I think we all know about stocks but very few of us have studied bonds, and we always think that stocks are better bonds. But that all depends on how you are judging them. If you offered me a stock that makes 10-15% a year or a bond that makes 8-10% for the next 30 years from the US treasury I would take the bonds. And if bond rates ever go as high as 15%, I would sell my house and buy it.
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1. what is a bond?
- A bond is you lending your capital ( and in return getting an IOU)
- And you can owe different people, companies, governments, and even nations
- Pretty cool stuff
The money you lend out is the Face Value
2. How interest is paid on it
- This is your profit or the coupon rate
Now this means you can make a lot of money or a little bit of money
- All based on the credit rating of the entity
- For example, a car dealership can make a lot more money from someone with a bad credit score than from someone with a good credit score
- But that’s beucase they run more risk of not getting paid
So the trick with a bond is making sure you get your money back
So I lend my money to the US
- Right now I’ll get paid 4%
- If I lend my money to the Dominican Republic I may get paid a lot more you see what I’m saying
3. When do you get paid your money back
- This is the maturity date
- You have bonds that last 1 years or 5 or 2 or even as much as 30 years
- It all depends
- But you don’t have to wait until your bond is mature to get your money back, you can always just sell on the secondary market
4. How to lose money
- Think about it for a second
- If you lend someone $1,000 and they agree to pay you 5% on your money for 10 years ( how do you lose money ? )
Few ways :
- Literally, that person defaults and cannot pay
- Second inflation goes up to 10% and now you’re losing money by keeping that investment
- Or you need the cash and you sell on the secondary market for a lost
5. What is a good interest rate?
- A good interest is based on a few things
Few things:
- How much money do you want to make
- And how much risk are you willing to take
- That’s it
For example:
- The USA issues out a bond with a coupon rate of 15%
- The US is in World War 5
- Risk is they lose and can't pay you, the gain is they win and they can pay you
Another way to measure it is like this:
- Us is paying 4% bond rate ( which isn’t great )
- You have 1Million dollars and need $40k of guaranteed income
- That’s a good idea
6. Highest interest rates recorded in history
- In the 1980s during that period of uncertainty rates rose to over 14% for a 10 years note and 30 year note
- Now imagine you get a guaranteed 14% each year
7. Stocks vs bonds
- Stocks outperform bonds 10 out of 10 times over the long term massive term
- But it is something I would consider if I can get a good rate of return for a long enough time
- Because the goal is not abundance really but just a solid income
8. treasury bonds being the most senior debt are paid out first and if not would destroy the us credit score in a sense
9. The different types of bonds
10. When do you get paid
- Sometimes monthly and sometimes 2 times a year
- It all depends on the issuer and the agreement
11. No investment is bulletproof proof, the government can fail and a country can fail ( examples like the Russian Federation pronouncing certain bonds worthless or other ones )
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*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I'm an Accountant but I'm not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.
20 авг 2024
