Yes, we're aware of the irony of having multiple parts of podcasts titled "All About Bonds." We accept that. But guess what? This episode is ALSO eligible for 1.0 CFP CEs, which you can earn by taking the quiz at www.cheetahsmash.com. In Part 2 of "All About Bonds", we talk about different types of bonds, including municipals, special types of corporate bonds, international bonds, and TIPS. We touch on the different ways advisors can build bond portfolios: some buy bonds outright, while others use mutual funds and/or exchange traded funds. We also dip our toes into the murky world of bond indices. Fun!
Stuff we talked about
Municipal bonds: while we don't discuss it, there's a formula you can use to figure out the tax equivalent yield of a bond that's not subject to federal income tax. That way, you can compare muncipal bonds to, say, Treasuries.
Tax equivalent yield = Tax Free Bond Yield/(1-Marginal Tax Rate)
- Private activity bonds and Alternative Minimum Tax
- Special cases of corporate bonds: convertible bonds, preferred stock, structured notes
- International bonds: diversification benefits, but watch out for currency risk (unless that's what you want!)
- TIPS: constant rate, but fluctuating principal based on changes in inflation
- Buying bonds outright: bond desks, bid/offer spreads, accrued interest
- Bond mutual funds: there's a lot of them (more than 4, less than 4 million)
- Bond ETFs: still more than 4, but not as many ETFs as there are mutual funds
- Constructing a bond index : mechanics and challenges for funds/ETFs tracking bond indices
- Dimensional Fund Advisors (DFA) has a great slide illustrating the global bond market expressed as a geographical map, where you can see the US representing just 30% of the investment grade universe. (Source: DFA; located on the Oakwood Capital Management website)
- Here's a press release that talks about the ratings of private activity bonds that were issued to help build toll lanes on I-77 in Ben's state of North Carolina. Note that the bonds were issued by a state agency on behalf of a project being run by a private company
- The history of the Barclays Aggregate Bond index (wsj.com, subscription required)