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Episode 2 - All About Bonds, Part 2 [CFP CE Credit Eligible]

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!

To access the CFP CE credit quiz, please navigate to www.cheetahsmash.com. (You'll have to create an account, but you'll be able to use that same account for all future Zebra Smash CE quizzes.)

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

Neat Links


Episode 1 - All About Bonds Part 1 [CFP CE Credit Eligible]

Our first ever episode, in which we discuss bonds at length. Topics include bond terminology, how to value them, and key risks. Eligible for 1 hour of CFP CE credit.

To access the CFP CE credit quiz, please navigate to www.cheetahsmash.com. (You'll have to create an account, but you'll be able to use that same account for all future Zebra Smash CE quizzes.)

Show Notes

  • What’s a bond: definitions, components, etc.

  • Bond price calculation (semiannual coupon bonds):

 Thanks Wikipedia!

Thanks Wikipedia!

…or just use your HP-10BII+ calculator!

  • Zero coupon bonds: what are they, and why would you buy them?

  • The myth of reinvestment risk, as commonly propagated (Required reading: http://www.economics-finance.org/jefe/econ/ForbesHatemPaulpaper.pdf)

  • Prepayment risk, callable bonds and the concept of “yield to worst”

  • Collateralized debt obligations to mitigate pre-payment risk

  • Credit risk and credit spreads

  • Bond enhancements to ease credit risk

  • Interest rate risk

  • Duration – we thought about putting this calculation in the show notes, but come on. No one is ever going to ask you that. So instead, here’s the chart that Roger talks about that illustrates return on changes in interest rates on different bond maturities:

 Gary Shilling's newsletter will teach you everything you need to know about duration.  He's been long duration for 30 years!

Gary Shilling's newsletter will teach you everything you need to know about duration. He's been long duration for 30 years!

  • Comparative returns: Long duration bonds vs. stocks since the early 1980s
 Thanks again to Gary Shilling's newsletter for this gem!

Thanks again to Gary Shilling's newsletter for this gem!

Neat Links


Hello World

If you open up any beginning programming book, pretty much for any language, the first example code you'll be asked to complete is the famous Hello World program. The aim of the Hello World program is to get your computer to display the words "Hello World".

This blog post is our Hello World, published December 24, 2016 at 11:39pm