Moolah Blog!

In response to the following article:

Time to bail on bonds

If you are holding bonds, it might be time to let go of those puppies(emphasis on “might”). Here is why, in a way that might be better understand for anyone out there like myself.

When the inflation rate goes up it might be nice to hold bonds that give you a return at something above that rate, if not, then you should wait for a higher yielding rate on those bonds.

You want to buy bonds that are yielding at least above the inflation rate cause if not then your are losing money rather than gaining real earnings. If you hold a bond that is yielding anything less than 3.9% then you should probably rethink holding that bond and waiting for higher rates… they will come. Treasury bonds will have to raise their yield to create a demand for them.

Summary:

1. If you have bonds that yield a rate lower than the inflation rate, you are not really getting a worth wild return on your money.

2. Wait for the yields to go up a bit before buying back.

3. Most importantly, if you decide to hold, know that you will be competing against higher yielding bonds if you decide to sell in the future. That means that you might have to sell you bond at an even lower price than its face value to compete against other bonds.

Respectfully,

Tony Tovar