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Schwab allows retail investors to buy junk bonds. I bought one a few weeks ago.
by wefarrell 6y ago
Schwab allows retail investors to buy junk bonds. I bought one a few weeks ago.
- kart23 6y agoReally? Care to share your experience/details?
- somebodythere 6y agoFidelity allows one to do so as well. The interface is a bit different from trading stocks (no intraday charts, additional fundamentals like YTM/YTW) but not exactly obscure. You search for a bond, type in a bid, quantity, and hit buy. The coupons show up in your account every few months.
- wefarrell 6y agoSure, I bought a Delta Airlines bond with a 3.4% coupon for 93 cents on the dollar due in a year from now. Provided Delta doesn't go bankrupt in a year I will make 10%. They have a pretty healthy balance sheet compared to their peers and I don't expect the government to let the sector fail in such a way that bondholders get wiped out.
- TomGullen 6y agoI would of thought holding Delta stock would have more than 10% upside if they don’t go bankrupt
- IAmGraydon 6y agoHe’s not talking about stock, and you’re right - their stock would have a far greater return. Potentially over 100% within a year.
- throwaway373438 6y agoBut also far more likely to go to zero.
- ineedasername 6y agoThe stock probably does have a bigger potential upside, but also a more probable (than the bond) downside. The stock could drop quite a bit while the bond remains solvent. Bankruptcy and declining stock are not (completely) correlated positions to take. It's always a risk trade off.
- ShorsHammer 6y agoGuess who gets paid first if the company collapses.
- hcknwscommenter 6y agoEven if they don't go bankrupt, the equity has a much higher risk. The gov't could take massive warrants or preferreds etc. in exchange for needed money. That sort of dilution can be profound. Look at a 10 year chart of AIG. Yahoo chart says all time high was 1971 (by eye), currently trading at 23. Of course the stock was never actually trading at almost 2000/share, that's just the dilution factored in.
- perl4ever 6y agoWhat happens in the event of a default? I would have thought that your broker would zero it out, but I remember hearing about someone buying a worthless bond from a friend for like $1 once as a favor.