Listen: Five Percent, Million Dollars And Six Percent discussed on Money Matters With Ken Moraif

"A gentleman on this show we like our bonds shaken and not stirred we are back I am generate the host of money matters with can more right I have been a certified financial planner professional for the last twenty marvelous wonderful and very exciting years and we are of a firm our firm is actually called retirement planners other America so we specialize in retirement planning and so I want to talk with you now about you know last week you may have if you and probably you did and but if you were watching the markets as as carefully as as as I do it as we do you may have noticed that the bond market had a global sell off and I mean it was significant and so that the people are talking about all my goodness is this the beginning of a bond a bear market and you know what and and so is that a bad thing or a good thing you know and all that kind of stuff so they did prompted me to think my listening audience is probably laying awake this road right now just wondering why is it that bonds behave the way they do and since I want you to get a good night's sleep I thought it was incumbent upon me as your faithful host to explain why bonds behave the way they do and then also talk about you know why you should own them or not okay so let's do that so first of all the way you think about the way I think of bonds is that they're alone okay so I'm gonna use Jack here my producer extraordinaire okay so I landed Jack one million dollars okay silage a million dollars Jack because to millions my favorite numbers or to do that so I I lend you a million dollars so that's a bond the very fact that I'd let you a million dollars we created a bot and let's say that this bond is gonna pay five percent so just gonna pay me five percent interest on that million dollars so thank you Jack every year he's going to pay me fifty thousand Bucks all right so that's basically it's a bond with the five thousand with the five percent a dividend now let's say so I own this bond I I own this million dollar bond now let's say that I wanted to sell this bond to somebody else so dear listener I come to you and I said I want to sell you my bond with Jack and it's paying five percent so it's a pretty good deal right and you said yourself well but see the problem can is that the federal reserve raised interest rates and now I can get a bond out there FOR six percent so why would I want to buy your five percent law and I don't want that so then I have to say okay well if I want you to buy it from me then I got a discount the price of my five percent bond right is so to compensate for the fact that you can go elsewhere and get a higher interest rate so after the suite in the pot for you so that made my bond so in the interest rates went to six percent my five percent bond became less valuable now the reverse is also true let's say that I have this five percent bond and I come to you and I so want to sell it to you and you're looking around and the only thing you can find out there is three percent solve said you're like I you know what that bond is actually pretty valuable sigh I want that five percent so when interest rates go down then existing bonds become in general more valuable because people want that yield fascinating and logical Mister Spock sell it in in essence that doesn't apply in all kind they're different kinds of bonds but generally speaking that's how bonds behave when interest rates go up existing bonds become less valuable so they go down and if interest rates go down then existing bonds become more valid the more valuable because they're paying a higher interest rate so right now what's going on well leading into this year the federal reserve had announced that they probably are going to raise interest rates three times this year so bonds were going down on the news that the fed might raise interest rates well then what happened the fed decided well we're not gonna do that rush gonna lower interest rates and ended up lowering interest rates three times this year so if you look at your bond portfolios I would bet that most of you are pretty happy with their turns that you're seeing on that okay they've done pretty well this year bonds of them very well in fact"

NewsRadio 1080 KRLD

Five Percent, Million Dollars And Six Percent discussed on Money Matters With Ken Moraif

Money Matters With Ken Moraif

NewsRadio 1080 KRLD

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