Why not corporate bonds?
Many corporate bonds pay much more than that meager 5.64% (Nov 1, 2008 – May 1, 2009). The corporate bonds are unsuitable for building the Safety-Cushion Fund for the following reasons: • corporates are issued in $1000 denominations, and usually sold in amounts of 5 or more. • the interest is taxed in the same year that it’s paid. • the best corporate bonds are not available to the public – look for corporate bonds at your broker’s website, the only corporates available are of those failing banks and some other distressed companies amazingly still with highest ratings from Moody’s. • comission fees are too costly (about $10 per trade = $20 round-trip). • if proper diversification requires at least 20 positions, minimum amount 5 bonds per position, face value $1000, then one needs 20x5x$1000=$100,000 to build a properly diversified bond portfolio. Definitely not for everyone. • mutual funds investing in corporate bonds eat interest earnigns with their fees. Practicaly, you take the risk
