>> Maybe you're thinking of taking a bit more risk these days. Stocks might still be screaming buys, but earlier, short-lived bear market traps have been barest. Even the great Warren Buffet. Cash investments like savings accounts and money market funds are safe, but they'll pay you less than the going rate of inflation. All of this has led a lot of smart people to point to corporate bonds. It's the coward's way to be brave and bet on the revival of the U.S. economy. It's a pretty appealing argument. A corporate bond, as you know, is an IOU from a corporation. Own one, and you're a lender. That means that your upside over the life of the bond is the interest rate the bond pays. In contrast, the upside of a stock is theoretically unlimited, but the risk is a lot higher. For a stock to do well, the underlying company has to do better than the market expects. For a corporate bond to pay its interest rate, the underlying corporation just has to not fail, and right now, you get paid relatively well for making that bet. Typically, to judge whether corporate bonds are a good buy, investors compare their yields with the yields on super save, default-proof treasuries. And as of the time I taped this, the yields on five-year bonds of pretty solid U.S. corporations were about three points higher than on comparable treasuries. The yields on shakier corporate bonds are as much as 15 percentage points higher. Now, if the economy improves, the prices of those bonds might go up too adding to the return you get from the yield. But look, every investment has risks, and corporate bonds are no different. Defaults will probably get worse as this recession grinds on. That's why you get such attractive yields right now. The gamble you make is that defaults won't be as bad as the market fears. But there are no guarantees. So invest using the good low-cost mutual fund or ETF, and don't put all your eggs in this basket. If you want to get returns that beat inflation in this market or any market, you have to take some risks. Just do it prudently.
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