The Money Mustache Community

Learning, Sharing, and Teaching => Investor Alley => Topic started by: DavidAnnArbor on May 17, 2015, 09:54:48 PM

Title: City of Chicago Bonds
Post by: DavidAnnArbor on May 17, 2015, 09:54:48 PM
My brother sent me an email encouraging me to buy City of Chicago 6% yield bonds (20 year term), like he did.  He also likes investing with Lending Club.
I told my brother that I was concerned there was a lot of risk that the city would default because the Illinois state supreme court ruled pension liabilities are not negotiable.
As an index investor I invest my bond portion of my portfolio in Vanguard's total bond market index, and Vanguard treasury index funds.
Anyone else purchase individual municipal bonds or invest using Lending Club? Any opinions?
I'm in 25% tax bracket, single filer.  I'm inclined not to take the risk of buying individual bonds like I don't buy individual stocks. Lending Tree seems to be more like an index but not sure. The link my brother sent me about Lending Club is:  https://www.lendingclub.com/public/steady-returns.action
Title: Re: City of Chicago Bonds
Post by: Heckler on May 18, 2015, 12:36:36 AM
You live in Ann Arbour?  Why not City of Detroit bonds?   



(Thus you have your answer that you already know)
Title: Re: City of Chicago Bonds
Post by: innerscorecard on May 18, 2015, 04:00:04 AM
You don't want to touch bonds when there is a political interest working directly against you. Especially when that political interest is influential with those even more powerful than them. Look at what happened to Chrysler secured bondholders in 2009. Or look at what happens to foreign bondholders in Chinese default cases.

Now, the price might be so low that you are compensated for this political risk. But unless you have the ability to perform such a credit analysis, and furthermore have the asset size to diversify your individual bond holdings (which may be the case), I would stay away.
Title: Re: City of Chicago Bonds
Post by: theoverlook on May 18, 2015, 07:53:19 AM
You can get a 6% dividend with RDS.A right now.  Which one is safer - Chicago bonds or Shell stock?
Title: Re: City of Chicago Bonds
Post by: DavidAnnArbor on May 18, 2015, 10:07:53 AM
Yes I agree with everyone here, just worried for my brother although he makes a lot more money than I do.
My brother's response to me was, "I am betting that Chicago will not go the way of Detroit. Remember also Chicago tried to get away with one by not paying full pensions. Every major city pays 100% pensions. What Chicago will have to do is change their pension plan so that going forward it does not pay as much." 
Though my brother is a CPA he has clearly not performed the highly technical credit analysis.
Title: Re: City of Chicago Bonds
Post by: Tyler on May 18, 2015, 11:12:00 AM
Moody's downgrades Chicago debt to 'junk' with negative outlook

http://www.cnbc.com/id/102650351
Title: Re: City of Chicago Bonds
Post by: wotan on May 18, 2015, 02:31:52 PM
go to this site if you want to invest in muncipal bonds. http://www.cumber.com/