When I was into bonds, I took the advice that I had read about concerning them, which was basically do not trade in bonds, but buy and hold them until maturity. If you buy and hold them to maturity, you get what they said you were going to get when you buy the bond.
With bonds there is interest income, but your capital will not grow. Bondholder can default and then you lose the rest of the interest due and some or possibly all your capital for that bond. Hopefully the interest earned on your other bonds will cover this loss. Hopefully, you have a diversified bond portfolio.
At one time, bonds paid very good interest. I should tell you that I sold my last bond in 2007. It was a 30 year CIBC bond paying 9.65% interest. I sold it before it was due because I saw no point in holding it any longer. It was a $50,000 bond currently worth $61,250 when I sold. The value of the bond would just be going down until maturity because at maturity it would be worth $50,000.
The thing with bonds was that the bond market is more volatile than the stock market. At least that was my experience. Capital value of a bond and interest rates go in the opposite direction. If interest rates are falling, the value of the bond goes up. If interest rates are going up, the value of the bond goes down. The longer the term to maturity for a bond, the more that interest rates will change the value of a bond.
I do not understand why anyone would buy a bond Mutual Fund or ETF. Things have been fine for a very long time because we have had this long bull market in bonds due to the interest rate dropping. At some point this bull market in bonds will come to an end. If you trade in bonds in a rising interest rate environment you can lose more in capital than you gain in interest. Bond Mutual Funds and ETF do trade in the open bond market.
I am not into bonds at the moment because of the very low interest rates and because at some time this bull market in bonds will end. I have been waiting for the end for some time, but I am patient. What cannot go on forever, will eventually stop and this applies to historically very low interest rates. However, these things can go on for much longer than ever expect.
On my other blog I wrote yesterday about Intertape Polymer Group Inc. (TSX-ITP, OTC-ITPOF) ... learn more. Next, I will write about Algonquin Power & Utilities Corp (TSX-AQN, NTSE-AQN) ... learn more on Friday, June 21, 2019 around 5 pm.
This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.
No comments:
Post a Comment