Roaming Returns

005 - How To Make More From Bonds Without Buying High Risk Junk

• Tim & Carmela • Episode 5

Share episode

Bonds are an essential part of any investment portfolio whether you're trying to preserve its principle or generate a fixed income.

But bonds tend to come with some unappealing tradeoffs like low risk but safe or risky and higher coupon payments. 

We show you how you can make more from bonds while avoiding the pitfalls. You just have to know how and when to buy them.

Funds are the alternate way to go for investing in bonds, but there aren't that many good ones. We're invested in DSU which pays a ~10% dividend yield.

Drop your comments or questions for this episode on one of our posts.  


If you love the fixed income of bonds you may be interested in our favorite alternative that's completely liquid and isn't in the stock market.

Sign up for Worthy using our link and get a FREE $10 Bond.

If you're looking for a more detailed summary of this episode, click here.


We're trying to grow. Help us reach others who want to learn to invest with confidence. Spread the word and leave a review to help us rank in search. 

We appreciate your support!  

Text Us 📲

Want FREE weekly market updates, Tim's top 10 dividend picks, and our portfolio updates delivered right to your inbox? Subscribe to our email list.

Stay connected. Follow us on social!

Questions, comments, or requests? Contact Us! We're here to help.

**DISCLAIMER**
Ticker metrics change as markets and companies change, so always do your own research. The content in this podcast is based on personal experience and is for educational purposes, not financial advice. See full disclaimer here.

Episode music was created using Loudly.

Welcome to Roaming Returns, a podcast about generating passive income through investing, so that you don't have to wait till retirement to live your passions. In today's episode, Tim and Carmela talk all about them bonds, which is boring, but don't worry, we got some spicy Buddha Chris Start Trek references going on let's get chalky with it oh my gosh damn.
Come to Roman returns y'all
gotta control. Alright, so today's episode is going to be all about the bonds.
There's a reason that I have an interesting voice because bonds are so dull. Bonds are boring bonds are boring, but they basically should be a vehicle in any income driven portfolio to break up depends on the desired result, but your portfolio should have bonds should first if not, ours does not the current moment.
Alright, so we're gonna go over a few different things retirement does. First we're going to talk about why someone would want to buy bonds or the pros. We're going to talk about the risks or the negatives of bonds,
what are the cons For those keeping score at home bond
strategies, and then we're going to give you guys for those of you who think bonds are just as boring as we probably do some better alternatives or alternate strategies. On
all I love
when the European people do that, oh,
if you guys don't know what we're talking about we lol over here, and for whatever reason, the first
time I ever saw Ricky Rivas say that I was like, wait a minute, I had to rewind it to watch it again. I was like, That's hilarious. Whoa, they all
do it over there. It's hysterical. I'm talking to my one girlfriend who's who's UK and the law is a thing. All right, guys. So why would somebody want to buy bonds or the pros of buying guns? The number one that I think everybody talks about is the fixed income. aspect.
They're very predictable. Like when you buy a bond, you know exactly when you're getting paid. Like what two months that they'll be like they only pay you twice a year and they will know exactly when they'll pay you and you know exactly what you're getting paid. It doesn't tell you per se, but you can take your 1000 times the coupon yield or the interest rate, and then divide that by to see you know exactly what you're getting paid and exactly when you're getting paid. So there's very predictable
and they normally have a term five years 10 years.
I just found I saw somebody saw a coke when it's seven years down the road, but it does yield 7% So that's like that's pretty good for a bond. That's pretty good. You can pass it on to your kids and grandkids and your grandpa your great grandkids and
the thing with that they're steady payouts for that. What is it by annually
and you know, it's gonna be around 70 years where quality
the study the fixed income so I think majority people consider bonds less risky than stocks. I would actually disagree on some levels, but
the probability of a bond defaulting obviously increases with the more risk you take on like you they have that financial grade for a reason, like you get an A bond the probability of it defaulting. Is like less than 1%. But if you get like a B, BB b one, it goes up to a 5%. And if you buy like a junk bond at or below be below investment grade, it goes up to like seven or 8% but it's still not anything to be like super concerned with.
Well, we'll talk more about that whole rating schedule when we get into the risks. And the negatives, but bonds are typically considered less risky because of their fixed income payment and the interest rate. Now a lot of the books that I've just started reading about investing since I'm the one that's learning while Tim's the mastermind over here, they talk about how you said it. How there's more of a risk of the like if interest rates go up, and again, we'll talk about that over in the negatives category,
but it actually in all actuality, the interest rates going up presents awesome buying opportunities. So
generally bonds are the last, I guess asset to cut their payouts right. So
what that's basically saying like if you buy a dividend stock, I don't know say coop, since we brought the bond Coke, if they have a rough financial period, and they they suspend their stock payment, they'll suspend the stock to the common the common common shareholders, then that'll trickle down to the preferred if they have any preferred nor generally cooked hasn't been if they have preferred and the last ones to like have their interest and or their income suspended would be the bonds. But generally if they suspend the bond, they actually will tabulate it like it's called a cumulative thing like with a accumulate and how much money they're supposed to pay you and they'll actually pay you in one lump sum. So if you don't really miss your payments to your bonds get priority. So that's nice.
You guys locked in that number and they want to make sure you guys get your stuff I can't
get over the seven year cup. It is kind of ridiculous, but
I can't believe it. 70 years left on their life like almost 40 at this point. 7%
It's ridiculous to me like but like you'll generally find it the longer duration of a bond you take on the higher interest rate or coupon that you'll receive. I'll explain that in the strategies how you actually can use that to make money without holding the bond for
seven years playing over in the negatives why that could potentially be a negative or pitfall. Okay, so the other reason that people tend to like bonds or specific kinds of bonds, because there's multiple different kinds. I guess we probably should go over this real quick. So there's the corporate bonds corporate bond, Cokes, a corporate bond.
They have different investment grades, but yeah, there's corporate bonds, coke, and then they have, they have municipal bonds called muni bonds. Those are like your local government.
So the muni bonds are something that they talk about when we're talking about tax benefits and tax advantaged accounts. If you're in say, like a retirement count, like the regular traditional IRA or 401k, where you get the tax deferment, you don't really have to worry about buying the Munis but if you're in just a regular brokerage account where you want to recoup a lot of the taxes that will be taken out in Unit municipals as long as I think you're in the state or in the municipality, I believe it's the state level, you'll actually not be charged taxes at that level for holding that bond.
Yeah, like for privacy. Do that if you were in New Jersey, I know the New Jersey Transit System has a lot of municipal bonds that you could get there tax free for
people living in New Jersey. So those of those people around in other weird places, but that's that's like a weird little loophole for that whole thing. But as a general thing, bonds aren't municipal,
then you have the treasuries they're in the same category as bonds. Are they? Yeah, and people really like those because they're, like the safest quote safest thing. I mean, if the government goes under, and you're treasury bonds and T bills, T bills and tips and all that stuff, and then they have force ones government agencies that's like, like FEMA or the education system or the mortgage system, they actually have their own their own bonds that you can buy. Generally, I think those are tax advantaged as well, but there's I don't think they're free like the municipals I think is still reduced tax. They pay really good
if you're into the whole tax incentives for this when we actually do a tax episode. I'm not going to get down in the weeds on that. Because this is just a general bond overview episode. So
we pay the most you hear the four year government agency.
Let's go back to the government agencies at FEMA, right? It's a FEMA the people that are going to help clean up this whole Hawaii fire thing. Wouldn't it be a FEMA
that sometimes they've been jority of them are like, like see majority of the home mortgages. For whatever reason how mortgages there's a lot of like what they have in these category? S H lb pharma Mac, Federal National Mortgage. So these are all the mortgage loans. How
does that even mean? I don't know I just know help them pay since the fire or the or the hurricane. Damage. I
just know that this one pays 6% for four years. That's a really good and you're only overpaying by point zero 9%
What are the terms of these things you're only ever paying by 9% point 09 core values 109 So you're not really overpaying my muscle you might actually want to consider the government agency. Oh, did you just find something? Learn something like that? Look at that.
Always Learning always you always have to be the last
reason that we have four potential reasons that someone would want to buy is our actual number one and only reason is that they're super super easy to evaluate. Like
anytime you go If anytime you search for a bond then your brokerage some brokerages are better than others. It'll pull up like the the par value for bonds 101 Zero 0.00 That's a perfect par value, not
under by underpaying or overpaying anything
over 100.00 You're overpaying and anything under 100 point there is you're getting at a discount discounts or get discounts are super good was explained to you why and the strategy strategy portion
Alright, so on to the negative the risks and I keep saying negative things like the con
become a Con Air Connor how's it really good movie?
It's been a while. I remember it being real creepy.
Nicolas Cage was ripped in that he was like bro, it's like the whole dude
he creeps me out. Alright, so one of the cons would be default. Default
like that. Is like Memorial we're discussing the tiers before like there's a tier bonds.
Now this is probably a good point to talk about the default rate
of an air tier. A tier bond is like minimal like it's next to none and it's pretty much a security you can get into a better chance to get struck by if you get like below a BBB my like a BBB minus i think is as low as like the investment even or the junk bond area like I'm not sure how many people are old enough to remember like the 80s and 90s where like there was junk bond kings and stuff like that. They were literally buying like companies that were dying and they were buying their bonds up and then they would sell them oneself the price shot up but like you can get those for like 20 3040 cents on the dollar. So you're getting like a 60 to 80% discount and as soon as it goes up even five or 10% It'd be the same way as they do with short selling but the opposite they don't have bonds.
kind of sketchy but the default like it below you have high
interest rates. So that's why people get sucked in.
So the junk bonds like they default way more frequently and if they default you're out. Yeah,
so they're super risky. Like that's you lose everything if they default. Yeah, if
they default you lose your whole 1000 Or if you put 10,000 If you bought time you lose them all. That's why you have to be really, really thorough in your research in bonds, which is
a pain. The other thing with bonds is one of the risks or negatives. Cons sorry would be that there are $1,000 per bond. Yeah, it's
it's a probably it's a pricey investment. You can literally get funds. I mean, if you want to do ETFs you can get ETFs for like
strategy, saying like we just in general like stuff that's lower, sorry, lower cost, or cost per share, because you can buy more shares. And the way that our dividend strategy works is you're looking for the biggest number of shares you can buy with the amount of money that you have. So you're getting payouts per share. That's how you really increase your earnings. So $1,000 per bond. Doesn't sound so appealing. When you look at it from that.
Just do the math you got a 9% bond and you get $90 for $1,000.
Didn't seem worth it. Yeah,
it's not. That's why we don't have Metropolia right now. But they're really good for retirement portfolios because they do keep your principal intact.
Yeah. So that would be a designer and that's kind of the whole reason we have them on my mom's retirement account, but we do not own them in our own. The other risk or risk would be company downgrades. I didn't even know this was a thing though. He just said this.
i If you're familiar with it, like there's different reporting agencies out there they like their whole job is to be snitches. About different companies like they'll just like go through their financials, they'll go through like their earnings reports and be like, Oh, we're gonna downgrade this company because we don't like where it's going. When they do that. It actually does trickle down to the bonds and sometimes the people in charge of the bond rating will drop from like an A to B, BB. So like they'll drop it like four or five letters, four or five rungs on the resume that
makes people panic and jump. It
does make them panic and jump and then when they do that, it's just It is similar to stocks when people panic and jump. The bond price plummets.
Which is when you could do a buy opportunity, right? Yes, yes, yes. Yes. Oh, another thing with the defaulting thing I remember just reading this in a book they talked about one of the easiest ways to get the bonds at lower than par value is when one of like one muni bond or other bonds in another area. Do you do a default? It scares people in general out of the bond market, but that doesn't mean that all bonds are created equal. And when something like that crops up in the news, that's the time to go bond hunting,
or when the interest rates go up for two years straight or that to actually
speaking of interest rates. One of the other risks is so the biggest risk I always read or have seen in like five or six books I've read so far is that if interest rates go up, the bond that you currently have is of less value because it's usually at a lower interest rate. So they're less desirable, which means your value of the bond you're holding goes down, but you're stuck in it for a long amount of time. You can always sell it for a loss. You could always sell it for a loss. But that's like the biggest risk is like right now. I don't even know if we're in a good mark because we don't know if the interest rates are going to keep going.
Another con that you didn't mention is your tie that your money's tied up forever.
Liquids the next one. So this 10 year five year like that. So we don't know where you're going to be doing in five years. 10 years like I don't particularly want to lock my money up for that amount of time. It's
very comparable to a CD like That's why you always shoot for the six to 18 month CD so you that's a generally a timeframe people are comfortable with so
you can get shorter term bonds but I think the interest venture is this lowers pass. Yeah, so the shorter term ones you get the lower the interest isn't are not usually worth the seven year bond,
or 70 year bonds are good but like what are you doing in 70? No idea like I'm warm food at that point.
Pretty much. So interest rates going up at liquid
liquid now that like they are like I was explaining this to her the other day when she brought out the topic like generally if you buy a bond and you sell it before it matures, as I say,
God, I love it. You say that I'm a tours mature
or you're going to sell it for less than it's on the market for like
you always lose money. Like
I've never what I've I've bought I've bought and traded bonds now for five years and I've never once sold one without it maturing for what it actually what the price is like the bid asking the bond thing it's always been under. Oh always
couldn't. Couldn't another risk be the callback, the risk of callback at a less than you paid for value.
Well, that is a huge risk. Like that's what we brought up earlier. Like they always are 101 Zero 0.00. If you buy it above that you run the risk of the company saying well, we no longer need our bonds in the market. So we're calling all of our bonds back and if they do that, at that point, they call back at 100. So I see some that like that, like the Koechlin for example, he's brought up a 70 year was at 7% but it oh the other the price was at 140 8.9. So you literally are paying 48% over overpriced and if they call it back, you're losing 48%.
And that's no bueno. That's like the equivalent of stock market going down. So like you
always like you gotta be really cognizant of what you're buying it for,
which we'll talk about in the strategies. I got one more here. So we were talking about earlier how bonds are just a pain in the butt to do research and to buy and most exchanges like Vanguard
horrible they're awful like the her her mother's retirements Vanguards and ticket A bonds Vanguard is it's like reading freaking Chinese if you've never written read Chinese before. Like Ken Schwab, the one that we use for our primary for the the insiders portfolio like it's so easy you literally just go to the bond you click on the corporates and then you go into your your filter and things and you just type in 9% or 10% or whatever you're comfortable with getting returning a list of all it's super easy to scram. Vanguard doesn't do that.
Vanguard look at one and TD Ameritrade we've had like multiple counts with TD Ameritrade just as
cheeks too. I love that cheeks cheeks.
Alright, so those are all the risks default downgrade interest rates going up at liquid higher price per per bond per share, and their Trixie Trixie hard to buy hobbits
Schwab Schwab it's super easy. I'm not I can't even emphasize emphasize that enough CDs bonds are super easy in Schwab to buy right
on to the strategies.
Yay
Alright, so Tim talks about bond ladders or laddering all the time. And I had no idea what the heck.
This is an investment strategy that they use for CDs and
bonds, anything that pays dividends if they're not on a monthly basis. Basically, anything that has
the structured payment like basically if you buy a bond and you say it will pay out in January and June, July. Then you next time you buy a bond you buy a bond that pays out in February and August and so on and so forth. So you have a payment and interest every month.
So the goal for income investing is to basically have a recurring monthly payment that's about the same it's coming into your account as cash so you can spend it on a monthly basis because people have bills as
well those those those monthly fund pairs and stock pairs because even if the even if the price is volatile, and it goes up and down which again, we we discussed this previously, it doesn't matter what the price does, it matters what your monthly payment is. I
feel like we should have had that whole they only pay out twice a year thing up in the negative category. So I guess we missed that one but I would actually stick that up there.
Because you've never seen Star Trek you have no idea what you're talking about because I'm not a Trekkie, Captain Kirk, and then this guy named Khan are like they're at war for like ever. And every time Khan gets the best occur, he goes you know, William Shatner and over over x, it's hilarious. Okay,
that's hilarious. All right. So you can structure them up so that you can get a payment payment every month if that's something you're looking for. That's really
you can also do like you can, you can also do a more in depth ladder. So you have quarterly paying stocks and they pay I don't know, January, April. July, then you can actually get a bond to fill in those months. You're not getting payments in your stocks, or a CD. So like you can like basically of what a ladder is you set your account up that you're getting a payment every month, no matter if it's stocks, or bonds or
enables us to actually go into a monthly payout window where it'll show us if we're actually getting similar payouts per month it does like a Schwab
is so much better Vanguard doesn't have that I do like it is kind of Vanguard is cheap.
Well, you can't knock finger completely because if you understand it, again, just read a book that talks about why Vanguard is the way Vanguard is, Vanguard is the only exchange that is not for profit, it is literally built for low fees. So
that doesn't justify being cheeks.
I get that point but they I guess skin poor they can because it's they're looking more
about kind of an important area to skimp on.
Well, let's segue into one of the other ones. You're gonna talk about what strategies so Vanguard is really good when it comes to the whole index fund thing. Bogle is I guess, the forefather or whatever for this whole index funding thing? That is basically taking a snap of an entire group of assets, whether it's equities, whether it's the bond market, and you're creating just one fund that basically replicates the overall payout or average payout. So I would never do if I'm like that. Well, the bond one doesn't make any sense of mine.
If I was going to get into a fund that goes bonds, I would find one that actually takes on like 100 corporate bonds.
I think they have different ones. Now the Vanguard ones specifically, are the lowest fee that you can get and funds in general we're going to do a whole episode on like fees and funds because you can basically have significant funds are awesome. They can be if you buy them at the right price, so they're awesome. But they can also eat you alive and fees if you're not getting into the right time or if you're in specific mutual funds stuff.
Spoiler alert if you buy it on undervalue your feeds are covered.
That is true. And that's the other strategy. So we talked about the index fund if you aren't interested in that and that's something like a set it forget it like you really don't want to be any active whatsoever. The ticker that I looked at for Vanguard but before we got on with super, super low fees is v b to x. If you compare their fees to the ETFs and mutual funds, that Vanguard Bond Index Fund is point zero 5% versus point five nine that's like 100 times difference. If anybody's interested in that passive, maybe setting it in a retirement account set it forget it for 20 plus years.
de su which we have in our portfolio, it's basically they invest in bonds, they're they're closing. Yes, their fees are only 1%. But you get a 99 cent dividend every month at $10 a share.
So that's what we do. So the way that we do that is that when you're talking
I'm just putting it out there for somebody who wants to be way more passive. So this the our best bond strategy and the way that we invest in them and it's the only way that we invest in bonds if we choose to is doing the whole below par value significant discount.
So I feel like for from her mother's account for example, like I realized probably say October November last year I was like bonds are getting ridiculously underpriced. This is before any of the quote experts said it which they've been saying all year and it's so so annoying. It's like you guys are effing experts. You should have been ahead of this. I noticed like like for example, I got her IgM bond which is a pretty good company has a good credit rating, I got that 480 $8 or 80. So I got 12% discount on that. I found another one. That's a really good company. It's a Tria, they make cigarettes you know, cigarettes for like the rest of the world. I got that at like 79 So I got the 21 Oh, wow, that's interest. 21% reduction. So like if you know when to buy them you can literally go in and just get ridiculous like right now is a good time to get get in for a ridiculous underpriced and then what you do, you don't actually you can get any duration of that. You can hold on to them as long as you want. Basically what I'm going to do with the GM and a true Ultra beautiful like this is I'm gonna hold on to it till it gets backed up to 100 and then I'm going to sell it now I will I will have collected the 10% interest per year, however many years it takes to get there and then I'll get the 21 or 20% price appreciation then I'll sell it I don't want anymore. So
what he'll do is he'll buy it on sale. And then he sells it based on when the price depreciation happens. And then he'll take the profits out and then he'll either go find another bond or find another stock or something that's low valued and get into one of those or dump it into something else that were in this lower price. Well,
that's what that's what I saw last year. I was like I can get these things for 60 7080 cents. on the dollar. I only hold it for I'm assuming until the interest rates start going back down would be 2024 2025. So I only have to hold it for two or three years. While I'm holding it. I'm getting a good interest payment. And I'm getting a little bit of price appreciation because it's so dirt cheap. And all the experts are a little bit all the experts are late to the
party, get value jump in two years to silver on
the wall, just sell it and then I'll like if at that point I'll probably won't get into bonds until we have another downturn. Yeah, that's probably what they did with the junk bonds back in the day. I didn't really pay attention to that. I kind
of make sense now that you're saying that because that's what they do with stocks you get junk
bonds are almost always on sale. Because they're shit.
And they're crap for a reason.
I'm sorry I swore My bad. You're good. I swear so much. So like if I let one fly every now and then forgive me ahead of time. Just
be unreal. Have a note that the sailor think my mouse worse than yours in the body of a ballerina.
Ballerina. Are you kidding? No,
I'm not. I'm, I'm Pachi
Pachi Okay, I can't even quite wrap my head around that one. And then the other strategy again was that muni bond with the whole tax advantage thing. We don't really do that if that's something you guys are really interested in. We can dig into that and give you more details. For tax advantages. You
don't pay taxes,
you don't pay taxes in your on the state level. If you're living in a state where you buy a municipal so
if it's strictly for retirement portfolio then it makes sense. retirement portfolio, if you're not paying taxes, when you withdraw when you're retiring, doesn't matter. I
would think it'd be you'd only buy the
retirement portfolio but people in their retirement years Yeah,
if they're in the retirement years.
Worry about taxes when you're retired because you live in, I guess paycheck to paycheck. I don't know. We
really only have one strategy, even though we kind of made that into thing now. Are you glad again, we don't have any bonds in ours? So I guess I can't ask. No, I know a ladder in our normal account because you just showed me the other day you were all excited you had it about balance for every month.
That one took a ton time. Because when you have those quarterly however you're
trying to sleep do you like look what I did look good. I did like quarterly.
It's way more it's more way more difficult to get quality quarterly payment than the monthly ones are so easy, but like I got picked up a few quarterly ones and it was like we're talking like it was like $700 like three months a year and that was like $2,000 like three months here. I was like ah, I gotta I gotta fix that. Unless we're living large go into Red Lobster those those months we get 2000 Dogs
are always associated with living large. I
don't know. I think that's so funny.
I have I'm a hick from the middle of nowhere. Red Lobster is everything that I know.
And I think my Oh, she does that when she picks up some random stroke to
bring me a bird. Thank you.
Well, we do since we don't really like bonds now that we're done, I guess bash in half fashion bonds. program. They have their purpose and they do have their purpose. So the strategy that we use Tim's absolute one of his favorite investing vehicles are closed ended funds. I don't think most people have even heard about these. They only really hear people talking about stocks and bonds in general but closed ended funds
closing the funds back the difference between an open ended and closed ended like I never would have guessed this prior to doing this closing this fun means they generate no new shares. If it says they have 14 million shares of what's what they're always going to have and prices are dictated by supply and demand.
What do they do? They do? It's kinda like printing money. Yeah, they open ended
funds what they'll do is they'll offer share options. Or share offerings, which means basically they're gonna dump more shares back into the market, they're gonna saturate the market and devalues, I lose that you have to dilute the price of the shares you have. That's a huge difference between closed ended and open ended funds, which really
sucks for the investor.
Beneficial for the why I prefer closed ended funds because they have a finite amount. It's like Bitcoin. It's like Bitcoin. Yeah. If you're into cryptocurrency.
We'll talk about that in a different episode. case you haven't realized we lost the money to joke about it.
I can find that there are so many different like anything you could think of in the stock market any like any area you could think of like restaurants or like toilet paper like there's a fun for toilet paper fun Yeah. Oh my God, that's a paper fun they have like this topic is called the the egg thing is that's the egg thing is like actual company
Oh hilarious. Um, seriously toilet paper have like a I think it's called
American paper funds or some nonsense like that. Like they literally like anything you can think of there's a fund for it. They've made a fund for it. Now that you have to deceive it to close into open ended but and they have ETFs or two ETFs or their cheeks two
ETFs or garbage fees were not found although I did
find three that I'll probably bring up and we're
gonna talk about those in another episode. Jackpot. But we're running some trials right now before we talk about them because we experiment and possibly lose our butts. But before we actually talk about stuff
in this case for this topic, they actually have funds that specifically buy bonds. My roundabout way of getting into the point. Do you think about a yes, yes. Here's a good one.
Okay, so DSU is an actual closed ended fund that invests in bonds. There's an alternative to to get into a bond or get into bonds with all the positives of the closed ended without the negatives of owning the bond, which is like the liquidity like our fingers, which is the liquidity issue. And the biggest thing that I love is the cost of these closed ended funds is so much less the
DSU the one that we're in is right now it's like $10.06 or something like that versus 1000. So you can get 100 shares at nine cents a month. So you're getting
five cents, I think $9 Maybe at $9 a
month, you're making a little over $100. Now, it's not a capital lease and
Macedon nine cents. nine cents, times 100 shares 100 shares 1000. And I know ours that was $9. Take that times 12. Nine times 12 is 108.
Can you get 108. There's a point to this nonsense. If you put $1,000 into a bond, you're getting one bond, you're getting one bond and you're like the odds of finding a quality bond and 9% are will say 25% You can find a good one. So even if you find a good one, you're gonna get $90 for the year whereas if you do the fun, you get 180 you're actually making $18
Well, not only that, but you're closed ended funds will pay you that month and you can set drip on to reinvest you can't reinvest with bonds.
I'm aware. They might not be aware talk to them. I forgot to
put that back on the on the risky point me like
I don't know this.
So at the $1,000 for bond, whatever the 9%, you'd still get the $90 for the year,
your $90 for the year but that goes straight to your cash account bond but like bond payments, always go in your brokerage cash account.
Yeah. And if you would do the closed ended fund, you would actually reinvest buy more shares, which means your actual interest at the end would be compounded which would actually give you more of a payout
of 9.12% or something. But it's still the point. I'd rather have a whole bunch more shares. reasons. The
reason that I do that is because I can sell it at any point for at the price I want to sell that whereas bonds I said you can never sell it at the price
like if it like if you go into your brokerage account, and it says the X bond is selling for $100 I guarantee yours is gonna end up selling at like 98 or 99. I guarantee
it. They always go down that's weird. guarantee
it. I don't think that I've held probably 30 to 40 bonds through the years for your mom and us and like I've never once sold it for my like when you when you generally sell something like if you're not there to watch it, you'll just put a limit price in and
you still somehow sell less than the Limit Price I would assume there's some kind of fees
associated with I don't know what it is. I just know it's always less than I want to sell. Okay, I have to look into
that. A lot of feet 2% fees kind of cheeks as you would say. Alright, so that's pretty much all we have for this episode. Bonds are
boring, but like they're they do have their place. The tax advantage thing is huge for a lot of people we can I can't stress I don't know if we stress that enough like not paying taxes on an investment is huge.
That is very big. That's why every really jump around your
republication that I've subscribed to for income investing, whether it's paid or free. They have always mentioned bonds and like a lot of them hold bonds in their portfolio just for that for the tax advantage, but only a couple of them actually do the municipal ones for the no tax. That's
odd that they would say that and they're not actually I don't do Munis it seems contradictory.
These experts are confusing and wax man does sound
kind of strange. So we went over the pros or why you potentially would want to own bonds. We went over the risks or the I love it. We did a couple of strategies where we were talking about the ladder making the whole your monthly income being equal across the year by an envelope par value. And then potentially doing that index thing which again, the court had mentioned
about the closing the funds, but up close and one of the few investments like you literally click on it, it'll tell you the nav price.
Oh yeah, we didn't talk about that. So that's the other benefit of closing funds. We're going to do a whole episode on this but they're very similar to the par value of bonds. Most other stocks like
that asset but valid valid valuation, I think now it's called nap price for future that's just
like the par price where it's like when it's at its datum point. That means you're getting it not anywhere above a discount or anywhere at a discount or anywhere above price you're getting at it's like zero value.
You always know you're getting a good deal or bad deal with the closing so
you can get a deal on the closed ended funds just like bonds. You don't have the liquidity issue,
and they pay out a lot more than twice a year. They usually have higher interest rates too, don't they? Well, you make more Yeah, yeah.
So we prefer the closed ended funds the bonds we always make more
like unless you get like to ash ones, but then that's on you
know, security.
It's not they're not as secure as bonds. Like there's there's your trainers, there's volatility but then if you're an income investor like again, the volatility is not really too concerning, because
the dividends kind of reinvested.
DSU. One that I mentioned is a Blackrock one that that's not going to zero ever BlackRock, like, I don't know the fourth, fourth or fifth, it's like Red Lobster. It's like the fourth or fifth highest one like so they're not going anywhere. So you know, DSU going to zero is not going to happen. So you could you could go from 10 to like eight, depending on the environment and what's going on but generally like That's why whenever I recommend things to people or I bring up the research, I always have the 52 weeks spread things. Okay, here's where it wasn't like, here's where it was the last year and then I'll always pull up three or the five year charts to see like the lowest that dipped in that three to five years. Because that's my, that's my floor at that point. We
always have these end of podcasts, Episode discussions, what I'm trying to sum it up your brain is always so delayed with ideas. It's funny. All right, so then I'm sorry, no, you're not.
I'm just giving them as much information as possible so they can succeed in life.
Are we learning how great I am?
Was that a Shatner comment? Like sports and Edgar. So pretty much wraps it up. Hopefully that will give you guys a little bit of confidence or know how with this whole bond thing is very convoluted if you guys really want us to go over how to buy them. Or
the only way I could think to do that. Like maybe one of them will have an idea I don't know like we need to actually have the screen Yeah, up in the podcast so they can see what I'm doing.
I have to do a video we can like post it somewhere. Like that's because like since you don't want to ever have YouTube videos we might not be able to do it like we tell them I don't know if he's talking about your whole oh my
god I came up with the greatest goal ever y'all every person I know in Van life has a YouTube channel. I refuse. I'm gonna succeed van life without a YouTube channel. Thank you. That was all just
means to me like we're probably be on tick tock. Alright, So that about wraps it up for today.
Next week. I don't know what we're discussing next week. Just whatever, I wake up, whatever I wake up feeling what I'm talking about.
We're gonna go into walking through each one of the asset classes and the different types of investments because that sounds boring. I think what we'll probably do is if we have the extra minutes in Buzzfeed, we'll probably actually make we might do a couple bonus episodes where we do something that's a little more light. In topic bonds
are boring. Where do we go over asset classes who keep you up at night?
Oh, you're killing me over here. So what we'll try to do is the ones that are a lot more boring episodes that are that are more like into the weeds and we'll have you glazing over hopefully by Tiktok video by cash. Maybe we can play a little like a harp. Just squeeze or like a bagpipe. Oh, that'd be terrible. So that's probably what we'll end up doing. We'll try to do some some lighter topics. To get you into this. I'm actually really curious to know if we should stick with talking about investments. I'd love to hear feedback or if you guys want us to get more into like money strategies, finance strategies, like saving tips, because it kind of all does run together. So baby tips
is pretty good. Like I think that should be something that we discussed, because it's like that's how you
but I don't want to go down that route unless people actually want it. So I mean, there's
a lot of shit that people don't think about. Like for example, if you go to Starbucks every day, you're spending I don't know what's today. $5 a day literally go buy a freaking coffee maker and do your own coffee in the morning and
beat the coffee thing to death and a different thing
I know that people do everyday is coffee, Chipotle,
their daily Chipotle burrito.
Can't do can't do without that. Well, they can't deal with other coffee. They can still have their coffee. They're just making it for like $4 less a cup.
And to me it goes back to valuing and waiting what you actually are getting out of that if you absolutely are like a
coffee connoisseur social thing. Like
hey, check out our coffee. It's so good. That's
the thing if it is the social thing that and that's high on your priority list, like you need to keep that thing in your life because you need things in your life that are feeding your soul. You don't want to be scrimping and saving on things and then like well how
about y'all comment? To me like what is the start? What's the appeal of Starbucks? I don't understand it. Is it social? Do you guys sit around and talk about like, World World troubles while drinking your coffee? Cake Pops? I'm assuming I assume that you have your pinky out when you're drinking your coffee. Yes, the world is in trouble. With weather. I don't know what small talk. It's so cold out.
I don't even know we don't even drink coffee.
I think and savings thing could be beneficial.
I agree. So if we could do that in conjunction with some of this dry acid location, it might be beneficial for you guys. Thank you so much for tuning in. We hope to see you on our next episode.