GMB Ep #78: Investing Myths Debunked #1: Rising Rates Will Crush Your Bond Portfolio

Recently, we’ve seen quite a few myths and misconceptions about investing circulating in popular media and amongst investors. Today’s episode is the first of several episodes we plan to publish with the focus of debunking these myths. Throughout today’s episode, Grant debunks the misconception of negative effects on bond portfolios caused by increasing interest rates on bonds. Stay tuned until the end of the episode, where Grant shares his take on how to get the best outcomes from bond portfolios. 

 

 

Show Notes

[01:58] Understanding Bonds – Grant reviews how bonds work and how they’re different from stocks. 

[07:30] Interest on Bonds – The structure of interest for bonds and how the concept of duration comes into play. 

[10:35] Fluctuation of Prices – Grant shares his thoughts on why fluctuation of bond prices does not have a significant effect on long-term investors. 

[13:18] Interest Rates – Grant reviews how increasing interest rates affect long-term portfolios, using an example of a worst-case scenario. 

[18:39] Path to Success – Grant shares his thoughts on why consistently applied strategy and long-term focus are the keys to the best outcomes for bond portfolios. 

[20:33] Unlikely Outcomes – Why it’s highly unlikely that we’ll see a huge rise in interest rates in the next five to ten years based on how our current monetary system is structured. 

 

Resources

What is the Worst Case Scenario for Bonds?Cullen Roche:
pragcap.com/what-is-the-worst-case-scenario-for-bonds 

Bond Duration:
en.wikipedia.org/wiki/Bond_duration 

Don’t Ditch Those Bonds
aarp.org/money/investing/info-09-2013/dont-ditch-those-bonds.html 

Buying Bonds vs Buying Bond Funds

Buying Bonds vs Buying Bond Funds

Stock markets tend to be pretty good at keeping investors up at night.  Peaks, troughs, business cycles, corrections, and crashes are par for the course when investing in stocks.  And for many investors this is just a little too much excitement.

For anyone uncomfortable with the risk of investing in stocks, bonds are often the first alternative. They won’t nock knock your socks off with huge returns, but bonds can provide steady income with less risk that your portfolio sours.

But when it comes to buying bonds, investors have a big choice to make: do you buy individual bonds or bond funds.

Unlike stocks, the choice between buying individual securities or a fund that includes individual securities has major implications.

Here’s a quick guide that explains what you need to know.

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