opportunity value of the investment should prevailing interest rates go up. Of course, bonds are best used in conjunction with other investments to allow for proportioning risk versus risk free and to secure margin for option plays. The last thing you should do is forget about saving altogether, stuff Krugerrands and Maple leafs into your mattress or swallow them before you do that.

George asks…

How do i invest in bonds in singapore as an individual? And what is the minimum investment amount?

I am looking for ways to invest in coporate bonds in Singapore. And find out the minimum amount required for investment in these bonds.

John answers:

You can check out with most of the Banks in Singapore. To name a few, UOB, DBS, OCBC, SCB, Citibank etc.

All of them sell Corporate Bond to their ‘Priority’ customer.

Point to note though, most of the Corporate Bonds have a minimum investment amount of SGD250,000. If you are investing a smaller sum, you can try the Statutory Board Bonds such as HDB or LTA. They comes in minimum SGD50K onwards. Otherwise the Singapore Govt Bonds yield are quite decent as well. (Long-term one though) You can buy them from fundsupermart.com

http://www.dreamsatwork.com

Robert asks…

how much money is invested in bonds and how much is invested in certificates of deposit?

Susan purchased municipal bonds which yield 7% annually and certificates of deposit which yield 9% annually. If Susan’s initial investments amount to $13,000 and the annual income is $950, how much money is invested in bonds and how much is invested in certificates of deposit?

John answers:

.07x + .09(13,000-x) = 950
.07x + 1170 – .09x = 950
-.02x = -220
x = 11,000

.07(11,000) = 770
.09(2000) = 180

180 + 770 = 950

Mary asks…

How do I go about investing in bonds?

I am not really interested in an etf bond fund or something like that. Let’s say I wanted to buy a 10 year bond in company XYZ. How do I go about researching rates and actually buying those bonds?

John answers:

To buy corporate bonds you have to go through a broker. The broker marks up the price on the bond instead of charging a commission, so be careful. Here are a couple of sites to research bonds.

Http://www.investinginbonds.com/

http://cxa.marketwatch.com/finra/BondCenter/Default.aspx

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