The opposite end of “The most expensive thing is to be poor”.
It’s a common image for so many millionaires to have a Scrooge McDuck vault, but that’s the thing; so often their millions are out earning them further millions.
this post was submitted on 04 Oct 2024
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This is such bullshit advice. Instead of doing this, we could invest that money in a 16% bond and make 40k a year. Simple hack they don’t you to know.
Fuck. I invested it in a 24% bond. Time to start over.
Yes and good luck finding a 8% treasury (and please let me know if you do) 😆
The DOW grew 25% over the last year.
The S&P grew 30%
The NASDAQ grew 35%
What are you doing buying Treasury Bonds?
At any point in time those could also shrink by 25-35% over a year
Over 5, they'll rebound and exceed the trough.
A year ago we didn't know the market would grow so much, or at all.
Today we don't know if these trends will continue, stop, or even reverse. Past performance doesn't guarantee future returns, yada yada.
The whole point of bonds is that they be more stable and reliable than other securities. They're a useful tool for investors looking for stability.
A year ago we didn’t know the market would grow so much, or at all.
A year ago, the expected annual yield on the NYSE was 6-8%. The treasury return for a year was 4%.
Today we don’t know if these trends will continue, stop, or even reverse.
"I don't know if my plane will crash, so I drive everywhere in order to avoid that risk".
The expected yield on market investments is higher than the expected yield on treasuries. The real value in treasuries is their convertibility to cash, hedged against the risk of inflation. You are losing money long term if you are putting your retirement income in treasuries.
The whole point of bonds is that they be more stable
The point of low-yield low-risk bonds is that they can be quickly converted to cash when better investment opportunities arise. Alternatively, to be spent on consumer goods and services.
Who said anything about retirement?
And if you know why people buy treasuries then why did you ask?
You're using hindsight to pretend like there's no reason to buy treasuries while also demonstrating an understanding of why people do. You'll forgive my confusion.
Also, the NYSE had an expected return of 6-8%. That was not at all a guarantee; we didn't know that. My statement holds true.
Set it and forget it. I dont have to worry about the dow contracting with a treasury bond. That's the literal point.
I dont have to worry about the dow contracting with a treasury bond.
Point to a five year period in which the DOW ended lower than when it started.
If you're operating at the scale of a high yield treasury, you'd be far better off in the market over the long term.
I dont disagree, but nothing about what you have said invalidates what I had stated. Set it and forget it is the point. Give it to your grandkids.
Set it and forget it is the point. Give it to your grandkids.
You could do the same with shares in Berkshire or a S&P index fund, to better effect.
Especially at the scale of "national economy", if you're betting on Treasuries you are effectively betting on the economy as a whole. Just at a lower potential yield.
This is why people be like "real advice is in the comments"
On the other hand, If I can get $20k a month with one of the safest investments around, I'm not screwing around with the stock market.
If I can get $20k a month with one of the safest investments around
8% Treasuries don't exist. The current treasury rate is closer to 4.5% during a period of 2.5% inflation. Higher treasury rates tend to be paired with higher Fed Reserve rates, which tend to occur during periods of high inflation. So the hypothetical 8% Treasury will only be available during periods of 5%+ inflation anyway. You're still only netting real gains of 2-3%.
Its a safe hedge against a downturn when you only care about preserving your liquidity. It's a real risk when you consider the possibility of a bull run. You're effectively losing money when equities surge while you're setting on a cash-convertible.
Exactly. But keep in mind that those are different things. Treasury bonds carry very little risk of losing money whereas investing in index funds/ETFs can lose you money.
Treasury is pretty safe.
So is Berkshire Hathaway.
What’s their gain this year? 🤔
33% over the year
27% ytd
122% over five years
1824% over the last thirty
Time to invest!
The best time to invest was ten years ago. The second best time is now.
This is a person who doesn't understand how the fixed income market works.
He's assuming he's buying $3m notional of a bond yielding 8% and paying for the face value $3m (i.e., he's buying it at par). This is not how it works, even if you're somehow subscribing at issuance as a retail investor.
You're going to be buying the bond at bid, which is going to be higher than par when prevailing future yield expectations are lower than the coupon rate of the bond.
TL,DR: You can't buy $3m of a high-yielding sovereign bond for $3m today. You'll get less of the bond for the money if it's yielding more than the market is expecting base rates to be in the future.
So let's say I have the $3m and buy the bond. Will I have a monthly return and for how much?
It depends! Let's say a 8% Treasury exists and you want to buy it today. To establish its price, you need to know:
- What is today's yield curve? (i.e., what is the market's expectation for interest rates at different points in the future?)
- When does the bond mature? (i.e., how long until the face value of the bond is paid out back to the bond holder?)
- How frequently does the bond pay interest payments (coupons)?
I've put together a quick calc based on Federal Reserve yield curve data as at 27 Sept, assuming an 8% Treasury maturing in exactly 20 years, with semi-annual coupons (as most government debt is semi-annual). Google sheet calc
If you bought $3m worth of this fictional bond today, you would own $1.95m notional of the bond. You paid $3m for $1.95m of US gov't debt effectively because the bond was issued in the past at a higher yield that what the market is expecting the government to issue bonds at in the future.
Every 6 months, you would receive a coupon of c. $78,000, or effectively $13,000 per month. This is interest the gov't pays you for having lent it money (or rather having bought the debt from whoever lent it money.) These payments are guaranteed as long as the US gov't remains solvent.
Finally, in 20 years' time, you would also receive the principal payment of $1.95m. This is the government paying back the amount it originally borrowed. Note that it will likely be worth significantly less in real terms in 20 years!
Importantly, you don't have to hold the bond to maturity and wait 20 years to get your $1.95m. Just like you bought the bond at a bid price of $3m today because rates are lower than the coupon yield of the bond, if the yield curve decreases further, the price of your bond in the open market will increase. E.g., if yields went down 1% across the curve, your $3m investment would now be worth $3.4m and you could sell it for a tidy $400k profit!
Thank you. That was a really good explanation. I don't know much about the way this shit works, and I probably would have tried what the original post suggests if I had that kind of money.
Show me where I can get a bond at 8%.
Brazilian bonds are paying 10.5%
But I don’t have a Brazilian dollars :(
Bruh 3m Brazilian reais is only like $550k. That's like, a middle-class house.
I didn't buy Twitter and saved over $40B now I don't have to work my entire life
The real LPT is in the comments once again
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