#215 - The 007 Effect: Why Everyone Loves a Good Bond
April is Bond Month on the Retirement Answer Man podcast. Over the next four weeks, we will be discussing all things bonds. This is the first episode in the bond series in which we will discuss what exactly a bond is and why we all love them. You’ll want to listen to this series to find out what a good bond is and how to get one. Start learning about bonds by listening to this episode to find out exactly what a good bond is, how to buy them, and what the future holds for bonds.
Is our love affair with bonds coming to an end?
We have had a love affair with bonds for the last 30 years, but is the love affair with bonds coming to an end? The reason we have had such a good run with bonds is that they have had great returns while at the same time being a pretty low risk. Over the past 37 years, bonds have yielded an average of 8% a year. The worst year in bonds has brought -10% profit. Let's compare bonds with the stock market during the same period. The stock market yield has averaged 10.4%, not much higher than bonds. But the stock market low was -50%! Listen to this episode of Retirement Answer Man to find out if the stability and high rate of return of the bond market are at the beginning of the end.
What do interest rates have to do with bonds?
Interest rates may end up spoiling our love of bonds. Interest rates and bonds have always had an inverse relationship. As interest rates have dropped, bond returns have increased. Over the past 37 years, interest rates have dropped steadily, but it looks like that time has come to an end. According to Barclays, interest rates may continue to increase. These rising interest rates can be scary for the bond market. Listen to this episode of Retirement Answer Man to learn how rising interest rates may affect the bond market.
What is a bond?
A bond is basically a loan to someone else. Different bonds have different ratings depending on the borrower’s credit rating. The coupon rate is the amount of interest that the borrower pays depending on their credit rating. The maturity date is the length of time that the money is borrowed for. There are many different types of bonds including treasury bonds, corporate bonds, municipal bonds, and international bonds. All of these different types have various characteristics. If you want to learn all about bonds you need to listen to this episode of Retirement Answer Man.
How do you buy a good bond?
There are a couple of different ways that you can go about buying good bonds. You can research the kinds of bonds that you are interested in and have your broker find them for you. The pricing of bonds is a bit shady and not as straightforward as with stocks and it’s hard to tell whether you are getting a good deal. Make sure to diversify your bond portfolio. Mutual funds and exchange-traded funds are ways to diversify. By buying mutual funds your portfolio never really matures like with buying individual bonds. But they make it easy to reinvest the interest payments. Listen to this episode of Retirement Answer Man to hear about the various ways to buy good bonds so that you can decide what’s right for you.
OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN
- [0:52] This month we explore bonds
HOT TOPIC SEGMENT
- [4:01] We have seen a steady decrease in interest rates for 37 years
- [6:29] Let's look at bond returns
- [9:19] Is the love affair with bonds coming to an end?
PRACTICAL PLANNING SEGMENT
- [10:40] What is a bond?
- [15:23] What are the different types of bonds
- [16:57] How do you buy a bond?
- [20:06] Next week we discuss what role bonds play in your portfolio
THE HAPPY LAB SEGMENT
- [21:05] What is your favorite James Bond theme song or soundtrack?
TODAY’S SMART SPRINT SEGMENT
- [21:58] Identify what kind of bond investments are in your portfolio
Resources Mentioned In This Episode
Listen to listener questions on Retirement Answer Man on YouTube
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
Intro music by bensound.com