Evidence that Bonds Aren’t Always a Safe Investment, Ep #122

<p>In <a href= "https://retirementmadeeasypodcast.com/the-risk-of-investing-in-bonds-ep-106/" target="_blank" rel="noopener">episode #106</a> of the Retirement Made Easy podcast, I talked about the risks associated with investing in bonds. I also mentioned a Fidelity® U.S. Bond Index Fund, right? In this episode, I’m going to share an update about this index fund to help you understand how bonds <em>can be risky</em>. I’ll also talk about the #1 contributing factor that can help you retire wealthy. Don’t miss it! </p> <h2>You will want to hear this episode if you are interested in...</h2> <ul> <li>[1:45] An unexpected retirement coaching call</li> <li>[5:38] An update on the Fidelity US Bond Index Fund (FXNAX)</li> <li>[12:32] The #1 indicator of people who retire wealthy </li> <li>[16:59] Why you should always contribute a percentage</li> </ul> <h2>An update on the Fidelity US Bond Index Fund (FXNAX)</h2> <p>As I’m recording this podcast, the index is down 16.13% year-to-date. Bonds are supposed to be a safe and conservative investment, right? So how can this happen? It’s because interest rates have risen so dramatically. As interest rates go up, bond prices go down. </p> <p>Let’s say you buy a McDonald’s bond for $10,000, it pays 2% interest, and it matures in 10 years. It’s like you’re lending money to McDonald’s. In return for your loan, you’re paid interest twice a year. You’ll get paid $200 of interest per year. The price you can sell the bond for—after 10 years—will fluctuate daily. </p> <p>When interest rates double, let’s say McDonald’s starts to offer bonds that pay 4%. But when you try to sell your bond, it’s not worth $10,000. Maybe it’s only worth $8,000. Why? Because if someone can buy a brand new bond paying 4% and yours is only paying 2%, they aren’t going to overpay for yours.</p> <p>If you hold the bond for 10 years, you’ll get your money back (as long as the company doesn’t default). </p> <h2>Why bonds aren’t always safe investments</h2> <p>The longer it takes for your bond to mature, the more