Let's Talk Bonds

Forty-three years ago, I packed my bags and headed east to work at The Chicago Board of Trade.

In the mornings I was a floor clerk in the wheat pits. In the afternoon I was catching Cubs games at Wrigley field. One day, a wheat trader pointed to a flashing number on the exchange wall and said, “Pay attention to that number.”  

He informed me that traders around the world keep a close eye on the 30-year US Treasury Bond (now the 10-year Treasury) as the bellwether for the global economy, and recommended I take a class on bonds offered by the CBOT.    

Summer school is still in session. Let’s learn about bonds. 

You might not be a bond trader, but bonds, bond funds, or CDs are likely to play an integral role in the sustainability of your portfolio throughout your lifetime.

Understanding the role of bonds and their benefits in diversification can ultimately lead to more informed investment decisions, especially as you near retirement, when “sequence of returns” risk is at its highest. 

Two factors contribute to why some investors find it challenging to understand the concept of bonds. 

1. Complexity: Bonds can be more complex than stocks to understand, especially for individuals who have limited financial knowledge. Concepts like bond prices, yields, credit ratings, maturity dates, call features, and coupon payments may seem confusing, yet can play an essential role in the success of your financial plan.
2. Perception of Lower Returns: Bonds are generally considered safer investments than stocks, but they typically offer lower returns. Returns on both bonds and stocks in 2022 revealed that bonds can experience short-term volatility as well. 

Stay tuned: In the weeks ahead, we will review basic components of bonds and how to integrate them into portfolios and your financial plan.

Looking for Guidance?

If you have questions about your portfolio or financial plan and have a $1 million or more of investible assets, book a quick strategy call with me. I would enjoy connecting with you.