Bond Allocation
When you open your Bond Account, you elect to purchase a set of ten high-yield and investment-grade bonds using funds deposited into that account. Public Investing will not rebalance your Bond Account or update your allocations in any way unless you instruct us otherwise, except in instances of Corporate Actions, where you will be notified.
When the available cash in your Bond Account is sufficient to purchase $100 par value of the next bond in your chosen allocation, as determined by the Buy Order Methodology discussed below, that cash will automatically be used to purchase that next bond. Available cash may be from a one-time deposit, recurring deposit, and/or the accumulation of enough cash from coupon payments.
The Bond Account allows you to seek a higher yield than might be available in risk-free assets such as Treasury Bills. The Bond Account contains both investment grade and high-yield bonds. The Bond Account contains only bonds that are available for fractional purchases (in other words, in increments of $100 par value instead of the standard $1,000 par value units), that have good liquidity and relatively stable and narrow spreads. Bonds in the Bond Account, taken together, generally have coupon dates spread across the calendar year. In addition, the bonds in the Bond Account are diverse across a number of companies, industries, credit ratings, as well as other additional factors, which helps to manage risk of simultaneous defaults.
Diversification and asset allocation do not guarantee future returns or eliminate the risk of loss. The Bond Account is not intended to ensure adequate diversification and you should conduct your own research and make your own determinations as to whether a particular investment aligns with your investment objectives, risk tolerance, and financial situation.
All investing involves risk, including investing in corporate bonds. Bonds are often categorized based on the credit rating of the issuer, with high yield bonds being issued by entities with lower credit ratings. The risk of default by the bond’s issuer is higher in high yield bonds. Fractional bonds also carry additional liquidity risk because our clearing firm, Apex Clearing, has only one liquidity provider for fractional bonds. For more on the risks of investing in bonds, see the Fractional Bond Disclosure, Fixed Income Disclosure and Bond Account Disclosure.
Buy Order Methodology
Public Investing will purchase bonds in increments of $100 par value. To decide which of the ten bonds in your chosen Bond Account allocation to purchase next, we use a clear and automated methodology which serves as your instruction for every purchase. The Buy Order Methodology is as follows:
The methodology first looks at the target percentage you’ve set for each bond and compares it to your current holdings. It then identifies which bond has the largest shortfall, measured in par value, and uses your cash to purchase that bond first.
If there are multiple bonds fitting that category, we will purchase the bond with the highest credit rating.
If multiple bonds are underweight to target allocation by the same amount as well as have the same credit rating, we will purchase the bond with the highest yield at that time.
After each incremental $100 par value purchase, the Buy Order Methodology will be automatically re-applied to determine which bond to purchase next. This process continues until the remaining cash balance is not sufficient to purchase another increment.
Any residual cash that is not enough to purchase the next bond, according to this Buy Order Methodology, will remain as cash in your Bond Account. This cash balance will not earn interest and will reduce your overall yield, but can be transferred out of the Bond Account to other interest bearing accounts such as Public’s High Yield Cash Account.
For further questions please contact Member Support via in-app chat or email at support@public.com.