Thanks for looking into that, Manny.
Elizabeth, as long as we don't go into recession, high yield bonds (aka junk bonds) should do well. You should be able to get at least 6% from the typical junk bond fund, so even if the share price fell 6%, you'd still break even. And if the economy were to perk up and interest rates were to rise, junk funds would probably hold their own and maybe even appreciate a little as investors became more upbeat about the prospects of shakier companies.
Alright, looks like we have time for just one more question.
One more thing about peer-to-peer lending: we did write a little bit about it in our March issue, in a story called "How Should We Split the Check." Can you find that link?
The biggest threat I see to high yield would be if so much more money keeps getting poured in that Wall Street underwriters bring out bonds with stupid features like pay-in-kind (you may not get interest in cash) and some funds swallow this. Several managers I've spoken too in the recent weeks are noticing a few more deals coming out that they want nothing to do with. The fundamentals of the economy are, as Manny says, a key to this, but so are some of the
quirks of high yield.
Tax-exempt bonds--- could you be more specific?
I think munis are OK. The best time to have bought them would have been after Meredith Whitney scared the bejesus out of investors in late 2010 with her warnings of thousands of municipal bankruptcies. The group tanked, then slowly started to recover. But you have to be very careful if you buy individual munis, as a few recent bankruptcies in Calif have shown.
Still need more detail, Jeff?
August is actually the best-performing month for munis and July is second. The supply tightens and there are often conniptions in stocks that motivate people to look for safety, and municipals are safe provided you don't buy bonds of poor jurisdcitions that cannot plausibly raise taxes or grow. That's the problem in Pennsylvania and Rhode Island, for example. Suburbs are fine. Old cities are broke.
State revenue bonds are reliable.
Alright, it's time to wrap up today's chat.
Once again Jeff and Manny, thank you so much for sharing your time and insight. I know our readers appreciate your specificity.
Or use funds run by seasoned, smart managers
Thanks to all of you who joined us. See you next time
Hopefully we'll get to that next time, Jim! Thanks so much for joining us
You can also join us next Thursday, July 19 at 1pm ET for a two-hour chat with NAPFA planners.