High Yield Bonds were enticing for income investors, including me, while we were in a low interest rate environment. Safe bonds just didn't pay enough.
- High Yield Bonds are not for beginners
- Pay a steep discount
- Risk is high
Since I started writing this blog about income investing, I invested $81,670 in high yield bonds. Each buy was for 10 bonds. Eight different bonds make up the portfolio.
TheMoneyMadam's High Yield Bond Portfolio
The table below lists the bonds I bought with CUSIP, coupon rate, and maturity date. The portfolio holds only one of the eight bonds. The others defaulted, were redeemed or tendered.
It was a rocky and mostly unsuccessful venture. My $81,670 turned into $72,949 not including income. That is a 12% loss. When adjusted for income the loss is cut to 4% but I don't like losing money.
The most painful rub is that quality bonds continued on a bull run during this time. Those quality bonds gained more than my high yield bonds.
If you read the dividend ideas on this blog you will see over the same time frame, I bought $875,687 worth of stocks. The high yield bonds make up about 9% of the investments that I track in my portfolios. That alone is a good lesson. If you are going to take risk, you must keep it to a minimum.
It is a tricky business that requires even more due diligence than buying a dividend stock. Bonds are distressed for a reason and that is risk.
When will be enter a Bond Bear?
As we continue the 35 year bond bull market and enter what I had hoped to be a 20 year bond bear market, high yield bonds would not be as necessary even though they can be very rewarding (see Noble Energy Bond above.).
In 2019 the turning tide of interest rates has not yet revealed itself.
I intend to ride the new cycle of increasing interest rates should it ever come true. For average risk bonds I would like 5% for five years. When bond prices decrease enough that I can get 5% for five years, I may change my mind and want more. We will see.
As I find bonds I like, I will write them up.
M* MoneyMadam
Disclosure: Long Cinemark Bond However since the price is above par, I am tempted to sell soon.
