What Role Do Individual Corporate Bonds Play in Income Investing?


Individual corporate bonds are a crucial component of income investing as they provide yields generally higher than Treasury bonds, muni bonds, and stocks. Investors can choose from a wide variety of bonds based on their risk tolerance and investment return objectives.

Owning individual bonds helps income investors create a more precise investment plan than is possible with bond funds and ETFs.  When you own an individual corporate bond, you have a contract with the bond issuer to pay you a fixed rate of interest and to return your principal at maturity.  This enables investors in individual corporate bonds to build a reliable income stream, as compared to bond funds and ETFs, whose income streams are less predictable since the underlying holdings can change over time.

What's more, many income investors have used dividend stocks as a primary source of income investing.  Unfortunately, with the COVID-19 health and financial crisis, scores of blue-chips companies have either suspended or significantly reduced their dividends.  Companies that have suspended or reduced their dividends include: Disney, Boeing, Ford, Delta Airlines, Freeport McMoRan, Macy's, Darden, Anheuser-Busch, Nordstrom, and many more.  All of these companies continue paying interest on their bonds, which shows why corporate bonds are such an important part of income investing.

A key benefit to BondSavvy's approach to corporate bond investing, is that we seek to complement the income investing portion of a corporate bond's return with capital appreciation by recommending what we believe are undervalued corporate bonds that can increase in price and achieve strong total returns, as we show in the BondSavvy returns summary.  

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