Episode 019:
Do Bonds Have a Place in My Portfolio?


Episode 019 Summary:

Don’t fast forward! No matter what you’ve heard (from extended family who shall remain nameless), we promise it only gets better! This week’s episode of The Retirement Equals Freedom Podcast features Host Josh Bretl, founder of FSR Wealth, taking a deep dive into the sexy world of … bonds. Co-host Dave Schmidt is along for the ride, with some questionable “Bonds, James Bonds” riffs.

You’ll learn what bonds are, why they are typically an important component of balanced investment portfolios, how certain economic anomalies have shaped their returns over recent decades and whether now is the time to consider buying, selling or looking for alternatives.

It’s everything you’ve always wanted to know about the nuts and bolts of bonds, but were afraid to ask! Who knew the concept of an “inverse relationship” could be so exciting?

Almost as riveting as looking at the sales tax total after a day of back-to-school shopping (#TaxNerd)? Enjoy this chat about a subject that would undoubtedly be a yawn in the hands of anyone less skilled and entertaining! It’s Bonds, Baby!

This episode was fueled by Cometeer Coffee, both iced and hot!

Click here to learn more about or listen to previous episodes of The Retirement Equals Freedom Podcast. Don’t forget to sign up for the show’s weekly club email at the bottom of this page and definitely come join our new private Facebook group, which you can find here.

Click here to explore the services that FSR Wealth Strategies offers and schedule a discovery call with one of the team’s CPAs. When it comes to living your best life, it’s never too early to get started!

James Bond collage

Look at all the Bonds, man!

Talking Points

A client observes that Josh and Dave’s podcast banter is reminiscent of giggling school girls. Somewhat oddly, Dave is fine with that! And Josh owns his laugh!

An intro to Erin, an FSR Wealth adviser who knows Josh’s brain better than most.

#TaxNerd: Josh’s son Alex gets up-close and personal with sales tax on a family back-to-school shopping trip – and it’s exciting!

Cue the Jingle: Get to know the guys! Josh asks: If you were out to dinner with no cash, what would you do or say to get the bill paid?

  • Dave: With puppy dog eyes, he would admit to the waiter and waitress that he forgot his credit card. Then wait for a close friend (anyone have a guess?) to bail him out.
  • Josh: This is the stuff of nightmares. He would be “mortally embarrassed” and immediately leave collateral (a child?) until he could return with his card.

It’s bonds, Baby! Welcome to today’s topic. It’s definitely neither dry nor boring!

Bonds represent the amount/percentage of fixed income within a portfolio.

Stocks versus Bonds:

  • Stocks represent a stake (a tiny bit of ownership) in a company, which means you do well if the company does well. And vice versa.
  • Bonds represent a loan to x company or municipality that typically has a 30-year term, after which your money is returned with interest.

Different types of bonds include:

  • Corporate bonds – which are for publicly traded business entities (most common).
  • Municipal bonds – money loaned for park and school districts, cities, highways.
  • Government bonds – money loaned to the U.S. Treasury.

Why do people include bonds in their portfolios? Downside protection (a hedge against the risks associated with stock) that pays interest along the way.

Bonds are not necessarily forever. It’s possible to sell them and it’s also possible for their value to go to zero if the entity you’ve loaned to goes into default.

Today’s wacky bond environment: For the first time in decades there are rising interest rates (because of inflation and other factors) Their resale is itself a negotiable market.

How to sell bonds: Usually from within a brokerage account and not on a one-off basis.

Important to Know: Bonds operate on what’s known as an “inverse relationship” to interest rates. If interest rates are falling, bond prices mathematically have to go up. As interest rates go up, bond interest rates mathematically have to fall.

Bond Alternatives: Is there another kind of conservative investment that covers downsides without being eroded by the inverse relationship with rising interest rates?

Here’s a teaser! Stay tuned for next week’s episode – a high-energy romp through the wonderful world of 60-40 portfolio allocations!

Cue the Jingle, Pt. II: Dave Relates to Retirees. Dave’s action figures and baseball cards serve a purpose. They may not be growing steeply in value, but they do offer a likely long-term pay-out. Or default, if the market for Sleep Hollow figurines goes to zero!

Quotable Quotes

“Listen, I’m bougie. You have to adapt to my lifestyle, Josh.” ~Dave

“Bonds are something we typically find in a lot of people’s portfolios … and that’s a very traditional thing to have.” ~Josh

“The purpose of owning a stock inside a portfolio is so that it can grow. It goes up and it goes down. But the purpose of a bond is to provide downside protection.” ~Josh

“There is a bond market and it’s drastically bigger than the stock market. People think the stock market is this huge, ginormous entity. Well, the bond market – from a lot of estimates – is ten times bigger.”~Josh

“Off the stop of my head I can think of a few bond alternatives: Jack Reacher, Jack Ryan, John Wick" ~Dave

“Bonds are important. They are a part of people’s portfolios. But for a lot of people in today’s environment, (it’s important to) analyze what the purpose of that bond is and whether there is something that you can be doing differently.” ~Josh

“A bond is something that you’re putting money in that is going to serve some sort of purpose.” ~Josh

Episode Extras

About your Co-Hosts

A certified public accountant, Josh Bretl has spent the past two decades growing FSR Wealth Strategies into a firm that specializes in tax-focused retirement planning. Because taxes have the single biggest impact on how much you can spend in retirement, Josh is dedicated to developing individualized financial plans that extend and grow his clients’ retirement savings. Based in Elmhurst, Illinois, FSR Wealth strategically preserves and maximizes resources through tax-efficient strategies designed to fulfill retirement dreams.

Apart from producing and co-hosting The Retirement = Freedom Podcast, Josh's longtime friend Dave Schmidt is a content production and marketing adviser to local businesses and nonprofits. He’s also an advocate for t-shirts, all things 90s (especially the music), short walks and long naps. A serial “wallet forgetter,” Dave nonetheless swears that he has picked up the check on at least one or two meals with Josh over the years. Evidence pending.

Standard Disclaimer:
FSR Wealth Management is a registered investment advisor located in Elmhurst, Illinois. Information and opinions contained in this audio have been arrived at by FSR Wealth advisors. All information herein is for informational purposes and should not be construed as investment advice. It does not constitute an offer, a solicitation or recommendation to purchase any security. FSR is not providing legal, tax, accounting, or financial planning advice in this audio. These views are as of the date of this publication and are subject to change.

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