Benjamin Graham once wisely observed that more money has been lost by investors “reaching for yield” than stolen at the barrel-end of a gun. During periods of anemic interest rates on fixed-income securities, bank deposits, and cash equivalents, a combination of impatience, action bias, and desperation causes savers to do what they would otherwise consider extraordinarily foolish.
Corporate bonds represents money loaned to a business, such as Coca-Cola or General Electric, in exchange for interest income. In the United States, corporate bonds usually pay interest twice per year (every six months), compared to once-a-year in Europe. Many investors own corporate bonds in their tax-advantaged accounts because of the higher rate of interest they earn, and tax-free municipal bonds in their regular brokerage accounts.