0:08

Welcome to Ditch the Suits podcast , where

0:10

we share insights nobody in the financial

0:12

services industry wants you to know about

0:14

. We're here to help you get the most from

0:16

your money and life , so buckle up and welcome

0:19

to Ditch the Suits . Well

0:21

, welcome back to Ditch the Suits . Steve Campbell and Travis

0:24

Moss . We are going to be wrapping up our three-part series

0:26

today talking about fixed income and bonds

0:28

, these IOUs that we can sometimes , as

0:30

investors , be caught up in as an asset class

0:33

, and today , in our second

0:35

episode , we talked about bond mutual funds and how

0:37

they could be a potential money trap . If you missed

0:39

that episode , go back and listen , but

0:41

in this one , if you've been tracking along with us , we

0:43

now want to talk about should you own bonds

0:45

, and , really , is there a better way ? If

0:47

bond mutual funds are not really a great course

0:49

because of the limitations and being affected

0:52

by other investors , if fixed incomes

0:54

, these contracts you've been talking about still

0:56

could be advantageous , is there a better way to

0:59

do it ? So , travis , why don't you talk to

1:01

the investor that's out there that says , well then

1:03

, how should I do it ? And should I own bonds ? What's

1:05

a good starting point for them ?

1:08

The good starting point is you have to define why you

1:10

want to own bonds . And a lot of people , I think

1:12

, confuse

1:15

bonds a lot of times with

1:18

regular investments like

1:21

stocks and stuff . We

1:26

think about bonds as I'm going to buy a fund , and

1:28

how much oh , that fund made 19% last

1:30

year must be a good investment . And again , we were

1:32

talking about the contracts right

1:35

, when you own bonds , this

1:37

is what we think internally , our

1:39

investment committee that

1:41

we have at seed , and this is the one

1:43

thing that we always kind of keep going back to

1:46

. When there's opportunities

1:48

to buy bonds that are maybe paying

1:50

higher interest rates or take some risks with the bonds

1:52

, what is the purpose

1:54

of you owning the bonds in the first place ? And

1:58

there's an old saying that pigs get

2:00

fat and hogs get slaughtered , and

2:02

this is like people will do the dumbest

2:04

things to try to make an extra percent on their bonds . Right

2:08

, because they don't understand the risk that can be associated

2:10

with them . My

2:13

opinion is , when you , the reason why you own

2:15

bonds is because you want predictable income

2:17

and you want safety

2:19

of principle , you're using

2:21

them as a placeholder . Because if you want risk , what do you

2:23

buy ? You buy , you buy stocks

2:26

. Stocks are

2:28

the risk . So if you want something that can

2:30

make double digit returns by stocks

2:32

, don't buy bonds . But

2:34

for some reason , people buy bonds

2:37

with hopes of making stock

2:40

performance like well , let's buy high yield bonds

2:42

because you know we can average eight or 9%

2:44

a year on some of these things . Yeah

2:47

, and you can lose everything on them too . So if that's

2:49

case , if you're , if there's a

2:51

higher propensity of loss in

2:53

that type of investing , why wouldn't

2:55

you just buy a stock ? Because

2:57

instead of being capped because again

3:00

, it's a contract , but instead of being capped at a certain

3:02

percentage return , it's

3:04

infinite with a stock . So

3:07

it's I always go back

3:09

to why are you buying this ? What is

3:11

the role of this in your portfolio ? Do you need

3:14

a bond ? Because in five years you need to make

3:16

sure there's a hundred grand available so that you can pay for

3:18

tuition , right ? Well , bond

3:20

can get you there . You can buy something , or a CD

3:22

can get you there . You know , kind of same category . You can

3:24

buy something that says look , in five years you're going

3:26

to have this much money and you can calculate

3:29

it out and you could be pretty darn sure that it's going to be

3:31

there for you . And

3:36

if we do that , then we're really thinking about

3:38

okay , I

3:41

want something that's predictable . I want something that's

3:43

gonna be safety for principles , so when the market

3:45

crashes and goes haywire , I don't have to worry

3:47

about that part . I always have enough money to take

3:49

care of things . And simply put

3:52

the function of how much

3:54

you're gonna make on the bond and

3:56

I wanna go through some examples of this is

3:59

coupon , maturity and price . Coupon

4:03

is the interest payment . So , steve , you've

4:06

loaned me money . I have promised

4:08

to pay you 5% a year . That's the coupon . You

4:10

get 5% a year . Here you go , and

4:13

bond language that's a coupon , and

4:16

regular people language is called interest . Then

4:20

there's maturity that's when I actually give

4:23

you your principal back . It's when we're all done , you've

4:25

got all your principal back . And

4:27

then there's price , and

4:29

that's what I sell you the contract for in the first place . So

4:34

every bond has those three

4:36

components and when

4:38

I'm thinking about owning a bond I'm thinking about the

4:40

whole purpose behind it . And I thought

4:42

it'd be good just to go through a couple of these scenarios so

4:44

you can kind of get real life numbers

4:47

about how some of this stuff actually

4:49

the performance actually shows

4:51

up in your account .

4:52

Yeah , and before you even just jump right into that , for those

4:54

that might be new , to ditch the suits when you hear

4:56

Travis say things like investment committee

4:58

, just as a reminder , travis

5:00

and I operate a financial planning company

5:03

with our team where investments are a major component

5:05

of financial planning . We use ditch the suits

5:07

as a way to educate , to empower you

5:09

to make good decisions . But in this episode

5:12

particularly , we're gonna be talking from our experiences

5:14

when it comes to fixed income and how we've

5:16

been leading up to this conversation . So I

5:18

think these scenarios will be really helpful . And again we're

5:20

talking about in episode two we

5:22

talked about commingling all these contracts

5:25

and bond mutual funds where you're really not sure

5:27

what you own . You can't look

5:29

at any one given time . Travis Moss can't

5:31

call the bond mutual fund company and say

5:33

, hey , get rid of these bonds or these bonds , I don't wanna

5:35

own these . You can't do that . There's no individualization

5:38

. What you're gonna be talking about is some examples

5:40

around individual bonds . So if you just

5:42

own that one-on-one agreement , that one-on-one contract

5:45

like , how would that work and what are some of these

5:47

scenarios ? So gonna be some numbers and figures

5:49

. Don't worry , you can watch along with us on YouTube

5:51

or you can listen in your car , but I think these scenarios

5:54

will help paint a picture as to how some

5:56

of these different moving pieces can work within bonds

5:59

.

6:01

So this is literally what happened in 2022

6:03

. So

6:06

this is what your mutual fund was doing when

6:08

you were giving the mutual fund money in

6:10

general , especially index funds , and

6:15

people say I don't believe that that's how it was . That's

6:18

how you lost money in 2022 . So it is how

6:20

it was . If you don't wanna

6:22

believe it , that's on you . I think you know what I mean

6:24

it's like . This is how it works . So

6:28

imagine this situation You're gonna buy a $1,000

6:30

bond that pays 25% . There

6:32

are $25 per year in interest

6:35

and it's going to pay you for

6:37

the next five years and at the end of five

6:39

years you get $1,000 back . So

6:41

that means over five years you're gonna get $125

6:44

, right , $25 of interest

6:46

a year times $525

6:49

. So that's essentially

6:51

2.5% a year . But

6:54

what if we paid $1,150

6:58

? Because there's a way to actually look

7:00

in a mutual fund and see what the average

7:02

cost of the bond is , and I remember

7:04

doing work for clients at the end of 2021

7:07

and trying to find bond funds that

7:09

were selling at discounts and they were all in the double

7:11

digit premiums everything that I could find anyway

7:13

. So

7:16

not all , but , like

7:18

across the board , most

7:21

funds were up in the double digits . So

7:24

if you pay $1,150

7:26

for a $1,000 bond , you

7:29

are paying a 15% premium or a 15%

7:31

markup . You're overpaying by 15%

7:33

and you'll do that

7:35

if you can get lots of extra interest for

7:37

that . But in this case

7:40

let's pretend this bond

7:42

matures in the

7:44

five years that we were talking about Same

7:47

bond it's paying you 25% a year , or

7:49

$25 a year , I'm sorry , 2.5%

7:52

a year . So you're gonna get $125

7:55

of interest because you get the

7:57

$25 is based on the $1,000 face

8:00

value . So you get 2.5% of 1,000 , not the

8:02

1,150 , that's just what you paid for it . But

8:07

when it matures in five years you only get a thousand bucks

8:09

back . The

8:11

guy who originally accepted

8:13

the loan , who borrowed the money he didn't borrow $1,150

8:16

, he borrowed a thousand he ain't gonna give you the extra $150

8:18

back . They're

8:21

only gonna give you the $1,000 back . So

8:24

in five years you

8:27

get the $1,000 back . But you paid $1,150

8:30

for that $1,000 contract . So

8:32

that's a $150 loss right

8:34

, goes away , disappears . You didn't get anything for it

8:36

. So you made $125

8:39

in interest payments but you overpaid $150

8:41

for the contract . So you actually lost

8:44

$25 . The

8:46

day you bought that contract you were guaranteed

8:48

that loss .

8:51

Let's take a quick break to hear from our sponsor

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9:25

. I

9:27

think that's a huge point , though , is you describe

9:30

bonds for people that may not understand that

9:32

. That's how that works . You don't

9:34

get back at the end of the maturity

9:36

what you paid for it when you got

9:38

it from somebody else . You're going to get the face value

9:40

. So I think , as you go back to that analogy

9:42

that you used , of the $1,000 of

9:45

the face value , when that matures , it's $1,000

9:47

. If you paid $1,150 for it , you don't

9:49

get $1,150 . At the end of the five years

9:52

, you get the $1,000 . So that's how that

9:54

math works out . So that's

9:56

the risk You're paying premium to

9:58

get , maybe , a higher interest , because maybe your

10:00

interest rate wasn't 2.5% , maybe

10:02

it was .

10:04

Or you're chasing return . You basically pay

10:06

the premium , because most of

10:09

what was happening in those bond funds is we're

10:12

pumping money in the bond fund and the bond fund

10:14

has to buy bonds and

10:17

if enough people are saying , buy me more of those bonds

10:19

, I paid that higher interest last

10:26

year it forces the price up . There's a finite supply

10:29

. As big as the bond market is , there's

10:31

still a finite supply , and

10:34

so if everybody wants some of it , they just

10:36

force the price up . It's a supply and demand issue

10:38

. So

10:41

then there's another scenario the Silicon Bank

10:43

scenario . We talked a little bit about this in the last

10:45

episode . But here's this scenario . Here's how

10:47

this scenario actually worked . Just put it in layman's

10:50

terms . You

10:52

have $110,000

10:55

bonds that you consider your

10:57

emergency savings . So

11:01

$100 times $1,000 is $100,000

11:03

, right . And

11:06

on average on those bonds you get 3%

11:08

a year on each of those bonds . So

11:11

you have $100,000 face value of bonds

11:13

. You get 3% on the face value

11:15

Every year . You're getting $3,000

11:20

. These are 10-year bonds . You're going to get $3,000

11:22

every year for 10 years , no matter what's going on

11:24

in the market , and

11:26

then at the end of 10 years you get $100,000 back . So

11:30

you're going to get $30,000 over the

11:32

10 years . So

11:35

essentially your return is 30% over

11:37

10 years . Right , interest

11:40

rates go up three times in a

11:42

12-month period Sounds

11:45

familiar and the resale

11:47

price of those bonds each

11:50

of those $1,000 bonds drops to $880

11:53

per bond . So

11:55

because interest rates are higher , I can get something

11:57

that's paying a lot more than 3% . So

12:00

I'm not going to pay you $1,000 to get you out of this

12:02

early , steve . I'm only going to give you $880

12:06

per bond . So 100

12:08

of those is going to be worth $88,000

12:11

. You still get the 3%

12:13

on $100,000 , though . You still get $3,000

12:16

in interest , which is really cool . When

12:19

they say yields are up , it's

12:22

making it look like you're making a lot more money

12:24

because you only paid $88,000

12:27

for it and you're making 3%

12:29

on $100,000 . It's going to make it look like you're making

12:31

a lot more interest . There's

12:33

a thing called yield to maturity where

12:37

you take that well

12:39

, you got interest that you're paying

12:41

, and then you look at what you're buying it for and

12:44

you add the adjustment in there and that's your average price

12:46

. So

12:52

, anyway , you're still making the $3,000

12:54

. You're still going to make the $30,000

12:56

over the 10 years . However , an emergency

12:58

comes up the year after you buy it and

13:01

you need the money and

13:04

you're forced to sell the bonds because you have no other choice

13:06

. And think about what happened

13:08

in 2022 . The stocks were down and the bonds were

13:10

down , so normally

13:13

there's an inverse relationship . If bonds

13:15

are down , stocks are normally doing pretty good . If stocks are down

13:17

, bonds are doing pretty good . In this case

13:19

, everything's down and you can't get a loan

13:21

. Maybe you lost your job , maybe you got a health issue , maybe

13:23

tuition . Whatever , the problem is , you got to sell it . So

13:27

you go and you sell them for $88,000

13:29

because that's the resale

13:31

price . That's all you can get for them , and you have to have

13:33

your money . Now you don't get the $3,000

13:36

per year that was the

13:38

original terms but you don't own those anymore

13:40

. Somebody else bought them for you and somebody else paid

13:42

you $88,000 for them . So

13:45

basically , you're out to $27,000

13:48

that your contract , your bond , was going

13:50

to pay you and you're

13:52

only going to get $88,000 for something

13:54

you paid $100,000 for . So you

13:56

lose $12,000

14:00

. So that's what happens to Silicon Valley Bank . We have to sell

14:02

it before we want to . We lose the money . We

14:05

no longer have the interest . We're getting off that

14:07

money either . And if we took $88,000

14:10

and we paid off

14:14

the debts and everything . And then let's

14:16

say we got $88,000 new dollars . In

14:18

the future we may not , if interest rates move

14:20

, we may not be able to buy the same stuff back . So

14:23

that can become a real finite

14:25

loss to us .

14:27

Yeah , and I don't know again if this analogy doesn't

14:29

make sense . We can move on . But I think when you

14:31

talk about home sales

14:34

, there was a season where interest rates went up on

14:36

mortgages and so if you got into

14:38

dire straits and needed to sell your home and

14:41

we're hoping to make $100,000 , but the

14:43

next person that could purchase it their interest rate

14:45

is way higher . If they needed to take out a loan

14:47

, they're going to offer you far less

14:49

than the $100,000 . And if you're desperate

14:51

and they offer you that $80,000

14:53

, $8,000 from that home and you need that

14:55

money , you just got to eat it . And

14:58

the reason that they may be doing that in that

15:00

case is because their money , the purchasing

15:02

power , with that interest rate isn't as much to them , so

15:05

they can't afford as much . So sometimes

15:07

if you weren't involved in the Silicon Valley bank

15:09

situation but you just have a home loan , sometimes

15:11

that's also an easier analogy . So when

15:14

you talk about risk , that's a huge part

15:16

of it . It's supposed to be my safe money , so how come I

15:18

just took a $12,000 loss ? I think that puts

15:20

in a context of understanding how contracts work

15:22

.

15:45

Well , and think about it like this too , because

15:48

you could say well , I didn't have $100,000 individual

15:50

bonds , I had a mutual fund . So

15:52

if your mutual fund went down 12% in 2022

15:55

, that's what that

15:57

is . You know

15:59

what I mean ? And the difference is is it didn't come all the way back

16:01

, did it ? You know ? Maybe it

16:03

came back 5% or 6% , and

16:06

you're still down 7% . Well

16:08

, what's the difference ? The difference is what was overpaid

16:10

for those bonds in that portfolio . That

16:13

doesn't come back . It shouldn't come back

16:15

. It shouldn't have been there in the first place . What will come back

16:17

is after you get enough interest payments over time

16:19

. So people will sit there and say , well , I lost

16:21

a bunch of money in my bonds , I need to wait till I make it back

16:23

. Now . You

16:26

literally lost money , it's gone . It's

16:28

not coming back , unless there's some fool out there that repeats

16:30

the issue . Right

16:32

, like

16:34

stocks can go down 30% , come back 30%

16:37

in a heartbeat because there's

16:40

not a termination

16:42

of it . Right , there's no finite value , but bonds

16:45

is a finite value . You only have so much time . So

16:47

if you overpay for

16:50

a bond by 10% or 15%

16:52

and you still have

16:54

10 years to go , you might have some ups

16:56

and downs and peaks and valleys in there , but

16:58

the closer it gets to the maturity or the payout

17:01

date , the

17:03

less ups and downs it's going to move , the less chance

17:05

you're going to have to sell it back and get your

17:07

money back . And so they become

17:10

these , like we were talking about liquidity

17:12

traps . So

17:14

we have some challenges . Today , though

17:16

, and this is what we sometimes don't

17:18

understand , I

17:20

think cause and effect very well , and

17:23

I think if we can be better at causing effect

17:25

, we

17:28

can deal with some of the volatility

17:30

a little bit better . We can if we understand

17:32

why

17:35

some of these things are happening and

17:37

how these mechanisms work

17:39

. Like if I were to say Steve , we can buy you a

17:41

bunch of 10 year 4%

17:44

bonds right now , or a bunch of , you

17:46

know , 6 year 5%

17:49

bonds right now , and you go yeah , but I can buy

17:51

an 8 month , 6 or 7%

17:53

CD . Why wouldn't I just do that ? Well

17:56

, the issue is is one gives you 7%

17:58

for 6 months and the other one is giving you a higher

18:01

interest rate for a longer time period , right

18:04

? Well , if we understand how the contracts

18:06

work and are we getting a good deal on the contracts and all

18:08

the risk associated , we can make better decisions about

18:10

what we're buying . And then , when the resale

18:12

prices are going up and down and all over the place

18:14

, it's not panicking us . So we're not coming in going

18:16

oh my gosh , my mutual funds down 12% , sell

18:19

it . Or

18:22

, oh my gosh , my mutual funds down 12% . But

18:24

bonds always come back because if they already

18:26

matured , if it's too late

18:28

, the only thing that's coming back

18:30

is future performance . You know , buying

18:32

future things at under sticker

18:34

price , essentially , you know , or at a discount

18:36

. But today's challenge

18:38

, really , I think , is

18:41

that we you know , if you

18:43

go back to 2019 and

18:45

you look at how much money they call the M2 money

18:47

supply , you look at how much money was in circulation

18:50

like cash

18:52

, like these are savings accounts and stuff like that , like

18:54

how much money was actually out there , and you

18:57

know financial assets and stuff . It

19:00

has increased by $5.5 trillion

19:02

since 2019 . That's

19:05

, I think , somewhere around like a 25%

19:07

increase or

19:10

bigger . That might actually be bigger , but

19:12

it's a gargantuan

19:14

amount of money that has been printed and

19:17

put into circulation . Where

19:19

do you give me your best

19:21

guess at where you think that money goes ?

19:26

I would even have a clue .

19:28

It's not those darn pesky one percenters . Go

19:31

someplace else . I mean , they get a piece of

19:33

it , but it's not all in their pocket

19:35

. So

19:37

we have inflation

19:39

, right , we have this horrible inflationary

19:41

event that happened over the last couple of years and it caused

19:43

the bond market to crash , caused the real . You know

19:46

the real estate market is taking

19:48

a pounding . You know , I went way up and now

19:50

it's like struggling , especially commercial real estate

19:52

. You've

19:55

got a stock

19:57

market took a big hit because of inflation , all

19:59

these things . What is inflation

20:02

? Inflation is too much money . Hello

20:06

, we put $5.5 trillion . We've

20:08

increased the amount of money out there by $5.5

20:11

trillion since 2019 . We

20:14

didn't all of a sudden like double

20:20

our productivity . It's not like all

20:22

of a sudden . Like you know , you

20:24

took every single business and carbon

20:26

copied it and there was a new one there , right , we

20:28

just created a whole bunch of extra money and we

20:30

said here you go , world , have the money . And

20:34

what happens with the money ? It

20:37

ends up in the markets , it ends up in

20:39

companies , it ends up in debt and ends

20:41

up in real estate . Look at this the

20:43

real estate market went nuts , didn't it Like

20:45

? Residential real estate went crazy

20:48

, bond market

20:50

way overpriced . Stock market , you

20:52

know , crashed . But now it's , like you know , all type back

20:54

up the all time highs . If

20:59

people will say , well , you know it doesn't all go

21:01

in the market . You know , maybe

21:04

I saved my money , I put it in the checking

21:07

account . Well , what

21:09

do you think ? The bank , they would the money , they

21:11

in that , they gave it to businesses , gave it to people to

21:13

buy houses . You know they're loaned it , right

21:15

, they invested it , they put

21:17

it to work . So it ends up back

21:19

down into the market . Basically , as

21:21

we're talking about it and what you could say well , nope

21:23

, I live day to day . I don't even have enough money

21:26

to pay the bills . I spent my money on

21:28

food . What do you think

21:30

? Where do you think that money goes ? That's

21:33

profits , right . And what

21:36

happens when companies charge more

21:38

for stuff they have ? They make more profits

21:40

. What happens when they make more profits ? Right

21:43

, well , in this case , they have to make more profits

21:45

because everybody's making more money . There's not enough workers

21:47

. We got to pay everybody more . So , if we got to pay everybody

21:50

more , we got to charge more . We're gonna charge more as a percentage

21:52

. We're gonna make higher net profits , right

21:55

, all just through . Well , what happens

21:57

when companies make more money ? They give out

21:59

bonuses , right , their stock prices

22:01

go up , they do

22:03

all kinds of stuff with that money . They reinvest the money

22:05

, they , they , so it all ends up back

22:07

in the market

22:10

and so you

22:12

have all this money chasing

22:14

around . The same old , same old investment

22:16

formulas , even though the the the

22:18

world is , the financial world

22:20

, is very , very different now than it was in 2019

22:23

. Then it was . You know , if you go

22:26

pre-covid to now , it

22:29

is dramatically different . There are

22:31

, for instances that

22:33

have happened that are completely

22:35

unique in nature , that are like

22:37

, you know , the Python swallowing the pig and

22:39

it's just kind of like Flowing through

22:41

the system and it's got to get its work its way

22:43

out . You have these For

22:46

instances that have happened and

22:49

we're acting like nope , there's no difference , you

22:52

know . And in the context of bonds , people

22:56

say well , you know , why would anybody bit the

22:58

bond prices up so much ? Because

23:00

what else are you gonna do ? All

23:03

you've been told is by index funds , by

23:05

these mutual funds . They're safe , you know . I mean

23:07

, these people know what they're doing and

23:09

you're saying I got extra money , I guess . And

23:12

on top of that , we have an aging demographic . You have baby

23:14

boomers retiring like crazy and they're gone . I

23:16

, because I'm older , I should be safer with my

23:18

money . So

23:21

they're putting larger and larger allocations

23:23

, you know , which by itself is like a myth

23:25

, right , but anyway they're being there . They're putting

23:27

larger and larger allocations into bond funds

23:29

. They're jacking the price because

23:31

they're putting that money into the bond funds . The bonds have to

23:34

go buy bonds . It jacks the price of the bonds

23:36

up because there's a limited supply and All

23:41

that's gonna do is increase volatility .

23:45

Well , and I thought that that was a great point that you've shared a

23:47

few times now that if the If

23:51

the language of the bond mutual fund is that they have

23:53

to continue to buy more bonds , then

23:55

you're , then you're really kind of throwing

23:58

everything into the wind because they're not gonna

24:00

hold money , they're not gonna hold off , they're not gonna

24:02

wait for a better time , it's their prerogative to go

24:04

buy it . So you know , you build in

24:06

all these things that you talk about some of the challenges

24:08

. I mean , are there any other challenges

24:11

that you think are , you know , really impacting

24:13

what's going on with bonds and what to do

24:15

Is an investor ?

24:16

right , we just got to my . No , I didn't

24:18

notice . 5.5 trillion dollars

24:20

is actually 33% increase since

24:22

2019 . I mean

24:24

, that is a big jump think about that . We

24:26

we haven't even felt the whole impact

24:29

of that 5.5 . I mean this this is when

24:31

things seem out of whack economically . That's

24:33

why there's so much

24:35

dry powder there that's out , that's floating

24:38

around . And when we look at what

24:40

that's gonna and I'll tie this back to bonds , I promise

24:42

when we look at what inflation

24:45

does , you

24:48

know , that's one thing . But what about ? Now ? You

24:52

have some major changing

24:54

like change agents . You

24:57

have this battle between returning to work

24:59

Like

25:01

and working from home , right , and

25:03

that's a huge issue for the cities . So

25:06

you've got corporate real estate , which

25:08

interest rates tend to have a negative

25:10

impact on corporate real estate . But you've got corporate

25:13

real estate now where you have a high interest

25:15

rates and you have workers that don't want to come

25:17

back to work and and certain corporations

25:19

who figured out they can have displaced Workforces across

25:21

the country who don't necessarily

25:24

need those footprints . So

25:26

you're gonna have change happen in

25:28

those markets and

25:30

that money's moving

25:32

around right , like like . Money is

25:34

like water it's gonna fill in . You know

25:36

the cracks up to the top and then it'll fill

25:38

in . You know the the next lowest

25:40

point and it just kind of it just keeps filling

25:42

in and so Money's

25:45

gonna figure out where to go . And if money starts

25:47

leaving corporate real estate because of a changing

25:49

demographic there , where does it go ? Right

25:52

? So , and and and . There's a limited supply of

25:54

everything . So Inflation

25:57

and some of these concerns are real . Artificial

25:59

intelligence and the impact on on jobs

26:02

, you know , the the

26:05

more that there's layoffs or the more that you

26:07

know we can optimize things because of artificial

26:09

intelligence . Well

26:11

, that impacts Employment

26:15

. Well , what if it goes the other way ? What

26:18

if it creates employment

26:20

opportunities ? Right , or what if it , you

26:22

know , frees up or

26:26

changes demand for labor in certain ways

26:28

? What does that

26:31

do and

26:33

how does and how does that drive ? You

26:35

know the way that money is changing hands

26:38

out there . Interest

26:40

rates you know , people talk

26:42

about interest rates and that's kind of the big driver

26:44

behind a lot of this is this irrational fear

26:46

over interest rates . If

26:51

you talk to somebody in their 40s or 50s

26:53

or even 60s or

26:55

anybody older than that , really , but you start with the

26:57

kind of mid 40s and up , they'll

27:00

tell you that they remember when we're interest

27:02

rates right now . This was pretty darn reasonable . This

27:04

was a kind of a good place to be . They

27:07

don't have to go down , they

27:10

could stay here . You know why would

27:12

interest rates stay here ? Well , you know , the governments

27:14

don't have to fund the pension plans quite as much . That's

27:16

nice , because the way that those things

27:19

are calculated . Why

27:21

else would they stay up like this ? Well , because

27:24

you , you really want interest rates

27:26

at a reasonable level . So if you do have a recession , you

27:28

can stimulate by dropping interest rates . Well

27:30

, just so happens , you got five point five

27:32

trillion dollars floating around that needs to

27:34

be sucked back out of the economy , and Higher

27:37

interest rates is one of the ways you suck some of that money back

27:39

out , right ? So there's there's

27:41

a lot of reasons why interest rates might

27:43

stay up or or possibly even go

27:46

up , and I think

27:48

it could be a very big challenge for interest rates to

27:50

actually go down Right now

27:52

. You know , because you've got a lot

27:54

of money floating around there to still got to figure out

27:56

where to go . So

27:59

it we've got some really interesting

28:01

things that if you

28:03

were negotiating for contracts that

28:05

are very sensitive to interest rates

28:08

and Very

28:10

sensitive to what other people are doing

28:12

, would

28:14

you take a basket of them that

28:16

you really don't know what any of them are

28:19

, or would you be really Meticulous

28:21

and would you kind of comb through and pick out just the

28:24

really good ones , and

28:26

if you couldn't find a good contract , would

28:29

you still buy ? Or would you say you know

28:31

what , even though

28:33

I could make four or five percent on that one , you

28:37

know , because of the coupon or something

28:39

like that , I think over paying by

28:41

five , ten percent . That's kind

28:43

of a fool's game . I'm gonna sit

28:45

this one out . If you actually

28:48

understood each contract that you

28:50

were buying , it

28:52

seems like you could make a much . You

28:54

could make much , much better decisions and you could number

28:58

one , you could control some of this risk . You could

29:00

have a lot less anxiety about what

29:02

you're doing . But

29:05

you could also , every time you buy something , know that you're going to make a certain

29:07

amount of money on it .

29:09

Yeah , I think we've been bold enough

29:11

in our time together that you know when we talked

29:13

about things like crypto , we

29:16

were pretty passionate . That you know , if you want to be in a Ponzi scheme

29:18

, understand what you're getting into and

29:20

feel free to ride this wave out with bonds . We're not calling bonds a

29:22

Ponzi scheme . It's

29:24

a real asset class that people invested . It's a good thing , it's just more

29:26

of how people go about doing it , which

29:30

is where people have gotten in trouble by just

29:32

wanting to own a fixed income , safe investment and

29:35

throwing their money into a bond fund that they don't

29:38

really understand the contracts that make it up and they get thrown around

29:40

like a 2022

29:42

and they're left saying , guys , what the heck ? Well , we've

29:45

tried to do in this last episode to say , hey , if

29:47

you're going to own bonds , understand why you want to own them

29:49

and then look at the individual past . Like you said , you can meticulously

29:52

look at these contracts and how they're arranged . So

29:54

I think , travis , as we kind of you know , bring this one home

29:56

. Is

29:59

there anything else as to why someone might want to own

30:01

bonds that you want to leave people with ?

30:04

Well , I just want to leave more from a positivity standpoint . I think that

30:06

right now , any

30:08

any time where you can buy individual

30:11

bonds , I think that there's normally opportunity , but

30:14

it's it's about how you're able

30:16

to sift through what's available out there . And

30:20

so the first thing that again to remind

30:22

people to go back to why do you want to own bonds in the first place

30:24

? If

30:26

you want high returns that

30:30

are going to cause volatility , then

30:32

go buy stocks , don't buy bonds . Right ? If you

30:35

want safety and predictability , then

30:37

you

30:40

can't just buy something that it's on its faces

30:43

in the safety and predictable category

30:45

, because that's

30:47

just a category , there's all kinds of subcategories

30:49

within it and and plus , there's still a

30:51

price that you have to pay . So I

30:53

think that you have to actually look within

30:56

that category and say what

30:58

am I actually buying ? You really need to understand

31:00

what you're buying because , again , different

31:02

than a stock where stock you can , you can just hold

31:04

that thing and and you know , probably

31:07

make your money back over time a bond can

31:09

actually lock you into a loss if you buy it

31:11

wrong . And it's

31:14

kind of like the same reason that you would hire somebody

31:16

to do a home inspection when

31:18

you buy a house . Why do you hire somebody

31:20

to do a home inspection ? Because you want to make sure you're

31:22

not buying a lemon , right ? You

31:25

want to make sure that the second you buy it , the furnace doesn't

31:27

die and the Sceptic doesn't

31:29

back up and the stairs don't fall down

31:31

and the electricity doesn't burn the house

31:33

down all these other issues , right ? So you

31:35

have to do a home inspection because you want to make sure that

31:37

you're not Just going to

31:39

financially destroy yourselves . Shouldn't

31:44

we be doing like our inspections on the mutual funds

31:46

and stuff that we're buying ? Right

31:48

? And and if we're gonna do that much work

31:50

, why not ? Why not spend some

31:52

time and learn how to read these individual contracts and

31:55

try to take , you know ? I mean and again I Don't

31:58

think individual investors . I

32:01

don't think it's a safe thing

32:03

for them to run out and say I'm gonna buy all my own individual

32:05

stocks and all my own individual mutual funds . I think this

32:07

is why a lot of famous

32:09

investors like Warren Buffett and stuff will say , well , go buy

32:11

the index . And the

32:15

reason why they're saying that is because you

32:17

have to have some competency in what you're actually

32:19

doing , right . This isn't a recon warrior job

32:21

. This is an actual thing that you have to be dedicated to

32:23

, because you have to understand how it works , because

32:27

you can't get yourself in trouble even when you think you're

32:29

doing the right thing . But

32:31

if you're working with an advisor , you

32:34

know , this is kind of like one of those things where everybody says

32:36

what's an advisor worth ? Well , what are you getting ? You

32:39

know , what are you paying for ? Are you paying for them to throw you in the same

32:41

junk you can buy yourself , with the same risk you could

32:43

deal with yourself . You know

32:45

, if you're working with somebody , really

32:47

what I would be saying , as you know

32:49

, how do I lock in

32:52

and have more predictability and more safety

32:54

and Know

32:56

that when I buy one of these things , I'm actually gonna make money

32:58

?

32:59

and bring a home full circle . It's . It's not just

33:01

that . Bonds are a tool that

33:03

helps you get to the eventual point of where I think

33:05

you're trying to go , which is to have the freedom

33:07

to use your money the way you want to . You

33:09

don't want to be buying junk that could derail your

33:11

ability to go do the things you want to do

33:13

with your spouse or your family because you took

33:15

a loss like we described , because you Didn't understand

33:18

how something worked . So again , you got to use

33:20

investments as a way to fuel and really

33:22

add to the bottom line Of what you're doing

33:24

, just kind of make sure you understand all the moving parts and

33:26

how they work . So if you have any questions at

33:28

all about anything that Travis and I have talked about

33:30

, don't hesitate to reach out to us . You can visit

33:33

ditch the suits calm that stitch

33:35

the suits calm . There's a contact us bus

33:37

and button . Send us a message . We'd love to hear from

33:39

you . We love hearing from listeners , but again

33:41

, we hope that this series on bonds and fix

33:43

income Expires you to go out and live your best

33:45

life , because you only got one shot at this thing

33:47

. So we appreciate you stopping by ditch the suits .