I have a few thousand dollars that I put into my nondeductible IRA in April, and I've been trying to figure out what to do with it. I'm thinking about dollar cost averaging into this fund over a period of several months. (Back in January or so I switched the money in that IRA from a Treasury bond fund to this fund, which turns out to have been a good thing to do). Does this sound like a good idea?
runner250, I am impressed if you are but 23 years old and even more impressed if you are a runner???
I don't run across many public traders that have much of a grasp of junk bonds, especially youngsters like you.
>>>>My god, that's horrible. So you're pretty much getting about a few percentage points per year on this, not to mention you have to pay taxes at ordinary income on the dividends.<<<<
Not really that horrible as its return over that time period has been around 8% (remember at times it had yields in the double digits) compared to a little over 9% for the S&P. But you achieved those returns with a heck of a lot less volatility.
I like to play these junk funds most aggressively coming out of bear markets ala 91, 02, and presently. That's where you get not just the dividends but some nice price appreciation to boot.
Maybe you should sell your VWEHX and buy a money market fund paying less than one percent. You'd pay a lot less in taxes.
Seriously, the time to buy this fund is when the spread between its yield and ten year treasuries is higher than four hundred basis points. Sell it when the spread gets back to four hundred. Its not going back to eight but it will go back to five or five fifty and you get a nice yield in the meantime.
Take a look at the above chart of VWEHX. It's been in a perpetual downtrend, with occasional spikes upward, since its inception. That's because *historically* over the long haul all the return from junk bond funds have come from their dividends, not price appreciation. The dividends aren't shown in these charts.
I could go on but it would take a lot of explaining. My point is, don't buy this fund thinking you will see $8.
Exactly. If you want to get an idea about what VWEHX is going to do today look at the economic news. Forget about treasuries. If the economic news looks like we're heading for a recovery then VWEHX will be up. If the economic news is bad then don't expect a positive day. This is a great fund. You just have to buy at the right time.
Treasury bonds are falling, yields rising because among many reasons investors are taking on more risk and moving their capital into investment grade and junk corporate bonds. Don't confuse the world of Treasuries and the world of corporates.