Bond Funds: Most bond funds have an initial minimum investment of $5,000 and allow the investment of any dollar amount above the initial minimum. Hence, an investor is able to make a fixed income investment in a bond fund with a relatively small amount of money. Nor does the investor have a size constraint other than what prudence dictates by way of diversification needs and asset allocation strategies.
Individual Bonds: Most individual bonds are sold in $5,000 denominations and may be purchased in much larger blocks depending on the investor’s net worth and available funds. However, in my opinion, portfolio size of much under $100,000 doesn’t give an investor adequate opportunity to achieve an acceptable level of diversification either by issuer, bond type or maturity.
In my opinion, the smaller the portfolio size, the greater the chance of diversification problems. However, diversification can be over come by buying one or two bonds of a particular issue. You can have a portfolio value of $20,000 but have 10 issues in the portfolio. No, most bonds are not sold in $5,000 denominations. Many bonds sell in increments of one to five bonds or $1,000 to $5,000 denominations. Again, you must do your homework.
As a matter of fact, in this same 3 month time, the Dow Jones Industrial Average fell 15.49%. Many people are looking at worst falls in their personal, IRA, and retirement portfolios than 15.49%.
But keep in mind, I rarely sell my bonds. I wait until maturity. So, I only loose money in my portfolio if a company goes bankrupt or the few stocks that I have never recover. This is how my portfolio is protected in falling markets.
You will see in the next blog that people who follow my strategies, diversify with far less than $100,000 in Corporate Bonds making up their portfolio.