If you do this, which I don't recommend, do realize that junk bonds are more like stocks than bonds. In other words, you should consider it a stock investment more than a fixed income investment.

JNK, unlike the ticker suggests, is barely invested in "junk" bonds (those rated 'C' or lower). 85% of the bonds are in B rated paper.

Note: I don't do this personally, just thought it would be a good suggestion for someone with about 50k looking for a medium term passive investment with low risk relative to equity markets.

re: the bolded: past performance does not guarantee future performance. i find your advice here a little irresponsible given as it is without disclaimer and in a thread geared towards noobs.

If you compare JNK with the S&P 500 (SPY), they are almost identical. It does track equities and thus does not behave like a fixed income investment.

http://finance.yahoo.com/echarts?s=J...urce=undefined

For yet another comparison, here's BND, JNK, and SPY.

http://finance.yahoo.com/echarts?s=J...urce=undefined

You can see how much JNK acts like equities compared to normal fixed income investments. Like I said, you should consider JNK to be an equity investment.

I find your suggestion a little ridiculous. I assume everyone knows investing comes with obvious risk. Do you expect people to put a full paragraph disclaimer in every post?

Nonetheless, the poster specifically asked for a "low risk" investment and even stated he abhores stocks. JNK is clearly not an appropriate investment for him.

Going back to the poster in question, really there aren't any low risk investments that are going to give you much more than 2% in the next five years. You're best off keeping that money in CDs or the Canadian equivalent. Any investments that are yielding more than 2% are going to up the risk of loss of capital, which you sound averse to. What might be a reasonable compromise is to put at least a smaller percentage in stocks, maybe even just 20-35% and the rest in CDs. But, of course, you could suffer losses with stocks.

The problem is you included a time where correlations between all assets were essentially 1 and there was a large drop in all assets. So once the graph flattens out, because the prior swings stretched the axis, of course it's going to appear to track the equity market. If you look at just the past 2 years, the HY market doesn't track the equity market nearly as much.

http://finance.yahoo.com/echarts?s=JNK+Interactive#chart3:symbol=jnk;range= 2y;compare=^gspc;indicator=split+dividend+volume;c harttype=line;crosshair=on;ohlcvalues=0;logscale=o ff;source=undefined

None of that changes the fact that it is clearly an inappropriate investment for someone who wants low risk and doesn't like stocks. "High yield" bond are closer to equity investments than they are to fixed income.

+1 to tyler and dalerobk. JNK is not what I would be recommending to a beginning investor seeking advice.

I am brand new to this whole investing game and it is all very overwhelming. I have people recommending DRIP stocks, mutual funds, currency, ect. ect. I am really looking for someone to point me in the right direction. A little background on me... I was SNE on stars until BF and now play on the merge network. I am married 28 yrs old and ready to do something more with my money than have it sitting in a high yield savings account.


Country you live in: USA Allen, TX

Income: $100,000

Risk Tolerance: Moderate to high

Timeframe for investment: From this point forward

Debt: $22,500 car note at 2.49% and Mortgage $124,000 @ 5.5% $1,202 monthly

Any other information you might have that would help us: I gave my father a $40,000/ 6 year loan a couple of months ago and plan on using the monthly payments he makes to me to begin investing. I will be receiving $662 a month from that and then I can also add some extra when I have big months at the tables. I have $20k in cash in my safe deposit box and around $50k in the bank after I pay taxes for this year. Thanks in advance.

i would start by doing something about that mortgage. 125k @ 5.5% is a big albatross around your financial neck.

So before beginning to invest you think just paying off mortgage is the way to go?

it depends and it's complicated and i don't have a ton of time but...

can you refi your mortgage? that rate seems pretty high for today's financial climate and getting a point or two chopped off would save you a ton of money.

i think paying off your mortgage is an excellent strategic goal. on the way, however, you might want to do some tactical things. i'd probably prioritize something like:

- 6-12 month emergency fund (sounds like you've got this covered)
- 401k up to company match, if available
- max out Roth IRA contributions for you and your spouse
- (maybe) more 401k to tweak your tax bracket or whatever

given your income and savings i think you can do all of this and still have money to spare to attack that mortgage. i would pretend the monthly payment from dad didn't exist and just ship it every month as a cherry on top of my monthly mortgage payment. that debt will be gone before you know it, and you'll be building up money for retirement in your 401k and Roth accounts at the same time. bazinga!

Thanks for the help I think I am going to aggressively pay off the mortgage and then take things from there. 401k is not available but I will max our our Roth this year. Even though 5.5% on the mortgage is high if I plan to pay off the house in the next two years it will probably be -ev to refinance at this point.

i got this question via pm but wanted to share it here so everyone can benefit. (the asker was fine with this as long as i removed identifying information.)

i don't know details but i'm pretty sure there are plenty of folks with "government-insured pensions" who are out a bunch of money right now. just something to keep in mind.

$1M for 30+ years of retirement sounds like a pretty good deal to me! it's definitely hard to retire as "early" as 53, which is why "save early, save often" is the rule of the day.

Assuming you are young (<30) I would take all your excess cash and put 60% in an S&P index fund (SPY) and 40% in an emerging markets fund (EEM). I'd sit on this, adding to it as you make cash. Then, as you age, and your risk tolerance decreases you can add more fixed income exposure.

donuts,

why not total us stock and total intl stock instead of SPY and EM?

A mortgage only 25% more than annual income for a 28 year old is not an albatross.
I would consider the refi first and foremost, and with plenty of cash on hand you can probably end up buying down a 15yr loan to under 3%. Discount it a little more for i% deductions, and that ends up being the net rate you'd paying. The opportunity cost you're giving up by aggressively paying down the mortgage is (partially) the difference between that rate and whatever return you'd get if you opted to invest somewhere else. If housing prices rise during the life of your loan, you will have made more by having continued the mortgage.
Plus, aggressively paying down will ultimately leave you with all your equity in a single non-liquid asset class.

Making all your money through poker changes a little bit though, which, given the uncertainty of the profession, weighs more in favor of Tyler's advice.

1ionu, how much income do you actually make in the eyes of the IRS? Does your wife work?

hey tyler, was your PM using inflation-adjusted figures or not in regards to 6k-7k/month to retire?

oof,

i didn't take inflation into account at all; the 6-7k number came from the op. however, doesn't firecalc factor this in?

my opinion is that, in this market, beating 5.5% is going to be tough. hence taking the guaranteed 5.5% by attacking the mortgage makes sense to me.

not sure i understand this part.

good point.

this seems like a good spot for a disclaimer: i'm a noob. oofrome knows more than me. i don't own a house and probably won't for the next 3-5+ years. i'm giving advice based on the data provided; someone with more time and experience and access to your full financial picture will give better advice. tails never fails. righty-tighty, lefty-loosey.

USA
34k
Risk Tolerance - Aggro
Timeframe for investment - don't know, but i need access to it when i need access to it without penalty
Debt - $0

have about 3k sitting in a low interest savings account (for about 2 years), id be happy opening and etrade account but i have absolutely zero knowledge about stocks. do they have advisors? do they charge a lot? would like to get this money into the market, but again, probably need an advisor.

dont mind losing it, obviously would rather not. i dont make much money. right now i have a relatively new car that ive paid for in cash, if however, i were to need a car or i need money to buy basically anything id need to access it quickly and without penalty.

Sure

i don't think you should invest any money you feel this way about. a "high-yield" savings account is where i would keep it.

if you don't think you'll need all of it all at once, you might consider building a ladder of CDs. you would lose a little liquidity, but you would gain a little bit better interest rate without taking on any additional risk.

etrade is a fine service provider. i can't speak to the value or cost of their financial advisors. i do think that educating yourself a little about personal finance would be a worthwhile use of your (or anyone's) time.

I'd put it all in a diversified retirement fund, like Vanguard 2050 Retirement VFIFX. You really can't go wrong with it. Mine as well open a Vanguard account instead of etrade so you don't have to pay the commission fees. etrade is not that good (besides its advertising)