What are the most common mistakes people make when investing in bonds?
Some of the common mistakes that we see people make when they're investing in bonds is really a function of not fully understanding bonds and how bonds work, and bonds can trade at a premium. What that means is that when that bond matures; your actually going to get less money back from that bond than you paid for it and there are a lot of people out there that don't want to buy bonds at a premium because their not going to get their principle back. The common mistake there is your not understanding the dynamic of the bond and what you want to look at is the yield to maturity, and so your probably going to get a higher yield to maturity for buying a bond at a premium; because a lot of people don't want to necessarily own those bonds and so the commone mistake is "Oh bonds at a premium. I don't want to own it," and its not looking at the fundamental real end result of what your total return is going to be over that life of that bond. Antoher common one in going out and buying quote high yield bonds. It's chasing yields and saying, "Wow I'm going to get a little bit more yield by buying this bond." Once again it's a lack of understanding really on the risk your\'re taking for that bond. Your taking much more risk with a high yield bond than your really getting. If you really willing to take that higher risk, there's probably some place else you should be putting your money than in bonds.
