Corporate bonds
I have 5 corporate bonds (laddered) and I wonder how safe these will be in the future. They are all good solid companies with the lowest rating as BBB+. The all pay very good dividends which go into cash fund. They are all held in an traditional IRA account. I am getting concerned with the political scene and am not sure if these bond funds will be adversely affected.
Terry Says
If the corporations are highly rated, there is no reason to worry that the political situation will impact their ability to pay the promised coupon. However, if they are in industries that might be adversely impacted by new trade restrictions, or taxes, or demand for their products, then the bonds might become less attractive (out of rears that they cannot pay the promised coupon) -- and sell off at lower prices. Assuming nothing impacts the individual companies, if you have "laddered" individual bonds -- staggered maturities -- then you will be able to reinvest at higher rates when the bonds mature, if rates are higher then. If you don't have to sell until maturity, you can stop worrying unless you fear a default. BUT, you can lose money on ALL bonds -- even the highest quality -- if interest rates rise. After all, if rates rise there will be newly issued bonds at higher yields that will be more attractive than your bond fund. So bonds with old, lower yields will fall in price when the general level of interest rates rises. If you have to sell your bond fund to raise cash, then you could lose money. What would make rates rise? A return of inflation, a fear for the value of the dollar. But that's not happening now.
