* Japan has almost no interest rate for a long while. If you borrow 1 M from them at almost 0% and invest in a country's debt for 8%, you think you win. However, you need to consider the currency conversion loss when converting back to USD, inflation, risk and taxes.
* High yield bond is good when you buy the bond yielding 8% or so and the interest rate falls from 8% to 1% as in 2008. 2007 is a bad year for high yield bonds. However, in 2008, some high yield bonds made over 50% return. 2007 was a tough year as most were afraid that it was the end of the world. So educated guess and timing is everything.
* Today the interest rate is almost too low to invest in bonds to me. Even the king of bonds made wrong judgement.
Conventional wisdom tells you to balance your portfolio with a combination of bonds and stocks in proportional to the risk tolerance. I prefer the reward/risk ratio.
* Now, cash could be a very good alternative to avoid the risky market and poor bond prospect. You may lose due to taxes and inflation, but you're buying insurance and move back to stocks or bonds when the reward/risk is high.
* The government bond price could collapse when its issuing country is printing and depreciating its currency.
A bond at 30% yield may not be good if the company/country has a 99% probability to default the bond.
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(c) TonyP4 2012. Written in 4/30/12. Last updated in 4/30/12.
Disclaimer:
Do not gamble your money you cannot afford to lose. Past performance is a guideline and does not guarantee future performance.
All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
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