Wednesday, May 02, 2007
Bonds
I see that bonds, more and more, are becoming a part of every mutual fund out there. In my opinion, if you are under the age of 30 or currently have a mortgage on one or many properties, you should not have any amount of money tied up in bond funds or in bonds period.
I am finding that people unknowingly buy into a growth stock fund to find 7% bonds and 2-3% cash. With the low rate of returns associated with bonds and cash, you really aren’t getting anywhere with the 10% of your capital that is tied up in these subpar investments.
Most mortgages out there right now are at 6-7% with good credit standing. At an early age, or with a mortgage, investing in bonds that earn 6-8% per year and are subject to taxes is utterly ridiculous. After taxes are taken out, you’ve got a 5-6% return, just barely beating inflation. Plus with a bond you’ve go some unavoidable risk of company collapse.
This is just a reminder to check your funds often. Rather than throw money into bonds, pay off that mortgage sooner. You’ll save a lot more money for retirement and still have that dream home.