1Wk·

Nest egg

Position swap for the nest egg.

I initially sold $XEON (+0.01%) completely and then added this high-yield bond ETF without currency risk to the portfolio instead. It pays out semi-annually and currently has a dividend yield of 5.7% according to Focus Money, which is at least a little more than $XEON

22.01

iShares € High Yield Bond ETF D

Bought x55 at €94.05

€5,172.75

5 Comments

Hebel-Horst@DoppelSchlechtMinus

1Wk

Nest egg in high-yield bonds 🤔

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Mi(t)chel@Mi-t-chel

1Wk

@DoppelSchlechtMinus only about 1/3 of nest egg. The rest is in an Ibond. A nest egg can also work 😁

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Hebel-Horst@DoppelSchlechtMinus

1Wk

@Mi-t-chel Well, if some event clouds the mood on the stock market, your "nest egg" quickly becomes worth 25% less, because the money from bonds with increased default risk is withdrawn almost as much as from shares, see the price trend over the last 5 years. And the money does just as little work there, as it is only an interest-bearing investment with a higher risk class. If that's acceptable for the amount you've put into it, you might just use the term "nest egg" a little generously 😉

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Mi(t)chel@Mi-t-chel

@DoppelSchlechtMinus I have a slightly different understanding. Bonds work more or less like credit agreements. You give the debtor a certain amount of money and expect a repayment plus a coupon in return. Bonds can be traded. This means that prices are subject to fluctuations, but mainly depend on changes in interest rates. If the interest rate falls, the bonds rise. In the case of accumulating ETFs, the return would be based solely on the price performance of the ETF. This is not the case with distributing ETFs. They distribute the interest payment. Therefore, in my understanding, the price performance is irrelevant in this case. It is about the distribution yield, which is currently 5.74%. You do not see the 5.74% in the share price performance (as it is distributing). The interest rate risk is low due to the residual terms of usually less than 3 years. Naturally, you always have an issuer risk, i.e. if a borrower defaults, the value of this bond falls to zero. The risk here is greatly reduced by the broad diversification using an ETF. You also have no currency risk in this bond ETF.
This bond ETF has lost around 6.4% in value over a period of 15 years, which corresponds to around 0.4% per year. The distribution yield is significantly higher over the same period.

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Hebel-Horst@DoppelSchlechtMinus

@Mi-t-chel The way you argue, this makes sense for a long-term investment. The approx. 2.5% annual total return generated by the ETF, including distributions, may be more attractive than a money market ETF or investment grade short-duration fund.
However, if this were really a nest egg that has to be available at short notice at all times, the yield is of no use if you have these extreme drawdowns on the market value. And in the case of high-yield bonds, these are not only caused by interest rate changes, as they are more speculative in nature than investment grade bonds.

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