Solely invest in fixed income securities using the lowest cost bond market index funds
Bond trading is a very involved investment process that individual investors ought to leave only to very experienced bond and fixed income mutual fund investment portfolio managers. The trading and pricing of bond and fixed income assets is much more complicated than the trading of stocks.
Furthermore, bond market price setting is substantially more hidden, and bond and fixed income investment securities and the bond and fixed income markets have substantial price spreads. In many senses, you buy fixed income holdings at “store” prices and sell fixed income and bond securities at unfavorable wholesale values which substantially are in favor of the fixed income market investment banks.
Personal investors benefit, if they comprehend more than they do concerning no load bond fund fees
Bond investing investment price setting is substantially different when compared to the market for stock assets. A public company usually has only one kind of common stock. In contrast, the same publically traded company could have tens, even hundreds, of different outstanding bond investment instruments. Very few individual investors possess the necessary skill, knowledge, information, and experience to evaluate bond and fixed income securities pricing. Bond and fixed income investment instruments possess different valuation characteristics than do common stock securities. In addition, issued and outstanding fixed income and bond investments require alternate pricing methods.
Common stocks give the investor a claim to some of the stock market value of the publically traded company and to dividend payments, when the Directors declare such dividend payouts. In contrast to stocks, corporate fixed income investment securities allow their owners a greater right to the public firm’s cash earnings to fund fixed income and bond asset principal and interest payments. When bond holders’ ownership claims to the firm’s net cash flow are not met, then bankruptcy and default may happen.
A firm could be forced to recapitalize in bankruptcy, and total common stock ownership may flow to the bondholders and creditors. These bankruptcies are usually very difficult, distasteful and slow processes.
This is called the default risk. Expectations about the varying likelihood of failure to repay can create substantial price differences for bond and fixed income investments which otherwise could have the same pricing. Figuring out if fixed income and bond payments are likely to be made by fixed income issuer firms during the term of the bond security is better left to very professional fixed income index mutual fund portfolio managers.
A fully automated, do-it-yourself financial planner with a personal money management program is a must to produce a much more reasonable lifetime financial plan that utilizes fixed income and bond securities
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