Post #726 by mungofitch on the Mechanical Investing board

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Investment Strategies / Mechanical Investing

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If you were required, for whatever perverse reason, to maintain a 70/30 portfolio in which the 30 is something other than equities, what would it be?
...
How about junk bonds/distressed debt?

That sounds like a good suggestion some of the time, but I wouldn't want it for a long term 70/30 allocation.
There are times that junk bonds are more or less a slam dunk, yields over 8-9%, sometimes in the 12-16% range.
At other times when money is easy and the spread is tight they seem to be return-free risk instead of risk-free returns!

The geeky thing to watch out for is junk bond funds that track a bond index that is issue-weighted.
You can end up with the biggest positions in the biggest junk-rated borrowers.
Other things being equal, the companies issuing the least debt [for their size] are the least likely to default, right?

Jim

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