I've stated in this thread many times that I HATE BONDS.... The reason I hate bonds is because they are sold to people as being the end all be all SAFE investment. Well.... That's very true as long as you plan to buy the bond and hold it for it's maturity, and if you're happy with ZERO growth in your money. Since you'll hold the bond to maturity and only receive you're money back. Buy a 10K bond = hold it for 10 years = collect the yield = Get your 10K back.
Now -- here's why I really hate them. Because they're NOT SAFE. Hell no! Right now -- if you'd have bought a bond that paid under 2% (less than the rate of inflation!) and you wanted / needed to sell... you're going to get clobbered on the price of the bond. Remember that the YIELD rate is fixed on the bond.... so in order to get more YIELD - the new buyer needs to PAY LESS than you did - in order to RAISE the yield to whatever the current levels of new bonds are yielding.
So you hold a 2% bond - and a guy can buy a new bond tomorrow that pays 2.5%.... in order to have your bond yield the equivalent of 2.5% the buyer would only offer you "X" (well below your 10k).
Your CHOICE would be to take the loss or to continue to hold the bond til maturity.... so let's say you bought it last year... you now have 9 more years to hold your "safe" bond -- collecting your lousy 2%.... and in the meantime the yields rise to 6% (more normal rates).... and you're only going to get your face value back 9 years from now. That scenario is pure LOSER.
My MIL got talked into bonds and annuities 30 years ago -- I guess that's why we help support her today. Sad. Don't be that guy.
I love it when people tell you to buy stocks and then as you near retirement you should switch to bonds and "safer" investments. REALLY?? So wait -- let me think about this.... I've been investing in stocks for 25 years - and I've tripled my money and I'm getting a 8% yield on my cost basis.... and I'm planning on being retired for another 25 years.... WHY WOULD I ABANDON A STRATEGY THAT HAS MADE ME NOTHING BUT MONEY for something that is going to lose me money and the ability to stay well ahead of inflation?? WHY?? Because someone wants a commission... oh -- and that someone is still working for a living. IF they were so F'n smart with their money - why are they 63 years old and still working?? (okay - that's cruel.... but is the question I'd love to ask them).
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