How I Save with Bonds

It seems that over the years there has been a growing aversion to bonds as a form of investment. Some Wall Street analysts say they don't provide enough in the way of returns. Certain retirement advisors say they don't keep up with inflation. But in actuality, certain bonds can do both.

Personally, I think the real problem is that they just aren't sexy enough for Joe Wall Street to sell to Main Street America. If you ask me though, I'd rather put all the flash and pizzazz aside and focus on a decent return and a stable investment than play the odds and end up in the poor house.

Since 2008

I've been actively interested and invested in bonds since I received my first government savings bond for winning a contest during my sophomore year of high school many moons ago. Unfortunately, I lost my records recording my progress with these bonds in 2007, so the best comparison I can give you to my IRA is from 2008 onward.

Since 2008, my bonds, which are comprised of Series E and Series I (inflation based) government savings bonds have averaged right around 3.7% per year. My IRA for the same period on the other hand, which was a diversified portfolio comprised largely of stocks, averaged an unfortunate -1.83% per year. Given, this period of time incorporates "The Great Recession" and its effects upon the stock market, but such things are to be expected with the stock market and it also takes into account the market's large recovery after this dramatic decline.

That means there is a 5.53% gap between what my bonds earned me and what my IRA earned during that period.

A Recent Move

Seeing as the stock market has skyrocket over the last year and has suddenly seemed to stall a bit, I've made a move with my IRA. Rather than sticking with broader index funds that move with the markets (which has seemed to have gotten me nowhere over the last decade), I've moved the whole of my IRA into a low-risk income fund.

About 50% of this fund is held in bonds, about 2% in "cash and other," and the majority of the rest in large cap US and foreign stocks. This means that while the fund still correlates to the stock market, it isn't as volatile. And while this fund claims total returns of 10.64% since its inception in 1948, that's not what I like most about it.

Each month I receive a dividend in the amount of about .5% of my invested total, which is then reinvested into the fund. This means that even if the fund itself does nothing over the course of the year, I still make about 6% on my investment through dividends.

Slow and Steady Wins the Race

Some might scoff at a 6% return, but not me. I'm more than happy with that. Heck, in this day and age, I'm happy with my savings bonds earning me 3.7%. And while they might not be exciting and while I don't necessarily have the opportunity to make up (or lose) ground quickly as with certain stocks or stock funds, I'm more than happy to keep a slow and steady pace moving me toward, if not an exciting future, at least a secure one.

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Disclaimer:

The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. For financial advice, readers should consult a licensed financial advisor. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.