#119 - What You Need to Know to Invest in Bonds
Welcome back to another episode of The Retirement Answer Man podcast, I am Roger Whitney, your host. In a financial climate like the one we are currently living in, when interest rates are low, how should you think about those fixed-income investments in your portfolio such as bonds? On this episode of the show I am going to take a deep dive into bonds of various sorts the help you navigate the treacherous waters of fixed-income investing.
One of the ways I’ve noticed that people are happier about their investing?
When it comes to people who actually take the time to invest as they should there are two types of investors I have met over the years. The first are the ones who entrust their investing to an advisor and don't bother to ask him out the details very much at all, and the second are people who have at least an elementary knowledge of their investment strategy and understand why they're doing what they're doing. In my experience the second group of people are the ones who tends to be happier overall and are actually a bit more successful in their investing as well. On this episode I want to encourage you to be this type of investor.
Do you really understand what a bond is?
Most people have at least an elementary understanding of what a bond is when it comes to government issued bonds. But did you know there are other types of bonds as well? And do you really know how bonds work? When this episode of the podcast I am taking a deep dive into the issue bonds and talk about why you should still invest in them when interest rates are so low as they are now, and how you should go about doing that in a wise and prudent manner. It's all on this episode of The Retirement Answer Man podcast.
The major risks of investing in fixed income investments (like bonds).
Most financial advisors recommend that every investment portfolio contains fixed income investments, like bonds. But one of the more obvious risks to this kind of investment is that when interest rates are low they don't typically get a very good return for the investor. On this episode of the podcast I'm going to walk you through some strategies that can help you mitigate those risks and feel better about the fixed-income investments in your own portfolio. It may not sound possible, but I assure you that it is.
When is the last time you assessed your fixed income strategy?
On every episode of The Retirement Answer Man podcast I walk you through what I call my “Smart Sprint” segment where you are encouraged to take small, actionable steps to advance your retirement goals. On this episode my challenge surrounds your fixed-income strategy and how you're managing it in your current portfolio. It's time to a set, it's time to make those small adjustments that can make a big difference. I'm going to walk you through it on this episode.
OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN
- [0:25] Roger’s intro to the show.
THE HAPPY LAB
- [1:50] Those who are engaged in some way with their investment strategy and the “why” behind it tend to be happier.
HOT TOPIC SEGMENT
- [3:10] The recent bad news from the FED, and whether rates will rise in June.
- [4:30] What’s the outlook on equity shares in light of this news?
WHAT DOES THAT MEAN? SEGMENT
- [7:03] What exactly IS a bond?
- [7:50] The unique terms and structures related to bonds.
PRACTICAL PLANNING SEGMENT
- [12:26] The major risks of investing in “fixed income” (bonds).
- [21:30] A listener question about cash “buckets” available for retirement.
- [25:00] The other possibilities for retirement “cash reserves.”
- [26:30] The wrong options for cash reserve strategies.
- [27:40] How can I invest in bonds when they don’t seem profitable?
- [29:57] Why the pure science of asset allocation is not enough.
- [31:28] Things you can do to mitigate the risks.
- [35:02] The strategy of using “floating rate” bonds.
- [36:56] What about a “bond ladder?”
- [39:15] Roger’s thoughts about a “barbell” approach to bonds.
TODAY’S SMART SPRINT SEGMENT
- [40:50] Today’s challenge: Assess your fixed income investments.
RESOURCES MENTIONED IN THIS EPISODE
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
3-video Series: 5 Minute Retirement Makeover
Roger’s Retirement Learning Center
The Retirement Answer Man Facebook Page
Marketwatch article mentioned in the show