Why The Worst Investment of the Last Decade May Be The Best of the Next – Part 1 (Ep. 44)
Bonds and fixed income have been a historically poor investment for the last two decades, but they may be great for the next. What are bonds and fixed income and how do they work?
In part one of this two-part Red Carpet Retirement series, Adam Scott, CFP®, explains how bonds and fixed income work and why they performed so poorly over the last two decades. He explains their traditional attraction for conservative retiree investors, and why that hasn’t worked recently but might in the future – and not just for retirees. He explains their role in a balanced portfolio, and the difference between a bond’s coupon, its yield, and interest rates. He also examines why longer-term bonds are more sensitive to rate changes, and what additional risk comes with high-yield debt that can be dangerous for unwitting retirees. It’s a starting point for understanding the bonds in your retirement portfolio.
And make sure to tune in to Part Two, where Adam Scott, CFP®, will explain why bonds and fixed income may perform a valuable role in all investors’ portfolios over the next decade!
Key points:
- How bonds and fixed income differ from equities and stocks.
- How buying a bond makes you a lender, with principal repayment and regular coupon payments set by its terms
- Why rising interest rates can lower existing bond prices even when the issuer keeps making its payments
- How a longer wait until repayment can increase a bond’s sensitivity to changes in market interest rates
- Why years of low interest payments left bond investors particularly vulnerable to falling market prices
- How high-yield bonds introduce default risk and why their extra income deserves a closer look from investors
- And more!
Connect with Adam Scott, CFP®:
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