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Dave Ramsey says he doesn’t invest in bonds and nobody else should either, for many reasons. Is Dave Ramsey’s advice correct or will it cost you your hard earned money?
When you meet with a financial advisor, virtually, a CFP, a non-CFP. Not a single one is going to put a client in 100% stocks. Those wonderful people spend more time correcting bad investment advice and fake math than you can imagine.
2000 to 2010 was called the lost decade for stocks. Stocks returned about nothing, and really less than nothing. Say a person bought every stock in the world in the year 2000, and dropped $100,000 in. By the end of 2009 they would have $84,000, taking into account inflation. So, they lost $16,000.
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How do you feel about losing money? If you’re like me – you really don’t like it! Judging by all the scaredy cats that never started investing again after 2009, everyone feels the same way. I know you do too.
Now say you bought every stock and every bond in the world in the year 2000. Same thing – 10 years, dropping $100,000 in. 50% stocks, 50% bonds. By the end of 2009 you would have $113,000.
All stocks – $84,000
50/50 stocks and bonds – $113,000
Is buying bonds worth it?
But bonds don’t make any money! I guess they do. About $20,000 more than stocks in the lost decade in that simple example.
Do you want an extra $20,000 if you were quitting a bad job to travel the world and living financial freedom? If you were starting college in 2009, how would you feel if you had to take out another $20,000 in student loans? Because you followed some bad investing advice. Or if you had saved $1M, how would you have liked an extra $200,000
Here’s a quote a website from one of the financial pied pipers trying to discredit bonds. Bonds aren’t bad. Bad advice is bad. And this advice is bad.
“Downgrades and Default – If a borrower’s credit rating is downgraded, the value of their bonds drops. General Motors and Greece have experienced this recently. If the borrower goes under, they can take your interest payments and principal with them.”
That’s a true statement. It’s also fear mongering. What they fail to mention is, hardly anyone buys single bonds! They buy bond funds that are well diversified. Like going to the Chinese buffet. Even if you don’t like won tons, you can still get the fried rice. And if the fried rice has fried crickets in it – you move on to something else. It doesn’t ruin the entire buffet.
It’s funny how they argue against buying single stocks because you’ll go broke – it’s too risky. Yet when making their argument against buying bonds they use the very example of what they tell people not to do with stocks, just to prove their fake argument. Great marketing, bad advice. When buying bonds, you would buy a fund and diversify.
“When you add it all up, bonds are just as risky as stocks.”
No, they aren’t. To be politically correct, that’s a misleading statement. To be politically incorrect, which I am – that’s a flat out lie. Easy to prove.
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Scott Alan Turner is the new and true voice on money in America. Scott is a former money moron, living the paycheck-to-paycheck lifestyle, losing $40k by following bad investing advice, and racking up a load of credit card debt. But by age 35, he turned it all around and became a self-made millionaire.
In a world of get-rich-quick schemes, biased advice, and financial pied pipers, Scott’s authentic, no-holds-bared approach makes it possible for anyone to absolutely rock their personal finances.
Scott is on a mad mission to help you get financial independence, ultimate happiness and a life full of awesome experiences. With his rebel style, off-beat humor, and signature life-on-your-own-terms approach, Scott’s inspiring a movement of Financial Rock Stars across the globe….(read more)
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I think a lot of people have lost sight of what bonds mean for us in today's market which is the preservation of capital and (hopefully) earning you enough interest to keep up with inflation as you near retirement which as of this writing they're not even doing that much. As a wealth building tool bonds are a terrible choice. If you're young and you have decades ahead of you to handle the ups and downs of the market then you don't need to be wasting your time and money on bonds right now.
Most first world economies are insolvent and have to perpetuate their debt levels to keep their economies afloat. Dave Ramsey is absolutely correct. Does any of the first world economies plan on paying their debts back??? The answer is no. They plan on inflating their way out.
Let’s continue 5 more years. If you only invested in stocks and none in bonds, stocks would have outperformed the same 50/50 split over the 15 year period.
Nobody invests at the beginning of a decade (2000) and sells at the end of a decade (2010). People invest every month the same amount. Therefore, people buy overpriced S&P 500 in 2000, 2001. Then they buy at a deep discount in 2002, 2003, 2004. Then overpriced 2005, 2006, 2007. Then they buy cheap in 2008, 2009. Then in 2010 they have profit, not lost.
Why I wouldn't buy bonds?
I don't like the idea that even though I'm the bank in this case, the business is offering me approximately 25% of what a bank WOULD get paid if I was in debt with them.
If I loan a business $1M, a 5% bond would only get me $50k a year, and that's assuming nothing goes wrong.
If I have a credit card, I have to pay 23%. Why can't I dictate the rate of return on MY MONEY?
This is a difficult video to judge: either I am nodding along with you, or I am shaking my head — there is no middle-ground, as you jump between making good points, and inaccurate ones.
This is only true if you invest lump sum. If you reinvest dividends and invest in chunks every month, you would make more from stocks
You said, "Stocks are as risky as Bitcoin." What do you mean? Bitcoin is worse ……or stocks are worse??
This is a Fantastic show! I’m glad I found it
Glad I took this advice and balanced with bond index fund late last year.
What’s your opinion on a high yield bond that will be 100% SECURED by a CASH ASSET-BACKED Bank Guarantee contract ? That should clear up all the second guessing as far as loosing your initial investment, interest etc
Turner is amazing.
7:12 Elaine who? Sorry. I couldn't help myself. Thanks for the bond advice. Good video.
Jack Bogle said that half the time he worried he had too much in stocks. The other half of the time he worried that he had too much in bonds. Looking back in history, even back to 1926 as many people prefer, does not predict the future. There is always a lot of FAITH needed to invest in either stocks or bonds because the future will NOT be like the past. I just don't know how much different it will be. Nobody does. Those people who advise against bonds are looking at the situation through rose-colored glasses. Just realize what bonds are, and don't expect to get stock-like returns. There is a place for them in a diversified portfolio. I'm retired and do own bonds; lots of them. But 20 years from now I will not chastise myself for doing that regardless what the economic situation is at that time. All I can do is the best I can do with the information I have, and understanding what my risk level is.