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Tuesday, November 13, 2012

How Bonds Work - A Resource

If you're like most of my new clients, you don't know a lot about bonds and how they work.  You probably get that yields rise/bond prices drop and vice-versa idea - somewhat.  You have some idea that duration is a measure of how volatile a bond's price is and that there are various risks in buying bonds, like credit risk and interest rate risk - but you're not really clear on these concepts.

You come to understand that most bonds trade over-the-counter, which is very different from the way common stocks trade. 

I know all of this because I meet with clones of you.  I also read the financial press and ponder the ongoing national angst over flows into bond funds despite historically anemic yields.

I stress to new clients that bonds are an important part of the drive towards a successful retirement.  I stress the need to seriously think about the role of bonds in your portfolio - especially in today's world of excrutiatingly low yields.  I explain the different parts of the bond market - corporates, mortgage-backeds, Treasuries, etc.

And I see eyes glaze over, and that's when I pull back a bit.

What you don't see so much is that I am constantly on the lookout for resources that do a good job explaining how bonds work.  Every such resource makes my job easier.  Books are a good resource; but, in today's markets, they become dated pretty quickly.  This is one area where the internet has, IMHO, a distinct advantage.

A really good site I have recently come across and recommend is  This site offers basic instruction on buying bonds and covers, as far as I can see, all of the main topics that bond investors are concerned with, including issues of the day.  In addition, it also has numerous instructional videos. 

I believe that, if you visit the site and putter around a bit, you will return regularly just to keep up with the market.

1 comment:

  1. I agree. Lot of talk about stocks, but very little coverage on bonds. Yet they form a vital part of a balanced portfolio.