Lux Investing
Are "exchange-traded debt securities" superior to money market accounts?
My dad, now retired, is looking to live off his nest egg, worth somewhere around $1 mil. He has been satisified for the most part with his no-risk money market account, grossing him $50,000 a year, but what about those exchange-traded debt securities? Some of them (the lower rated ones) yield as much as 6 to 7.5% annually. What are the risks associated with these financial instruments, and approximately how often does a BBB-rated fixed income security default? Can my dad safely & confidently invest in these securities? Thanks for your help!
Public Comments
- I would not trust advice from a bunch of teenagers trying to cheat on their homework when it come to financial questions. I would research it very well and then make an educated decision.
- The rating on a tradeable debt security ( like a preferred stock ), is a measure of the risk of default by the issuer. Yes, you will get a bit more than money-market funds, but in return you assume a higher level of risk. It is not possible to say exactly if or when any issuer will default. You have to make a reasoned judgement call. I would strongly suggest you do not buy anything lower than BBB or BBB+. Perhaps you want to look at corporate bonds, as long as you hold to maturity, you guarantee the principal. Corporate bonds like Boeing, rated A, are VERY safe, and pay about 5.6%.
