Taxable Bond Investing - Newbie
My only experience with bond investing is in the tax-deferred arena. And as such, I've only focused on total return because I didn't need current income.
If everything goes well, my parents will close on the sale of their house in a month or so and will clear about $100K. I am looking into a bond fund to suggest to them to park the money and use the income from it.
Here is my understanding of how it works. Is it correct?
1) They could expect to receive 1/12 of the stated yield of the fund in a check each month. So, a yield of 4.8% would give them $4800 per year on $100K or $400 month.
2) This income is considered interest income (full rate) as opposed to dividend income (max 15%) for the purposes of taxation.
3) If the total return of a fund is less than its yield, then that means that the NAV is decreasing, meaning that the original $100K is eroding.
4) If number 3 is correct, then that fact, by itself, shouldn't affect the monthly income, just the amount they'd get back when they sold the fund.
I am a very experienced equity and tax-deferral investor, but this is an area I have never visited.