Why Buy Bonds When They Pay Paltry Interest?

When I was in elementary school, I hung out with a guy whom I’ll call Jake.

He wasn’t a great student, nor was he athletic. His left eye drifted and his mouth was a little crooked.

But I liked the guy. At noon, we sometimes walked to his house and his mom made us sandwiches and fries.

Jake didn’t badmouth other kids. He was loyal. He also kept me out of trouble. Plenty of people have Jakes in their lives.

But far too often, we push our Jakes away. They might not be exciting. They might be a little quirky.

In some cases, either socially or professionally, we might think they hold us back.

Today, that’s what many people think about bond market funds.

Image by Pixabay

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Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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5 Responses

  1. John says:

    Assuming tax rate is zero , for early retiree , is it better to sell part of index funds monthly to fund retirement, or to stop dividend reinvestment and use cash from dividends ?
    For the next 9 years ( since we have little children ) our USA tax obligation for passive income will be zero .
    Thank you for the answer.

  2. Jim says:

    Hi Andrew,
    What about index ETFs that have low dividents? In your book you have mentioned that divident re-investment is a critical component of the investments but as far as I know all index ETFs including the ones you propose in your book have low dividends payout unless one has a really huge account. Can you please clarify this?

  3. Jeff says:

    Thanks Andrew, good article. As we are seeing low yields since the financial crisis I started to mix in some EM debt. I have a 30% bond holding with 20% US Notes and 10% EM debt.
    Vanguard has some nice Ireland domiciled options that pay monthly dividends.
    It brings your yield close to 4% and I see some upside in EM debt. What’s your take? I should still provide stability but also decent yields.

  4. Mark says:

    Hi Andrew,
    I was just wondering what your thoughts are on investing monthly even for small amounts such as $100 or so. Is it worth saving that up as cash and investing, or can one generally add to existing ETFs without paying lots of fees?
    Thanks
    Mark

  5. Jack says:

    Hi Andrew,

    Thank you for the continued articles. Keeps us on the simplified long term plan of investing.

    Interested in your thoughts on IAAA.LN vs AGGU.LN.

    I started my investing 5 years ago with the global bond aspect of my portfolio (30%) in IAAA. AGGU has since been created a year or so ago.

    For the long term, should I sell IAAA and buy AGGU or just stick with what I have. I am a UK expat with no inclination of where I want to retire.

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