Howdy! It’s tough during covid isn’t it? So let’s focus on increasing our knowledge so we can build a better future for ourselves. #Bonds. There is definitely a place for bonds in your portfolio, especially as you near retirement age but again for the everyday investor, a bond fund which offers diversification may be a better approach than investing in multiple individual bonds yourself.
So what is a bond? It’s basically a loan you make to a government, a company (a corporate bond) or organisation and in return they provide you with interest payments and return your capital at the end of the bonds term. So you might give a government €1000 and they promise to pay you 3% over the next 30 years (the bond term). Bonds are rated depending on how risky they are. The least risky are investment grade bonds rated AAA (by S&P) or Aaa (by Moodys). The most risky are rated D(S&P) or C (Moodys) which means they are “junk” bonds and have the highest risk of default (ie that you may not get back your capital or interest on the bond).
Again for the everyday investor, investment grade bonds or A rated bonds are the way to go and in an index fund form (remember those from the last post) – you can also buy low cost bond funds that follow an index and so you can achieve diversification at a lower cost. Make sense? Any questions let me know below.
By the way I just read “Unshakeable” by Tony Robbins and it’s perhaps the worst book I have ever read! While I admire him as a motivational speaker, the financial knowledge (and it’s supposed to be a finance book) in the book is minimal so don’t waste your time on it. Of course you were thinking of reading an investment book, admit it!!!
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