The past few weeks I’ve written a lot about bonds and considered whether bonds should be in your investment portfolio. Many people love the income and relative safety bonds provide, but other people hate them. It’s important to understand why investors love and hate bonds.
Predictable interest rate
LOVE: Folks who despise uncertainty buy bonds because of the “fixed income” schedule. They know the exact amount of income they will receive and when they’ll receive it…up until the bond matures.
HATE: Those who believe interest rates might rise argue that locking in an interest rate today potentially limits the amount of money they may make tomorrow.
Safer than stocks
LOVE: In general, quality bonds don’t default, which means that they pay their interest and principal on time. Stocks, on the other hand… well who knows! Why take on the extra risk of stocks?
HATE: Bond naysayers argue that over time, the stock market will outperform the bond market, so why let your money remain stagnant when it has the potential to grow?
Easy to choose
LOVE: Bond buyers often follow basic strategies, like diversifying the bonds they buy over various maturity years (watch a short video on how to build a bond ladder here: Profile-Financial.com/bond-ladder) and consider only buying bonds with good ratings.
HATE: Sophisticated bond buyers will often look for companies in distress, foreign firms, or bond issuers that may need to restructure. Finding and making money on these deals is not easy, but it can be very rewarding. A professional bond investor would never say that good ones are “easy to choose.”
I specialize in helping people with their U.S. investment and retirement accounts, and regularly help retirees who are looking to get more income from their investments. Together, we choose bonds for their investment portfolios with the goal of giving them steady dependable income. If you have questions about your own account and are interested in investing in bonds, call (02) 624-2788.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published November 26, 2018. Updated March 2021.