There are 4 separate sections to my Retirement 4-50 passive income retirement plan. They are Pension, Investing, Real Estate, and Business. I needed to beef up on my investment knowledge, so I just finished reading “The Intelligent Investor” by Benjamin Graham. Inside this book, the author continually talks about investing in bonds as a hedge, or counter-balance, against stocks. I have been investing in bonds for a while but I wanted to go further in-depth on the topic. That is how I stumbled upon “Step by Step Bond Investing” by Joseph Houge. And boy am I glad that I did. After reading the monster book by Benjamin Graham, this book was very refreshing. It is a two day read for most people. This is great because it can stand as a quick reference guide. A lot of the information in the book I had came across from various websites across the internet. However, I liked having all the information packed into a small book from the same author. More importantly, the author has the same investment philosophy as I do, which is, to Buy and Hold. Whether it is real estate, stocks, or bonds, I like to Buy and Hold. It was refreshing to see an author who thought like this. It seems that everyone else is trying to squeeze every last ounce of yield from their investments. With that, let’s get into my 5 takeaways.
1) You should not get into buying individual bonds unless you have $100,000 to start with. Great! That was the main question that I needed to be answered in this book. I always felt that I should be looking for a McDonald’s or AT&T bond. However, without a large amount of money, it is hard to be diversified in bonds. The broker fees would also eat away into your returns as well. Without having $100,000, the best method would be to buy US Treasuries directly from the government, as well as bond funds. Awesome, because that is exactly what I have been doing. When I finally have $100,000 to invest directly into bonds, I will reread this book to build a nice portfolio.
2) Buy and Hold. I think this is the best advice for most investments. There are a lot of bond calculations you can learn that would allow you to trade on the open market. However, most of the time, the commissions would eat away at your gains. Buy and Hold.
3) Follow the yield curve. The yield curve is the interest rate of short term bonds versus long term bonds. Most of the time, long term bonds have a higher interest rate attached to them. However, sometimes the yield curve is inverted. If you do not know what you are doing during an inverted yield curve, just hold onto your bonds. The media will scream that the world is burning, but just hold on.
4) Use bonds to help balance your portfolio. Stocks are amazing, especially when they are going up. It is a great feeling to see all green inside your stock investment portfolio. However, there can be some days, weeks, or even months that everything is red. This means that the prices of your stocks are down, a lot! Bonds help calm you by just staying still. Their payments remain consistent. During the pandemic, my bond funds went up to astronomical prices. Right now, as the stock market is at an all-time high, my bond fund is up by a little bit. However, if another crash happens, my bond fund would raise. The important part is that if I needed cash, I could sell some bonds at a profit and not touch my equity stocks. That is what bonds are good for, to help you generate income either from interest payments or from selling. You do not want to sell stocks during a downturn.
5) Don’t forget about US Treasuries. The yields on US Treasuries are horrible right now. I just bought a $400 30-year bond at a 1.62% interest rate. I am okay with this. It is way more than my high yield savings account is (0.50%). I will collect some interest payments. However, if there was a huge emergency, I can collect all my money back with only a small 3-month interest penalty. US Treasuries are a great way to balance your portfolio even further. I look at them as individual savings accounts.
Bonds are great. They provide income and help supplement your lifestyle. I know that it is more “sexy” to watch stocks raise. It is a great feeling to see your favorite companies doing well, and paying you dividends as well. However, having bonds helps me sleep well at night. I know that I am preparing myself for any situation. Buying bonds goes with my overall diversification mentality. We are diversified across our 4 sections, as well as diversified inside each of those sections as well.
Employment: Military pension, Disability, TSP (401k)
Investments: Savings, Bonds, Stocks, Real Estate (crowd-funded)
Real Estate: House rentals across different states, room rentals
Business: Facebook, YouTube, Blog, and local businesses
Having this diversification will help us excel during any of the next crises. Also, it will put us in a position to improve our portfolios during a crisis as well. In order to have a strong showing in each of our sections, we need to read to understand how each strategy works. “Step by Step Bond Investing” is highly recommended to help you get your foot into the door of Bond Investing. I will continue to refer to this book going forward.
This link is to a physical product. The link above is to the digital book. Sorry. I get no credit for digital product links.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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