Entries Tagged 'Government' ↓

Of bonds and bond funds

A few years ago I took a workshop on investing led by a local Merrill Lynch representative. (Yes from the very same office that Suze Orman and I both worked at long ago!) His workshop covered bonds, and he pointed out the disadvantages of owning bond funds.

Afterwards, feeling worried, I went up and asked him about my Charles Schwab short-term-yield bond fund. Basically he said that fund was a bad deal, and I should get out. Sadly I decided not to trust him and stayed in.

As a novice to bonds, I thought that higher yields were a good thing. To me they seemed just like high yields on stocks. “Up” is good when it comes to interest income, right?

Well, no, bonds are not stocks. Stocks are a piece of the pie. When stock prices go up it means the pie just got bigger, or at least people think that pie looks bigger.

Bonds, on the other hand, are debt. The company or government entity is not selling pieces of itself to you; it’s borrowing your money and is supposed to pay you back. The bonds the company or government entities sell are actually IOU’s. Continue reading →

On February 11th, 2010, based on my reading of several Rich Dad Poor Dad books by Robert Kiyosaki and concerned about the deficit, I wrote “Our Government: A Business Without Assets?”

In that post I discussed the difference between debits and assets and noted that our government doesn’t even track the total worth of its assets. I said, “What’s missing is a serious discussion in Congress of the US government’s debits and assets.”

This week British economist, Martin Wolf, echoes that statement in the concluding sentences of his op ed piece in the London Financial Times. In “Assets matter just as much as cutting debt” (11/26/10 p11), Wolf advises the US: “So stop focusing only on liabilities. Look at the assets too.” Continue reading →

Previously in Brucenomics I’ve written about Robert Kiyosaki’s book series Rich Dad Poor Dad. In it, Robert distinguishes between “assets” (things that bring money into your pocket) and “liabilities” (things that take money out of your pocket.)

Fittingly enough, in the early part of this century when he began his series, Kiyosaki used houses as an example. Is Your House an Asset? Here’s what he said. A house you buy for yourself is a liability. A house you buy to rent to others at a profit is an asset.

It’s the same thing–a house. It’s the way a thing is used is that creates different outcomes for its owner. And as it turned out, houses as liabilities set off the financial crisis for their owners, then for the owners of mortgage-backed securities (MBSs), then for investors in collateralized debt obligations (CDO) derivatives based on those MBSs, and then for all the rest of us.

All too often when times get tough, the first impulse is to hang onto your money (or for many people their credit cards) and not spend. Robert Kiyosaki’s message is basically that this is not the right thing to do. What you need to do is look at what assets you possess (including that house or credit card) and see how they can bring money into your pocket. Continue reading →