TAILIEUCHUNG - The Four Pillars of Investing: Lessons for Building a Winning Portfolio_12

Tham khảo tài liệu 'the four pillars of investing: lessons for building a winning portfolio_12', tài chính - ngân hàng, tài chính doanh nghiệp phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 260 The Four Pillars of Investing there is no reason to buy a fund for this purpose. Since all Treasuries carry the same credit risk zero there is no need to diversify. Treasuries can be bought at auction directly from the government without a fee allowing you to manufacture your own Treasury Fund at no expense. You can reach Treasury Direct at 1-800-722-2678 and sec . Even if you are purchasing a Treasury at auction through a brokerage firm the fee is nominal typically about 25. For a five-year note worth 10 000 this equals an annual expense of . High-quality corporate bonds and commercial paper. Corporates not only carry interest rate risk but also credit risk. Even the highest-rated companies occasionally default. How often does this happen Very rarely. According to bond-rating service Moody s since 1920 the rate of default for the highest-rated AAA bonds was zero per year for AA-rated for A-rated and for BBB-rated. BBB is the lowest of the four investmentgrade categories. These categories are a tad deceptive since for example it is highly unlikely that an AAA-rated bond would suddenly default it would likely undergo successive downgradings first. For taking this risk you have been rewarded historically with about of extra return. Currently the spread between high-quality corporate bonds and Treasuries is over 1 . What does all this mean for investors First you will need wide diversification to invest in corporate bonds. You should only purchase these through a corporate bond mutual fund. You should not buy individual corporate bonds for the same reason you do not buy individual stocks which is that you are bearing the unnecessary risk that your portfolio could be devastated by a single default something you would not want to happen in the riskless part of your portfolio. The wise investor pays attention to the spread between highgrade corporate and Treasury yields that we plotted for junk bonds in .

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