The Corporate Bond Wars: Reinvestment of Income

Here is Larry Denham opinion about Reinvestment of Income. He gives the advantage to Individual bondholders.

Bond Funds: Bond funds pay interest monthly in a fluctuating amount. Payments are based upon the interest received from the sum of all the investments held in the fund. As a result, the amount of income received varies each month. Because an investor can choose to automatically reinvest income by purchasing additional shares on a monthly basis, low yielding cash investments are typically held to a minimum.

Individual Bonds: Because individual bonds pay interest on a fixed, semi-annual basis, an investor is generally limited to reinvesting the income in short-term cash instruments until that amount exceeds $5,000. At that point in time, an additional $5,000 bond may be purchased for reinvestment.


In my opinion, Larry is totally wrong. First, I have bought one, two, or three bonds at a time. Investors no longer have to buy bonds in $5,000 blocks. I hold my cash investments to under $1,000 until I have enough cash to buy one $1,000 value bond. Some bonds pay on a monthly bases. Others pay on a quarterly bases. The most common payment of bonds is semi-annual. Investors must do research to find the type of bond payments that they want.

My portfolio was created by buying one to ten (10) bonds at a time. Most of the time, I bought one to three bonds when interest comes due and hits the account. I will show you proof of the results of this strategy in the last part of this series.