How to Make Money From Bonds
by Stan Richelson and Hildy Richelson
Editor’s note: Portions of this article were excerpted with permission of the publisher, John Wiley & Sons Inc., from “Bonds: The Unbeaten Path to Secure Investment Growth,” Second Edition. Copyright © 2011 by Stan and Hildy Richelson.
We endorse a buy-and-hold strategy for bonds because, when following such a strategy, you only need to make one right decision: when to buy.
With high-quality bonds, the variations in a bond’s price while you hold it are not a serious concern because, unless there is a default, you will be paid both your scheduled interest and the face value of the bond at its due date. Long-term bonds experience greater price swings and thus more visceral discomfort than shorter-term bonds; but the ups and downs of a bond’s price should not matter to you if you can hold the bond until it comes due at face value.
In this article
- The Yield Curve
- Strategies for Deciding When to Sell
- Strategies for Finding Bargain Bonds
- Strategies for Avoiding Overvalued Bonds
- Strategies for Low or Falling Interest Rates
- Strategies for Reducing Market Risk
- Implementing a Bond Ladder
Share this article
When you trade bonds, however, you must make two right decisions to be successful: when to buy and when to sell. We recommend to investors that they avoid market timing and leave this activity to traders who move big positions and watch the trading action all day, every day. Making one right decision of this nature is hard enough; making two is a risky choice.
Of course, there are exceptions to a buy-and-hold strategy. There are certain times when it may be financially necessary or strategically advantageous for you to buy or sell bonds. Understanding the implications of different yield curves, placed in the context of your own particular needs, can provide insight into bond market opportunities. The yield curve can also help you compare one bond to another and decide which specific maturities, among the many alternatives available in the market, make sense for you to buy.
To read more, please become an AAII member or CLICK HERE.
Hildy Richelson is president of Scarsdale Investment Group, a registered investment adviser based in Blue Bell, Pennsylvania, that specializes in fixed-income investments. Hildy and Stan Richelson are co-authors of several books on bonds, including “Bonds: The Unbeaten Path to Secure Investment Growth,” Second Edition (Bloomberg Press, 2011).