All...Please forgive my ignorance..I have never owned an income producing instrument. I have some limited understanding, but not much...I hope I don't sound too dumb to be answered. Thanks.
1. Take HYG for instance. I note that it has paid about $.60 per share over it's lifetime..and holds so-called junk bonds. I am also interested in similar junk or investment grade bond etfs's..the latter pay a bit less, of course.
My questions:
A. If I hold HGY and the price goes down, my net worth goes down...but doesn't the dividend stay about the same? If not, what happens? If the price goes up in say two or more years from now, my net worth will be more..but doesn't the dividend stay about the same??
B. I think the risk of holding the etf is the composite risk of one or more of the companies going bankrupt. That would mean they would no longer pay their portion of the dividend. Would that only mean that the total dividend paid monthly by HYG would drop by a small amount..and NAV drop a bit..or would there be more serious consequences to the holders of HYG?
C. In your opinion, if the amount to be invested in these junk bonds was what you would call pretty large..how would you reccomend reducing the risk of failures? Would you split your pot into 4 segments, for instance, and buy equal amounts of four etfs?....say, HYG, LQD, ACG, and PHB? Or, what other method would you use?
D. What other income producing instruments would you use in place of the ones I have mentioned?
Sorry for the lengthy questions. All replies will be gratefully received. Thanks again.
Bud Weeder
