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Book Review - The Only Guide To A Winning Bond Strategy You'll Ever Need

Category Book Reviews
I always thought that investing in bonds would be a pretty basic activity...  You see an interest rate, you buy the bond, you get the payments.  Wrong!  I've been set straight by the book The Only Guide to a Winning Bond Strategy You'll Ever Need : The Way Smart Money Preserves Wealth Today by Larry E. Swedroe and Joseph H. Hempen.

Contents: Introduction; Bondspeak; The Risks of Fixed-Income Investing; The Buying and Selling of Individual Bonds; How the Fixed-Income Markets Really Work; The Securities of the U.S. Treasury, Government Agencies, and Government-Sponsored Enterprises; The World of Short-Term Fixed-Income Securities; The World of Corporate Fixed-Income Securities; The World of International Fixed-Income Securities; The World of Mortgage-Backed Securities; The World of Municipal Bonds; How to Design and Construct Your Fixed-Income Portfolio; Summary; Afterword; Appendices; Notes; Glossary; Acknowledgments; Index

While not an expert investor by any means, I thought I understood the basics about bonds.  I figured that buying a bond meant that you looked at the rating on how strong the company is, chose something that was investment grade, and then buy the security that provides the interest rate that you want to achieve.    The reality is far, far different.  I didn't realize there's really eight risks you have to manage when buying bonds: interest rate risks, credit risk, reinvestment risk, inflation risk, event risk, tax risk, liquidity risk, and agency risk.  I didn't understand that the lack of transparency in the broker market means that you can get severely burned on a bond purchase and end up losing your stated interest rate *and* your principal.  And of course, there are a myriad number of products, each with benefits and risks, and you can easily end up buying something that was designed to be "sold", not designed to be "invested".  Swedroe and Hempen do a great job in outlining these things and many more in a relatively clear way.  I say "relatively" because there is a fair amount of math and financial concepts presented here that you *do* need to understand and think about.  This book would never be mistaken for a "Bonds for Dummies" title, but for serious investors looking to thoroughly understand the subject matter without delving into all the minutiae of formulas and calculations, you'd have a hard time topping this offering.

I'd definitely recommend this book to anyone who is serious in their financial investments and takes personal responsibility for them.  While you may be at the stage of life where equities are more important to you than bonds, there's information here that will allow you to round out your financial education and acumen, and it's a purchase that will pay for itself many times over.


Gravatar Image1 - Larry Swedroe is an awesome author! He posts on the "Vanguard Diehards" forum.


Another useful book is "The Bond Book: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds" by Annette Thau


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Thomas "Duffbert" Duff

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