Microblog Memes

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.

Set it and forget it. I dont have to worry about the dow contracting with a treasury bond. That's the literal point.

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.

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.

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!

But I don’t have a Brazilian dollars :(

Even then there's no investment with guaranteed 8% interest.

I used to work at a liquor store that had a lottery machine (scratch offs, state lotto) and yea the addicts were pretty depressing. This was a liquor store so we had sadder ones, but still.

I remember one day walking into a 7/11, in maybe 2002, and there were 2 guys in suits, totally dishevelled, collars undone, looking like they've been awake for 3 days, depression coating their faces, and they had a stack of scratch tickets that they were silently just scratching off.

The story I have in my head is that their business fell apart and this was some past ditch desperate attempt to save it with the little money they had left. I have no idea what actually happened but here we are 20+ years later and I still think about them occasionally.