Thursday, October 11, 2012

why I don't like bonds

Honestly I think bonds suck.

Now I'm not talking about the Canada Savings Bonds of yesteryear...  They were attractive in the 70s and 80s because of the sky-high interest rates.  At the time, the rates were above the rates of inflation so you actually made money with them.  Now?  Don't even think about it...  Not only do you get an interest rate that doesn't match inflation, the money you get back when you redeem the bond has deflated as well.  So they really are lose-lose.

What I'm talking about today are the "big boy bonds" that trade on the markets.  They are (should be were... but still are) viewed as a safer alternative to stocks. Now the same deflationary pressures exist so the money you get back when the bond matures is no longer worth what it was.  Additionally the value of the traded bonds fluctuates relative to market forces and how much time the bond has left to maturity.

The tax implications of these bonds also sucks.  Not only does your principal lose value due to inflation, the meagre returns are taxed just like you had flipped burgers to get it.  I must digress though, for an investor in my tax bracket this doesn't add up to a hill of beans.  But if you do have taxable income, then bonds really aren't for you at all.

As an investor in Canada if you're looking for a safe place to put your money?  I would stick to the banks.  Not actually putting the money in an account at the banks mind you... buy yourself some shares of your favourite bank and you will laugh all the way to the bank for years to come.

Full disclosure:
I own BNS, and ZWB.  (An ETF that holds all CDN big banks and writes covered-calls on them too)

If you bet the farm on my advice, it's your own damn fault.  Do your own research.  My opinions are mostly bile, pith, and vinegar.  If you don't want to take responsibility for your own buffoonery, then why do you think I should be left holding the bag for your troubles?  If you're looking to sue me for your idiocy, then I'll happily mail your lawyer a copy of my last notice of assessment.  It clearly shows that I'm not worth their time.  (They will however take your retainer fee and not refund it)