The typical investor in a corporate debt security is often an income-focused investor who’s willing to accept more risk than someone buying very safe bonds. Corporate bonds come with risks such as interest rate risk and default risk, so you’ll need to be comfortable with market price fluctuations.
Corporate bond prices are usually less volatile than common stock prices, but they tend to be more volatile (on average) than bonds issued by municipalities and the U.S. government.
Investors who allocate large portions of their portfolios to bonds are generally on the conservative (safer) side of investing. Within the bond market, though, corporate debt is typically the riskiest major category. That means corporate debt investors need at least some tolerance for risk.
There’s also a wide range of risk profiles within corporate debt. For example:
If an investor wants to prioritize safety, they might accept the low yield on the Apple bond. If an investor is more risk-tolerant, they might consider the Gulfport Energy bond for its potential return of 52.5%. The trade-off is that the bond could become worthless if Gulfport goes bankrupt. This illustrates how widely risk (and potential return) can vary in the corporate debt market.
Like many bond investors, corporate debt investors are often older, but they’re typically willing to take on more risk than the average income-seeking investor. In general, the amount of risk they accept is directly related to the rate of return they can expect.
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