Public.com is marketed to new investors as a safe way to invest, but recently they’ve been advertising ‘locking in 7% interest rates.’ The problem is, when you dig into the details, it turns out they’re selling bonds that range from risky to junk, and many of these bonds are already in a position to be called back. For instance, some bonds are being sold at higher prices than their actual worth. Additionally, these bonds have high risk of default and being called back. They’re essentially marking up junk bonds and calling them ‘locked in’ rates, while charging hidden fees that reduce the real returns for investors.
It’s hard to imagine how experienced investors would fall for this, but for those who are new to investing, it’s a shady marketing move.
@Sam
I mean, one of the bonds they were selling was in the process of being called back for 101 cents, and they were selling it for 103 cents… which is crazy for any bond deal.
Even though the bond issuer is rated BBB-, many of these bonds have clauses that allow them to be called back, which makes them very risky. I’d say 30% of them are pretty much borderline junk bonds.
It’s not the worst product ever, but they’re definitely misrepresenting it.
For what it’s worth, a high-yield bond allocation can make sense in a portfolio, but using a product like Public’s doesn’t seem like the best way to go about it.
Personally, I have some high-yield bonds in my portfolio, but I prefer a much more diversified set. For example, the Invesco Bulletshare 2029 high-yield bond fund has 384 bonds, and its expected yield to worst (YTW) is 7.17%, which is better than Public’s product.
@Sam
That makes sense. I normally use high-grade corporate bonds and treasuries to protect myself during market crashes, so I can buy stocks at a good value, like during the Covid market drop. High-yield bonds tend to default first in a crisis, so I like to stay safer with corporate bonds and treasuries.
With high-yield bonds, you really can’t lock in a rate because they can usually be called back. Plus, only ten bonds is kind of weak. Something like JNK or USHY is probably a better and cheaper option.
@River
They’re fine until there’s a financial crash, then a lot of them default. In that case, you might as well have just been investing in the S&P 500, which would’ve probably given you better returns anyway.
Junk bonds are really only worth it if you have a long, stable market.