The Motley Fool: bonds, investment bonds


Ask the Fool: Bonds, Investment Bonds

Q. When would be a good time for me to buy bonds? — BB, Los Alamos, New Mexico

A. The answer to this question will vary from person to person, depending on circumstances and temperament. Those who can handle some risk and have many years or even decades before retirement might choose to focus solely on equities, as equities have outperformed bonds over most long periods.

Still, even risk takers might want to include some bonds in their portfolios for diversification purposes, as bond values ​​sometimes rise when the stock market goes down – although it doesn’t always work out that way. For example, the stock market has been down sharply since the start of the year, and the Bloomberg Barclays US Aggregate Bond Index has also fallen recently – by around 12%.

There are many types of bonds, often issued by governments or corporations, with different rates and terms. Although US government bonds are among the safest, they tend to offer lower interest rates than corporate bonds. If you expect interest rates to rise for a while, you could invest in shorter-term bonds instead of staying locked into a low rate for a long time. Also consider US Treasury I-bonds, which feature inflation-adjusted interest rates. The Series I Savings Bond rate was recently 9.62%!

Q. What good books deal with stock market history? — HD, Murfreesboro, TN

A. Check out “Capital Ideas: The Improbable Origins of Modern Wall Street” by Peter L. Bernstein (Wiley, $20), “A History of the United States in Five Crashes: Stock Market Meltdowns That Defined a Nation” by Scott Nations ( William Morrow, $18) and “A History of the Global Stock Market: From Ancient Rome to Silicon Valley” by B. Mark Smith (University of Chicago Press, $17.50).

Fool’s School: the odds are… bad

When lottery jackpots offer hundreds of millions of dollars – or even when they only offer a few million – it can be tempting to buy tickets. But it’s worth knowing more about the odds of winning before doing so.

The odds of winning a Powerball jackpot are 1 in 292,201,338, while the odds of a Mega Millions jackpot are 1 in 302,575,350. It can be hard to understand such large numbers, so consider this: there has nearly 333 million people in America. The odds of being a random person in America are not that far off from these jackpot odds.

Here are some additional things to think about: you are much more likely to be killed by an object from outer space (1 in 700,000), to be struck by lightning in any given year (1 in 1,222 000), die on a commercial flight due to an accident or crash (1 in 29,400,000) or be made a saint by the Pope (1 in 20,000,000) than you will win one of these jackpots .

If you think you’re tripling your chances of winning the Powerball jackpot by buying three tickets instead of one, you’re right, but the odds of 3 in 292 million instead of 1 in 292 million are still very close to zero. Even if you bought a million tickets, your odds would be reduced to 1 in 292, which is still unlikely.
Also keep in mind that if you spend a large sum on lottery tickets, you may lose most or all of that money, when it could have made you a lot of money if you had invested it. in the stock market (which tends to produce long-term gains despite occasional downturns).

If you still want to buy a ticket or two once in a while for fun, just think of it more as entertainment than a possible path to wealth. As Fran Lebowitz would have said, “I think you have the same chance of winning the lottery whether you play or not.”

My smartest investment: Betting on it

My smartest investment has been to buy Canadian bank stocks and leave them alone for years and years. — Rob, online

The Fool responds: This is how many investors have made their smartest investments – putting their money into healthy, growing companies and leaving it alone for years.

Here’s a familiar example from the United States: if you invested in Microsoft decades ago and held onto your stock for a few years, you could have done very well — perhaps triple your money, or even tenfold (or Much more). Even if you bought only 10 years ago and hung on for a few years, you could have doubled your money. But those who bought, say, 25 years ago and stuck with it could have seen an initial investment of $10,000 turn into over $180,000 – or around $260,000 if they reinvested the dividends. in additional actions.

Bank stocks can be excellent long-term investments, as long as the banks in question are well managed and don’t take too much risk in their lending. Their fortunes can go up and down with interest rates, but they are also well regulated, required to take various measures to reduce their risk of failure. We tend to think of banks as just lending money and paying interest on deposits, but many banks also make a lot of money from investment banking activities, such as bond underwriting. and corporate actions.

– distributed by Andrews McMeel Syndication

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