4 Ways to Earn Up to 3% on Investment-Grade Corporate Bonds
We found two bond funds and two individual bonds that should appeal to income investors.
Investment-grade corporate bonds yield more than Treasuries of comparable maturity but carry only slightly more risk. And because of their higher interest payments, corporates hold their value better than Treasuries when interest rates rise.
What could go wrong: Although the default rate on high-quality corporate bonds is low, companies can—and do—go bankrupt. Moreover, if rates rise sharply, prices of corporate debt will fall.
How to play them: To get decent yield without taking on too much interest-rate risk, look for intermediate-term bond funds and individual corporates with maturities of three to 10 years.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Consider, for example, two bonds with triple-B-minus ratings, the lowest investment-grade ranking. One, from private-label credit card issuer Synchrony Financial (SYF), yields 2.5% to maturity in February 2020. Synchrony, which is being spun off from General Electric this year, has a strong business. The other bond, from Expedia (EXPE), the popular online travel site, yields 3.4% to maturity in August 2020. Expedia is growing through acquisitions, most recently with its announced purchase of competitors Orbitz and Travelocity.
A good place for fund investors to start is Vanguard Intermediate-Term Investment-Grade Investor (VFICX). The fund, which yields 2.4%, has about three-fourths of its assets in corporate bonds, with the rest in Treasuries and asset-backed securities. Manager Gregory Nassour emphasizes quality. More than 75% of assets are in debt rated single-A or higher, compared with 45% for the average corporate bond fund. The fund’s average duration is 5.4 years, and expenses are a modest 0.20% of assets annually.
Fidelity Total Bond (FTBFX), a member of the Kiplinger 25, is a bit more aggressive. It owns mostly Treasuries and highly rated corporate bonds, but it also has a smattering of junk corporate bonds and emerging-markets debt. The fund yields 2.4% and has an average duration of 5.1 years. Annual expenses are 0.45%.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
When Does a Nest Egg Become a Ticking Tax Bomb?
Retirement savers with big bucks in traditional IRAs and pretax 401(k)s could face huge tax bills when RMDs kick in. One potential solution? A Roth 401(k).
By Dan Flanagan, CPA/PFS, CFP®, AEP® Published
-
Medicare or Medicare Advantage: Which Is Right for You?
From overall costs to availability of care, here's what to know about the differences between traditional Medicare and Medicare Advantage plans.
By Paola Bianchi Delp Published
-
Dividends Are in a Rut
Dividends may be going through a rough patch, but income investors should exercise patience.
By Jeffrey R. Kosnett Published
-
Municipal Bonds Stand Firm
If you have the cash to invest, municipal bonds are a worthy alternative to CDs or Treasuries – even as they stare down credit-market Armageddon.
By Jeffrey R. Kosnett Published
-
Best Banks for High-Net-Worth Clients 2024
wealth management These banks welcome customers who keep high balances in deposit and investment accounts, showering them with fee breaks and access to financial-planning services.
By Lisa Gerstner Last updated
-
High Yields From High-Rate Lenders
Investors seeking out high yields can find them in high-rate lenders, non-bank lenders and a few financial REITs.
By Jeffrey R. Kosnett Published
-
Time to Consider Foreign Bonds
In 2023, foreign bonds deserve a place on the fringes of a total-return-oriented fixed-income portfolio.
By Jeffrey R. Kosnett Published
-
How to Find the Best Utility Stocks
When seeking out the best utility stocks, investors should focus on companies with scale and income potential.
By Jeff Reeves Last updated
-
The 5 Safest Vanguard Funds to Own in a Bear Market
recession The safest Vanguard funds can help prepare investors for continued market tumult, but without high fees.
By Kyle Woodley Last updated
-
Stock Market Holidays in 2024: NYSE, NASDAQ and Wall Street Holidays
Markets When are the stock market holidays? Here, we look at which days the NYSE, Nasdaq and bond markets are off in 2024.
By Kyle Woodley Last updated