How To Invest In Bonds and Other Fixed Income Securities
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 10 October 2018
⏱️ 37 minutes
🧾️ Download transcript
Summary
#225 How to evaluate interest rate risk, credit risk and other factors when investing in bonds. Thanks to Sleep Number for sponsoring the episode.
For show notes and more information on this episode click here.
- [0:11] Predicting interest rates can be tough - here are some things to consider
- [4:28] What determines the rate of return if you invest in bonds or fixed income securities?
- [7:00] Bond prices fluctuate as interest rates change
- [15:30] Data on default rates for bonds and other investment strategies
- [19:40] Consider this before deciding whether or not to hold bonds
- [23:13] Passive vs active investment strategies in bonds and other fixed-income securities
- [25:35] Why would you own a long duration bond?
- [34:19] There isn’t a single right answer when it comes to bonds and fixed income securities
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it and how to live without worrying about it. |
| 0:11.0 | I'm your host David Stein. Today is episode 225. |
| 0:14.7 | It's titled How to Invest in Fixed Income. |
| 0:19.2 | Last week, and I'm recording this in early October 2018, the 10-year Treasury bond hit its highest level since |
| 0:26.5 | 2011. Its yield. The interest on that 10-year bond was 3.22%. |
| 0:37.0 | To put that into perspective, in 1981, |
| 0:41.7 | 10-year Treasury bonds yielded 15.3%. |
| 0:47.0 | And that yield or that interest rate hit its all-time low in July 2016 of 1.46%. Now in the almost five years I've been doing |
| 1:01.0 | the podcast I've had a number of episodes on bonds, on interest |
| 1:05.3 | rates. One of the first ones I did was episode 22. It was titled, Will interest rates ever increase? |
| 1:15.0 | I recorded it or released it on September 17, 2014. |
| 1:19.0 | The 10-year Treasury bond yield was 2.62%. Think about, think about that, the title, will they go up? And they |
| 1:29.2 | went down from 2.62% down to 1.46%. I don't have a way to predict what interest rates will do. |
| 1:43.0 | This is a perfect example of investing |
| 1:46.0 | on the leading edge of the present. |
| 1:48.0 | All we have are the conditions, but to know |
| 1:50.0 | whether rates are going to keep going up from here or not, it's hard to say. I think we can |
| 1:57.8 | be very confident that where things stand now, that short-term interest rates, the policy rate will continue to go up. |
| 2:07.2 | What the Federal Reserve has set its target for short-term interest rates will continue to increase, at least for the next six months to a year, but something could happen to change their mind. |
| 2:24.2 | In episode 191, I went into great depth on what drives interest rates. |
| 2:32.0 | How are they determined? |
| 2:34.1 | It was titled, Has a Bond Bear market begun? |
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