thoughts on Bonds?

[Revolution0918]

My dad recently passed from cancer and i inherited a pretty good chunk of change. I have met with 3 money managers so far and all have suggested bonds. I am ignorant on this topic and don't know how they work or if they are a good investment for what is ahead of us.....any help appreciated, thank you

[Kludge]

A bond's basically a loan issued to the public. Usually done because when banks have millions or billions of dollars loaned to corporations, they tend to get very hands-on, which the execs don't like. Bonds could also be cheaper, since you only have to have an interest rate low enough to push out all the bonds initially -- it lets the corporation lock in at an ideally-low interest rate. This can be great for a corporation if interest rates rise (this is largely influenced by the Fed Funds rate), making their lower-rate bonds less desirable. When bond prices drop significantly, a corporation can repurchase its bonds at a gain.

Whether or not you should invest in bonds depends entirely on the organization whose bonds you'd be buying. What you're asking is like "Should I buy stocks?"

[Mogambo Guru]

Sorry to hear about your loss..

I dont know much about buying bonds for investment, but a little thought on the subject can go a long ways.

Personally i would stay away from any government bonds...

As far as corporate bonds.. I dont know, you would have to pick a company you are confident in to make it through the turmoil we face.

Personally if i had to buy any bonds i would look for some companies in the agriculture industry..

I would diversify it a little bit... Do you have any debt to pay off, that would be first on the list.

I would have some in cash for an emergency/rainy day, some in gold/silver, small amount in some stocks i feel comfortable with getting through this prolonged recession/depression.

Not sure what other options or amounts of money you are into.. but maybe some good rural land is a good idea, you could possibly lease out to farmers/ranchers. Or if you can pick up a cheap property in areas where the prices have collapsed, like coasts of florida, arizona and some other areas...

my .02, I'm sure others will have good opinions... Oh yeah, and take a little vacation!

[Zippyjuan]

There are two ways you can make money on bonds. One is to keep them until they mature and collect the interest payments on them- the rate is given so you know what your return on the bond will be and when you will get the money.

The second way is to try to sell them. Bonds have a face value- say $1000 for a random example. That is what it will be worth when it matures and all the interest is paid out on it. It is sold at a "discount" to the face value to buyers of the bonds and the difference can be calculated as the rate of return. Say this bond sold for $900, then it would offer a ten percent (roughly) rate of return. Prices move in the opposite direction of interest rates- higher prices on bonds means lower interest rates (returns) and lower prices means you get a higher return.

Now if you want to resell your bond, you are competing against other bonds out there. If your bond is at a higher interest rate than other bonds are currently paying (rates have fallen since you bought yours), then you can get a higher price for your bond than you paid and get a positive return. Should interest rates rise, then a new bond is going to offer a higher return to another investor so you will have to sell your bond at a loss- lower the price to match the return on current bonds so if you think you may sell the bonds in the future before they mature you need to consider what may happen with interest rates. Given that interest rates are at historically low levels, odds are that interest rates will be higher in the future- and your bonds worth less.

Again, if you keep them until maturity and collect the interest (sometimes refered to as a "coupon"), then this will not matter.

If you do wish to sell them, you probably need to contact a broker (don't know how that process works - it will probably depend also on what type of bonds they are).

[Len Larson]

Sorry about your Dad.

No way would I buy bonds right now. A bond is just a promise to pay in the future. I don't think ANY organization can fulfill that promise given what's coming.

We really don't know enough about your situation, but here is my windfall scenario:
1) pay off short term debt. Credit cards, car loan, etc.
2) property taxes paid up to date?
3) Is your mortgage an adjustable rate? If so I would refinance at a fixed rate.
4) student loans?
5) Do you have the basic preps. covered? LTS food, water, electricity, security?
6) I would look at the yearly budget and set aside enough green money to cover outlays for a year or two. Keep this in your own secure storage. Not a bank!
7) Any remaining funds should go into physical assets. Gold, Silver or Nickels. Again, keep this in your own storage.

[legion]

Listen to Harry Browne's investment program.

http://www.crawlingroad.com/finance/...o/04-08-08.mp3

The Rules of Life

The rules of safe investing are little different from the rules of life: recognize that you live in an uncertain world, don’t expect the impossible, and don’t trust strangers. If you apply to your investments the same realistic attitude that produced your present wealth, you needn’t fear that you’ll ever go broke.

If you are going to invest in government bonds, please don't do it through a financial adviser. Buying bonds yourself is easier than ever, and 200 times more secure because you don't have to worry about the broker going bankrupt (Lehman, Bear Sterns, MF Global, ...)

Go to treasurydirect.gov for more information.

[legion]

HARRY BROWNE: In my suggested portfolio, 25% is in cash. And I have suggested that the cash portion should be either in Treasury Bills or in a money market fund that invests only in Treasury Bills. And the reason for that you don't want to be concerned about credit risk. Same thing with the bond portion, it should be in Long Term Treasury Bonds, because despite the terrible way the Treasury handles its money. And its not really the Treasury so much as [the way] Congress, and the President handle money and create all of these fiscal crises and the deficits and so forth. Despite all that, the fact is that the Treasury can always tax us or even print the money as necessary to repay the principal and interest. Now doing that, of course, creates bad problems. But it creates bad problems not just for Treasury securities, but for all types of debts. CDs, the Bonds of other companies, and Commercial Paper and all of these things are affected by it. And what you know is that there is no credit risk with any kind of Treasury securities, even though there may be an investment risk. But there is credit risk with the others. If we had sudden Deflation in this country, it may well be that banks would not have the money to repay all of the CDs that they have issued. Now, we like to think that the Federal Deposit Insurance Corporation would back up the banks. But, the Federal Deposit Insurance Corporation keeps only about 1% to 2% in a reserve fund. 1% to 2% of all the liabilities it has. So, it's in a position, the Federal Deposit Insurance Corporation to bail out a single bank when it fails, or another bank when it fails, or another bank over here when it fails. But, if we had a run on the banks in this country, and all banks were under siege from depositors who are afraid and wanting to get their money out of [them], there's no way in the world the Federal Deposit Insurance Corporation would back them up. Now Congress could appropriate money out of the General Fund for the FDIC, but I suspect that the Budget itself would be in horrendous shape at a time like that, and it wouldn't be likely that Congress would just vote to pay off all those liabilities of the banks 100¢ on the Dollar. Rather they would come up with some kind of plan that you got 50¢ on the Dollar, or only people who could show they were in need got it. Or in some other way it would renege on the promises, but attempt to pay off part of it. But, the Treasury Bills would be in a different position. They would be continually refinanced and taken care of. Now I'm talking about an extreme case here, and the situation that would exist. But, I believe that the Permanent Portfolio and the safety part of it should be set up not just for the risks that we can see in front of us, but for the unthinkable. For the things we just don't expect to happen. Like civil unrest in this country. Or other things of... A run on the banks or whatever it may be. Or hyperinflation of 20% or 30%. Whatever it might be that we don't see today as an imminent threat, the Permanent Portfolio should be able to cover all of those things so that you don't have to stay on top of it. So you don't have to keep reading the news and say, 'My gosh, are we going run into an unprecedented situation here now, and am I covered?' I want you to be covered no matter what happens...Now, the downside of the Treasury Bills is that they will not pay as much in interest as the CDs or any other short term kind of debt. And that's because Treasury Bills do have virtually zero credit risk, while the others have some measure of credit risk and that's what causes them to have a larger interest rate.

It's unfortunate that more people don't think about their investments like this.

[psi2941]

if you buy government bonds your better off, burning money for heat. $#@! you can't even do that anymore, its plastic now.