Bonds: The Unbeaten Path to Secure Investment Growth

By O'Neill, Barbara | Journal of Financial Counseling and Planning, July 1, 2012 | Go to article overview

Bonds: The Unbeaten Path to Secure Investment Growth


O'Neill, Barbara, Journal of Financial Counseling and Planning


Bonds: The Unbeaten Path to Secure Investment Growth Author: Hildy Richelson and Stan Richelson Publisher: Bloomberg Press, Second Edition (2011) ISBN: 978-1-118-00446-3

It is fair to say that when various investments are discussed, whether in the classroom or on the nightly news, stocks get far more attention than bonds. There are widely quoted benchmark indices (e.g., the Dow Jones Industrial Average) for daily stock market performance but less visible metrics for fixed-income securities. In addition, with bonds there are no spectacular "garage startup to Fortune 500" stories that attract investors' attention. Bonds: The Unbeaten Path to Secure Investment Growth is a great resource for financial practitioners to brush-up on this often overlooked asset class.

Bonds is much more than an informative tome about characteristics of various fixed-income securities. It takes a strong stand that challenges conventional wisdom about the preeminence of stocks in investor portfolios. The book advances the case for holding an all-bond portfolio or at least a substantial portion of portfolio assets invested in bonds. The co-authors, Hildy Richelson and Stan Richelson, are nationally known experts on bond investing with five books about bonds on their resume and a Pennsylvania financial planning practice that designs bond portfolios for high net-worth clients. They are frequent presenters at national conferences for financial advisors (e.g., NAPFA) where their recommendations and rationale for investing solely in bonds are often hotly debated.

The authors believe that bonds provide as good or better returns than stocks without substantial volatility. This message is carried consistently throughout the book. Bonds also help protect principal and help investors overcome 3their fear of investing. A major theme of Bonds is that high-quality bonds, laddered to mitigate adverse interest rate movements, are a better investment than stocks for individual investors. Bonds can also provide growth through compound interest if interest income is reinvested.

Bonds is 511 pages long and organized into five parts and 21 chapters. Part I presents the case for investing in bonds and Part II describes the history of bonds, bond terminology, and how bond yields are calculated. Part III provides detailed information on various types of bonds. Individual chapters discuss U.S. Treasury securities, U.S. savings bonds, U.S. agency debt, mortgage-backed securities, municipal bonds, corporate bonds, international bonds, and "bond look-alikes" (e.g., certificates of deposit, fixed annuities, and preferred stock). This section of the book is the longest and provides a very valuable "one-stop" mini-book about available fixed-income securities. Part IV describes how to buy bonds, characteristics and disadvantages of bond funds, and how to select a bond fund or exchange-traded fund (ETF). The authors do not recommend bond funds (due to annual management fees, loads, and lack of a maturity date) but discuss them nonetheless. Part V describes the authors' bond investment philosophy and strategies for buying bonds in various economic climates. Bonds can be read cover to cover or used as a desk reference. The second edition was updated to reflect the 2008 financial market crash and its aftermath. Chapters 3 and 20 contain case study examples of the use of bonds to meet investor objectives and should be of special interest to financial educators.

The authors' strong support for bonds begins in the Preface with a comparison of stock and bond performance during the 2000 to 2009 decade. U.S. large company stocks averaged -0.95% compared to about 5% for a typical portfolio of high-quality individual tax-free bonds. It should be noted, however, that this is the second edition of Bonds and the authors' recommendations to invest solely in bonds long preceded the post-financial crisis bear market and Great Recession. Recent economic events support their case even more.

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