Episode CF01 – Bonds and FI
Hello, welcome to a new episode of the FI Europe Podcast! Today it’s a special episode because it’s the first episode of a new format we were thinking about for a long time. We’ll be talking about the topics you care about and answering community questions, just the host or co-hosts, so we would like to call the episodes Community episodes. Today we will have Michael as a co-host and our main topic will be bonds. Enjoy!
We also talk about:
- Peer-to-peer and bonds
- Bond taxes
- Greek and Turkish bonds
- Bond funds advisors
- Assessing investment situations
- US Treasury bonds
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The nature of bonds
A bond is actually nothing more than a loan you make towards a company or government entity, over which said entity will pay you interests over a certain period of time. But differently from a loan, bonds can be traded and their value can change over time depending on the market situation, so there’s an underlying risk to it.
The place of bonds in a modern era portfolio
Back in the 60s and 70s a great part of portfolio recommendation was in bonds, even up to 50%: in those days, bonds could easily yield up to 12% returns and it made a lot of sense to invest in them. Nowadays A class-graded assets like treasury bonds from Germany, Netherlands or UK pay almost nothing or even have negative yields. What can be more of interest are bond funds, which invest in bonds of intermediate level, both state and company, thus granting more revenue even after a fee is paid to the fund.
Bonds and the steps to FI
Given their nature and typical yields, bonds may actually not be an optimal choice for people on the road to FI. Especially during the accumulation phase, a 100% equity portfolio allocation makes more sense, unless very specific condition arise for bonds of a particular country. An option for people who are approaching the FI goal could be investing in bonds that pay quarterly, in order to have more stability and a steady cash flow available to reinvest.
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