1,005 Bonds You Must Sell Now!

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Be careful how you buy your bonds. The most popular tickers have a few “fatal flaws” that’ll doom you to underperformance at best, or leave you hanging in the event of a market meltdown at worst!

Let’s pick on the widely followed and owned iShares iBoxx High Yield Corporate Bond ETF (HYG) as an example. It has attracted nearly $15 billion in assets because:

  1. It’s convenient – as easy to buy as a stock.
  2. It’s diversified (for better or worse, as we’ll see shortly) with 1,005 individual holdings.
  3. It pays – 6% today, to be specific.

The accessibility of funds like HYG appears appears cute and comfortable enough.…
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It’s one of the biggest worries I hear from investors who hold bonds: what’s going to happen to my portfolio when the Federal Reserve raises interest rates?

My short answer is always the same: don’t worry—it’s not as big of a deal as you think.

That’s true for many bond funds out there—but there are some that are still ticking time bombs because they’re poorly managed. The worst offenders are the ones that aren’t managed at all—the “dumb” funds that blindly track the index and keep a ton of bonds from near-bankrupt companies alongside much better issues.

Funds like the iShares iBoxx High Yield Corporate Bond ETF (JNK) and the SPDR Bloomberg Barclays High Yield Bond ETF (HYG) are the worst offenders here.…
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Junk bonds can be a great source of retirement income, or a terrible idea altogether. It depends what you buy, and really, which managers and vehicles you entrust to find value in the bargain bin.

There’s a right way to do it, and a wrong way. Let’s start with the latter, led by the popular iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and SPDR Barclays High Yield Bond ETF (JNK) – the two largest junk bond exchange-traded funds (ETFs), and both top-10 fixed-income ETFs by assets under management.

You and I can do better than these dumb ETFs. They are popular thanks to their low fees.…
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About Author

Brett

Hi, I’m Brett Owens – and I’m a financial junkie. My “problem” started incollege, when I got a little dose of the stock market – man, was I hooked…in no time, I was reading the Wall Street Journal religously.

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