Typical investor

The typical investor in a corporate debt security is usually a more aggressive investor seeking income. Given the risks that securities like bonds present (interest rate risk, default risk, etc.), corporate debt investors need to be comfortable with market price fluctuations. Corporate bond market prices are less volatile than common stock, but they’re more volatile (on average) than other debt issuers like municipalities and the US Government.

Investors that place large portions of their portfolios in bonds are still on the conservative (safe) side of investing, but corporate securities are the riskiest within the world of debt. Therefore, corporate debt investors need to be somewhat tolerant of risk at the very least. Of course, there’s a wide range of risk profiles to choose from. For example:

• Apple offers 3-year notes at 0.75%
• Gulfport Energy bonds trading a yield of 52.5%

If an investor wanted to keep their money safe, they could settle with the low-yielding Apple bond. If a risk-tolerant investor wanted to take a chance, they could buy the Gulfport Energy bond with a potential return of 52.5%. Of course, the bond could be worth nothing if Gulfport goes bankrupt. This is a great example of the variety of risk profiles in the corporate debt market.

Like most bond investors, corporate debt investors are generally older but are willing to take on more risk than the average income-seeking investor. The amount of risk they face relates directly to their overall rate of return.