Phil Cannella – Phillip Cannella Media: Phil Cannella delivers financial answers to numerous questions about safeguarding your retirement. In this article, he reveals why bonds, which are one of the most popular methods retirees use to keep money “safe,” are bad ideas for retirees.
Many people add bonds to their portfolio to offset potential market downturns, however bonds were designed to provide a fixed income not to offset market risk. The income comes from the fixed interest rate or yield of your bond. While the interest rate is fixed, the par value (principal) is not and it fluctuates per the interest rates set by the Federal Reserve.
There are many financial advisors who consider bond accounts to be crash proof, but Phil Cannella points out that recent history has proven that theory wrong since they do fall, and when they do, they often fall hard.
Plus, the income from a bond yield is taxable, which means that if you reinvest the bond yield into more bonds or any other investment, you’re paying taxes on money you’re not even pulling out, much less spending.
Another important factor to consider is that if a company that issues a bond goes belly up, you’ll be standing in line with all the other creditors waiting to get paid on your bond. And remember that the higher the yield of the bond, generally the higher the risk that it will default.
In summary, Phil Cannella wants you to remember that bonds are risk investments, end of story.