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> Bonds provide stable cash flow. Equities provide growth/return. Use both in the appropriate amounts for your situation. This is sound advice. I want to add
by throwaway2037 5mo ago
> Bonds provide stable cash flow. Equities provide growth/return. Use both in the appropriate amounts for your situation.
This is sound advice. I want to add some nuance about "bonds": Consider some broad categories: (1) regular gov't bonds, (2) inflation protected gov't bonds, (3) investment grade corporate bonds, and (4) high yield corporate bonds. In category (4), it is possible to get both cash flow and capital appreciation. It is the bond-equivalent of "stock picking".
- zie 4mo agoIndeed. Category #4 "high yield corporate bonds" are also known as "Junk bonds" because they kind of suck at the stable cashflow part, since they tend to go to $0 sometimes, much like stocks. Technically when bonds "go to $0", you actually get priority over any corporate assets vs stock ownership, but if the bond went to $0, there is likely not a lot of assets left either. So you can't expect to get saved completely from whatever asset sale happens.
- throwaway2037 4mo agoCredit events (late payments, bankruptcy, etc.) for junk bonds are much less rare than people think. If there is bankruptcy, usually it is Chapter 11 which allows for re-org. > Technically when bonds "go to $0" Extremely unlikely, unless there is massive accounting fraud. Recovery rates are on average about 45-55% (since 1987 according to research by S&P).
- zie 4mo ago> Recovery rates are on average about 45-55% (since 1987 according to research by S&P). Exactly.