Buying bonds in laymans terms | TigerDroppings.com

Posted byMessage
braindeadboxer
LSU Fan
Utopia
Member since Nov 2011
5015 posts

Buying bonds in laymans terms


What am I looking for? Is buying them through my online brokerage account ok? Keep it simple. I slept through my Finance class at LSU and the only exam I didn't make an A on was the one on bonds (made a C, did not get that shit). I have about 15k that I don't want invested in anything risky right now. I've put all I'm comfortable with into stocks.






Back to top
Share:
Tmacelroy12
LSU Fan
Houston
Member since Aug 2012
5489 posts

re: Buying bonds in laymans terms


Bonds, as you may now, are fixed-income investments. Their income comes in forms of payments in fixed intervals. These payments may come from a variety of sources, detailing the type of bond it is. For instance, companies may issue a bond to raise money for a revenue-generating project. That income would be how the debt would be paid off, i.e. your income. Government bonds, usually tax-free at certain levels, are usually paid with revenue generated by taxes.

With that being said, there are a multitude of bonds out there. Of course, the riskier the bond (chances of it defaulting) will yield a higher interest payment to account for the risk.

You can invest in foreign bonds, municipal bonds (don't have to pay taxes at all on these) or corporate bonds.

You may also want to look at some bond funds that diversify holdings in different types of bonds. It all depends on your financial strategy really and what you are looking return.

Let me know if you have any questions.



This post was edited on 12/5 at 11:23 am


Back to top
Nawlens Gator
Florida Fan
louisiana
Member since Sep 2005
2372 posts

re: Buying bonds in laymans terms


I'm thinking of liquidating my equities in the near future for a while til I get a better grasp on future economic growth potential. I need a safe harbor for a yr or 3. I've never owned any bond funds. Would the vanguard ginnie mae fund fit this bill? Is there much risk? Pays 2.4%, 3.4 duration, and low expense. It's a taxable broker account at vanguard.







Back to top
LSURussian
LSU Fan
Baton Rouge
Member since Feb 2005
80159 posts

re: Buying bonds in laymans terms


quote:

Is there much risk?

Credit risk? No.

Interest rate risk? Yes...a bunch. Even with a duration of 3.4 you could see an entire year's worth of income wiped out in a loss of market value if rates spike up at all.






Back to top
Broke
LSU Fan
AKA Buttercup
Member since Sep 2006
55569 posts

re: Buying bonds in laymans terms


quote:

Credit risk? No.

Interest rate risk? Yes...a bunch. Even with a duration of 3.4 you could see an entire year's worth of income wiped out in a loss of market value if rates spike up at all.


Ditto. You could also see the value of the bond possibly fall to 80 cents on the dollar or worse if it's a considerable spike






Back to top
BennyAndTheInkJets
Arkansas Fan
NYC
Member since Nov 2010
3831 posts

re: Buying bonds in laymans terms


I fully believe corporate and emerging market bonds will provide higher returns over the next 3-5 year time horizon than stocks.

Don't buy treasuries, not anywhere near the return profile right now to compensate you for your risk. I could go into a multitude of reasons but you said to keep it simple.



This post was edited on 12/5 at 12:20 pm


Back to top
BennyAndTheInkJets
Arkansas Fan
NYC
Member since Nov 2010
3831 posts

re: Buying bonds in laymans terms


quote:

Would the vanguard ginnie mae fund fit this bill? Is there much risk? Pays 2.4%, 3.4 duration

Low risk from your duration and the explicit government guarantee but there is no upside in price anymore and you're only picking up 2.4%. Any investment grade corporate bond fund would do you better over the next couple years.






Back to top
Dr Rosenrosen
Tulane Fan
Member since May 2006
1117 posts

re: Buying bonds in laymans terms


What about high yield? Still a value?





Back to top
braindeadboxer
LSU Fan
Utopia
Member since Nov 2011
5015 posts

re: Buying bonds in laymans terms


Thanks fellas





Back to top
TheHiddenFlask
Clemson Fan
The Welsh red light district
Member since Jul 2008
16773 posts

re: Buying bonds in laymans terms


quote:

What about high yield? Still a value?


High yield, short duration still has to be one of the few decent havens out there.






Back to top
LSURussian
LSU Fan
Baton Rouge
Member since Feb 2005
80159 posts

re: Buying bonds in laymans terms


quote:

You could also see the value of the bond possibly fall to 80 cents on the dollar or worse if it's a considerable spike
That would take an interest rate increase in the range of 5% annually with a duration of 3.4. So, 10 year bond rates would have to go from their current 1.6% to nearly 6.5%+ in a short period of time. which is not likely anytime soon.

'Not likely,' but I'm old enough to not rule out anything these days, especially if the morons ('morans' for you Rant & O-T Lounge readers) in congress don't accomplish something soon on the deficits.



This post was edited on 12/5 at 4:14 pm


Back to top
The Easter Bunny
Georgia Tech Fan
Minneapolis, MN
Member since Jan 2005
41772 posts
 Online 

re: Buying bonds in laymans terms


quote:

High yield, short duration still has to be one of the few decent havens out there.


not asking for a recommendation, this is just for clarification

Can you name an ETF or fund I can look at as an example of this?






Back to top


Back to top




//