🙂 monthly payout
I sold only when I needed USD cash

k_marro_risk

Multiple HY fund managers (with an interest to promote their HY fund) have publicly stated that rising interest rate during economic growth is healthy for high-yield sector, because the fundamental risk in the HY sector is default risk. Improving economy means decreasing hazard rate.

However, higher interest rate means higher yield across the the credit spectrum. If you bought a riskfree bond + a junk bond at a low interest time, then both will likely depreciate due to higher yield. In that sense, no bond is free of interest rate risk. If a HY fund has a relatively short duration (like 5Y) then it’s less sensitive to this risk, compared to a 30Y government bond.

By the way, the global HY sector is 80% in the US. So most of the discussions are US-centric.

Q: is it valid/prudent to say I don’t need the USD for 2 years, so I can put it into relatively long-term instruments?
A: no no no if disaster strikes I would have to tap into my USD savings.

Q: is there any instrument that is sure to be “above water” within 2 years? Note all equity instruments and most bond instruments can go under for 2 years.

=====minimum USD liquid cash? 70k i.e. Zofia’s share, or 40k
For converting to SGD
For emergency fund
For Saxo contingency

=====total keep in Saxo? 20k, to be reduced to 0
The more long-dated obligations, the more margin required

=====Total bond allocation including HY? 80k
====Total HY allocation? 30 ->60 – 100k
Monthly income depends on this. Let’s pick 5 – 10 bond funds. Start each with the minimum amount. Once we feel comfortable, we can put 10k into one of them.
==US HY?
==global HY?

=====Total Equity allocation including ETF? 30k? See letter to Simin
==ETF allocation? Start at 10k, but not more than 20k

In theory, higher risk means higher expected return. But look at emerging market vs US market.

I think some individual stocks in emerging markets might offer higher expected return than the S&P. However, The equity indices or mutual funds on emerging markets actually show lower average return than S&P. Volatility is higher but mean historical return is also Lower. In my (untrained) thinking, the theory is broken and the truly higher risk doesn’t mean (lower current price and) higher expected return.

Therefore, my default eq allocation is 100% US. I still invest in emerging markets because … I just hope emerging markets provide a bit of uncorrelated return.

Many funds advertise as small stock. Theoretically higher risk higher long-term return. Reality — higher volatility, and invariably Lower return either short or long term.  Once a while I see a small stock fund showing higher return than benchmark over the years before 2008.

——–
One area that higher risk indeed leads to higher return is HY — my “favorite” asset. Return in terms of monthly dividends is indeed higher than other bonds.

I feel in general the bond market supports most of the theories like that.