Bonds Explained for Beginners | Bond Types 101

What are the different types of bonds and how can you invest in them to avoid paying taxes

Warning: yeah you heard correctly you won’t go to jail because of tax evasion some bonds are actually tax-exempt

Now in this video, I’m going to break down 7 different types of bonds and how you can use then to your advantage to get massive yields or even avoid taxes. So make sure you stick around to find out how this works.

The most important thing when buying a Bond? ( Don’t complicate it)
Its all about the issuer of the bond.
How Do you know: S&P rating which you can find online and they range from Triple AAA for the best companies it’s like having an 850 to a D which like your in default.

Example 1 Good: Government bonds are AA+ for High Grade but due to its high debt it’s no longer a AAA like it was back in the 90s, but it’s still solid.

Example 2 Bad: Say Groupon is Issuing stocks, and we can clearly see the company went from 26 to 2$ would you do bonds even if they were giving you 10% yield, probably not

Hot Tip: During 1998, when the s&p 500 lose 10% bonds returned around 3.6%. So its good to have to balance things out.

Bonds Explained for Beginners | Bond Types 101

1. Government Bonds: AA meaning they are very safe investments
– Treasury Bills: Short term bonds that usually are less than a year or 52 weeks
– Treasury notes: Long term 2-10 years and pays interest every 6 months
– Treasury bonds: Super long term they mature 30 years later
– Oh and also mortgage bonds and we all know how that turned out in 2008
Hot Tip: You can buy these directly from Treasury Direct
Link: https://www.treasurydirect.gov/indiv/myaccount/myaccount_treasurydirect.htm

2. Investment Grade Corporate Bonds: Good rating for secured returns at least a triple B ( adequate)
– Companies in the stock market
– Higher yields than treasury bonds
– But.. they tend to underperform during market downturns compared to government-issued bonds
Hot Tip: People focus on stocks during the good time, but if you get the bonds for cheap new that might be a good idea.

3. High Yield Corporate Bonds ( Low Rating) – AKA Junk Bonds ( Below Triple B)
– High Yields
– High Risk
– Could be fun, but should be known that you might lose your money
Hot Tip: I would probably buy some of these with my fund money for fun after doing some research to see how they perform

4. Foreign Bonds ( a little Tricky)
– Outside the Us different currency
– So if the US currency strength goes up the conversion of your interest payments goes down in US dollars
– Also, the reverse is true
Hot Tip: But all your money in bitcoin lol jk

5. Mortgage-Backed Bonds (little expensive)
Government National Mortgage Association (Ginnie Mae)
– face value of 25k a pop, which is an expensive
– Ever heard of an FHA loan, well now you know how the money comes together
– Fully backed by the US Government
Federal Home Loan Mortgage Corporation (Freddie Mac)
– Not fully backed by the US government
– You can get these at 1k a pop
– Notice the more the risk, the less the money it takes to play
Federal National Mortgage Association (Fannie Mae)
– very similar to Freddie mac
– 1k entry-level and not backed by the government

6. Municipal Bonds ( not that risky depending on the state)
– Issued by states and local governments
– They can be good quality or high yield like junk bonds
– Interest is tax-free
– But taxable yield are higher than mini yield so you might get taxed and still come out on top depending on your tax bracket

7. Don’t for get Private sector Bonds
– A little more complicated since they are private companies and don’t have to disclose all the info on the company.

* PRO TIP*
INFORMATION IS EVERYTHING

Source 1: https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352
Source 2: https://www.thebalance.com/u-s-companies-rated-aaa-higher-than-u-s-government-bonds-417105

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