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Retail buyers usually pay a big premium—1% or more—over the wholesale or institutional market.
Q: I have 95% of my bond investments in an ETF with a low yield. Instead of investing such a large amount in a bond fund, should I search for individual bonds offering higher returns?
—Jim Semple, Regina
A: You’ve probably seen those obnoxious ads offering “factory direct” pricing. They promise great savings on furniture or flooring by cutting out the middleman. Unfortunately you can’t go direct to the factory when it comes to bonds. “Individual investors are at a disadvantage in buying bonds because unlike stocks, bonds trade from dealers’ inventories,” says Terry Shaunessy, president of Shaunessy Investment Counsel. “Pricing is not transparent. Retail buyers usually pay a big premium—1% or more—over the wholesale or institutional market.” If you want to increase your yield, you could go with a corporate bond ETF or allocate some of your fixed-income portfolio to a preferred-share ETF. Both options involve a bit more risk, but offer the prospect of extra reward.
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