Creating A Bond Ladder For Passive Income
Вставка
- Опубліковано 21 тра 2024
- Interest rates have surged recently and one of the positive aspects of this is that you can now earn a much higher income whilst taking little risk. One approach to creating passive income via a low-risk stream of predictable cash flows is to build a bond ladder. So in this video, I will show you what a bond ladder is, how you can build one and what it takes to maintain it.
If you want to learn more about investing then why not become a pensioncraft.com member? To find what we offer and how you can join our friendly community click here www.pensioncraft.com/investor...
What Else PensionCraft Offers:
💡 Book a coaching session with Ramin so he can answer your questions in a one-to-one video call via Zoom: pensioncraft.com/power-hour/
📰 Sign up for our free weekly market roundup to get news and views about what's going on in the stock market and wider economy pensioncraft.com/market-roundup/
📖 Understand investment in more depth with my online courses pensioncraft.com/courses-we-o...
❓ Join PensionCraft on UA-cam and you’ll be supporting me to make more content and I will answer your questions and respond to your comments on UA-cam as a priority ua-cam.com/users/pensioncraft...
Timestamps
00:00 Introduction
00:30 Why Build a Bond Ladder?
01:47 Government Bonds
03:45 What is a Bond Ladder?
04:11 Why Now?
05:15 Certainty
08:22 Yield To Maturity
12:36 Why You Can’t Use A Bond Fund
16:04 Building The Ladder
19:23 Ladder Maintenance
20:28 Conclusion
Where Else You Can Find Me
🎧You can check out my weekly podcast all about investing here many-happy-returns.captivate....
🌐 Website - pensioncraft.com/
📱 Twitter - / pensioncraft
👨 Facebook - / pensioncraft
🔗 Linkedin - / pensioncraft
Tools I Use To Create My Videos
✔️ My primary data source is SharePad and an affiliate link for this is here sharescope.co.uk/pensioncraftsp (This link provides new users with a special offer and gives me a small commission)
The rest of the tools I use are free open source software:
✔️ ggplot2 package in R for my plots
✔️ RStudio to edit and run R code
✔️ OBS to record my videos and live streams
✔️ Kdenlive to edit my videos
Take A Look At Some Of My Other Videos & Playlists
📹 Investment Strategies playlist • Investment Strategies
📹 Economy & Investing playlist • Economy And Investing
📹 Behavioural Investing playlist • Behavioural Investment
📹 Investing Strategies From Beginners To Advanced video • Investing Strategies F...
DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results.
#Bonds #Investing #PensionCraft
One of your best educational videos I think. Thank you
Wow, thanks @Graham Lewis
Ramin: 'No one loves bonds quite as much as me'.
Also Ramin: 'I'm going 100% equity'.
This was amazingly educational, thank you!
You're very welcome @Der Hoc
Thanks Ramin, was thinking about buying bonds myself for the 1st time :)
you need to commit plenty of capital.. £10k in a bond that pays 4% annually is still only £400 per year.. absolute peanuts..
That was very well explained. Thank you, sir.
Glad it was helpful @Mike Moreno
Another excellent video and probably the best explanations of bonds I’ve come across. I’m a way from retirement but would definitely consider learning more in order to potentially implement it. What I would like to understand more is how many rungs a retirement plan would need. I assume anything that’s not going to be accessed for 10 years plus could sit in equities. The two immediate years on the horizon would be cash, so it’s the 3 to 10 year period that needs more of a balanced approach. Just need to figure that bit out in terms of what is directly held in bonds and how much in bond / equity funds. Thanks again Ramin. I will definitely become a member at some point!
I have a unique bond ladder with Wealthfront that actually automatically compounds the interest so all I had to do was make a 1 time deposit and just let it sit and do its thing until retirement without having to add anymore additional contributions to it.
Great Video - Learned a lot - Thanks you!
Glad you enjoyed it @msprinz100
"many of the people in the PensionCraft community locked in that high rate" ...Stretching the truth there...Way more of us also locked in to a lower rate way before that because of the advice in there 😂
No advice given here, just opinion,
@@jam99 Lol, yes of course- "THIS IS NOT FINANCIAL ADVICE" 🤭
@@greennewworld2718 That's right. You have to pay if you want 'financial advice'. Seriously, though, Ramin is not one of these YTers trying to tell you what you should be doing; he is more about educating us, enabling us to make our own personal risk assessments by asking the right questions, looking at sensible indicators and talking about the numerous options. He goes into far more depth than many. I have far more respect for him because of his style.
If US start to QE, aka money printing, and UK follows, short term bonds should sell, not waiting for maturity. Calculate how second markets works and the price of your bonds.
Very clearly presented as always - I had some understanding of this but was never sure if had the correct understaning, the video made it very clear and the graphics crystalised the concept forever in my head - Thank you!
Excellent @Sachin Anshuman
Fabulous video as always and one I've been waiting for as many of your last few have pertained to buying single bonds and I've not understood how. Many thanks again.
Glad you like them @JohninRosc
Thank you Ramin. I’ve long wondered “why bond funds” - this video along with your recent chat on the Making Money Podcast has finally got the penny to drop for me.
Glad it was helpful! @HugoSomershamJones
I like this vid. Good insight.
Thanks @GerrysPlace
Very well explained, I am also thinking of investing into bonds.
John Ennis • 20 sec ago
Another excellent video and probably the best explanations of bonds l've come across. l'm a way from retirement but would definitely consider learning more in order to potentially implement it.
What I would like to understand more is how many rungs a retirement plan would need. I assume anything that's not going to be accessed for 10 years plus could sit in equities. The two immediate years on the horizon would be cash, so it's the 3 to 10 year period that needs more of a balanced approach. Just need to figure that bit out in terms of what is directly held in bonds and how much in bond / equity funds. Thanks again Ramin. I will definitely become a member at some point!
I had no idea about bond ladders, but I think this will be the mechanism I'll use once I retire (in 45 or so years lol)
Thanks!
That's very kind of you @Dan l. Thank you!
Thank you, very interesting.
You are welcome @Shimster IOM
Question. - those coupons are paid out in cash at their date? Or held onto until the maturity payout. Also, do you create a separate portfolio to manage your bonds? I just have an RRSP & cash account right now. Thanks!
Great explanation, thanks. I am currently getting 3.5% in Vanguard settlement fund/Federal money market, after fees, some in a tax deferred, another in a taxable. Variable rate, but very liquid, monthly payments.
Glad it was helpful! @Karl BE
Though with high inflation, plus higher rates offered on savings currently, bonds used in this way are only advantageous for particular situations e.g. larger amounts that need to be placed in a tax-free wrapper?
Interesting perspective. A video about dividend stocks?
I had 50% in bonds, mainly is US Treasury 40% 1-6 months, 10% in 12 months in retirement. Currently will fill out the ladder to 2 years with CDs as currently brokered CD rate is higher for >6 months when the bond matures.
Can people in the Uk but US bonds?
Wonderful video.
Thanks for visiting @Iain Shirlaw Business English Coach
Hi Ramin, please make a video about structured notes.
So thats what a yield curve is! :D
Hi Ramin. Really enjoying your videos and I have subscribed. The question I had with regards to bond was what you get back at maturity and the prevailing bond price. Let's say you buy a bond for £100 and hold it to maturity. But at maturity, because of prevailing interest rates, that bond is selling at that time for £95, on maturity, do you get back £100 or £95?
Addressed questions very clearly I’ve struggled with despite spending a lot of time trying to understand bonds: 1) difference between funds and buying individual gilts, 2) Why are yields rather than prices quoted. Really helpful, thanks. Prompted me to do further learning. I guess tax “non-advice” is even farther out than investment “non-advice”. Worth mentioning here however that UK investors should look at the income tax and capital gains tax status of coupon payments and capital gains on gilts (clue the first is income taxable, the second is free of CGT). Comparing gilts with fixed rate savings (if ISAs and SIPPs not an option) means that tax status can make all the difference on which way to jump and even what type of gilts to buy. I say that because, tax aside, fixed rate savings are currently competitive with gilts at 1,2, 3 and 5 years.
Are they competitive compared to inflation?
@@tastypymp1287 Rhetorical presumably (as well as pointless).
@@stuartb3502 Not an argument.
Try again ol sport?
The FT says 6 month yield for Gilts is 4%, but when I look at current price and work out annualised yield for gilts maturing in 31/1/23 and 22/7/23 the yields are more like 2.4% to 3.0% which is less than short duration gilts. Is the FT calculation wrong?
I had 40% in bonds until last year. I sold and had cash. Recently I purchased 10% of my investment into CD ladder from 3 month to 2 yr. Interest is about 4.5%. I am planning to add as Interest goes up.
4.5% in the UK? Where exactly?
@@davidyan7354 in US.
@@davidyan7354 You can get 4.6% from Shawbrook bank right now in the UK for a 2 year bond.
@@8G00SE8 Not if you want to keep your cash in your SIPP
Ramin, could you make a video about how UK investor can practically get exposure to factors such as value and size?
What about Canada? Could you outline similar plan/process for someone based on Canada?
ramin what about bond etfs like "I SHARES I BOND TERM CORPORATE ETF" and "INVESCO BULLETSHARES CORPORATE BOND ETF" they kind of behave like holding a pool of bonds untill maturity dont you think? and are a bit diversified.
Enjoyed this. Please consider doing an equivalent for TIPs and comparing the two types. Thanks
Nice video..but didnt address taxation...or did i miss it ?
What do you think of investment grade credit at this time?
How do I buy bonds
Didn’t quite understand the concept of why you buy the bonds with different maturity dates. Why not just all 3YR bonds?
10 year fixed bond at 4.25%
Yep. The US is setting the pace on yield on Treasuries but the frustration is that buying treasuries in the UK is not cost effective after allowing for commission/slippage/exchange rate fluctuations. The big question is whether we will see higher yields in the UK.
And inflation. You forgot inflation.
@@tastypymp1287 I actually believe we are facing stagflation. Governments create inflation through debt which is the best way of reducing the value of that debt through asset inflation. Old as the hills and goes back thousands of years. We are clearly facing the spectre of economic deflation as part of a continuing process which has been in place for many years now. They spin the reality into glib statements to hide the real facts from the average Joe.
@MartinJG100 While I agree in general, it's not quite as straight forward as that because of the creditors. They are savvy to this and demand compensation. If they don't receive, they stop buying government debt. This is already being observed with some major countries becoming net sellers of US treasuries.
Imagine buying treasuries with a 0.25% yield. Who would buy them? Well, at the time the narrative was the world was about to collapse. It was about safety, the safest prospect of getting your capital back whole or at all. Other concerns like yield were dismissed.
But then imagine then holding these bonds and the world didn't collapse. What's more, inflation jumps to circa 10% against your 0.25% yield. And the reason that inflation is so high is that the same country that sold you the debt is the same country that caused the inflation due to their irresponsible and irrational monetary and geopolitical policies.
You'd probably want compensation.
And thus you might be offered the opportunity to buy more debt, but at much more attractive yields....
great video, but have 1 question: is a bond ladder composed of treasuries considered cash or bonds?
Eh? Bonds are bonds, until you sell them into cash, or they mature into cash.
@@jam99 i believe that some consider short term treasuries to be cash equivalents. what about cds?
What about the same strategy, but fixed-term savings accounts?
Yep, currently doing this with fixed income saving bonds. Yield 4-4.5% over various terms risk free. Also you can earn up to £1k per year (basic rate tax payer) interest without paying tax so if you’ve maxed out this years ISA allowance there’s still another grand to be had tax free.
Great video Ramin but it does once again suggest favourable market timing. Those who bought at the recent peak in yields only did so with hindsight. And the value of a bond falls as it approaches maturity.
Can you explain your ‘but’, Stevo? Not sure what point you are making. Is timing not an option with all investment?
There's no market timing. If you like the yield on offer, buy. If you don't like it, don't. Also, the value of a bond will rise OR fall as it approaches maturity - it depends on the specifics
@@jam99 I would argue that timing should never be a factor in your investment choices. I don't use market timing to allocate my assets. I use 50 to 100 year trends since I cannot predict the future.
@@chrisf1600 No, the value of the bond will always fall as it approaches maturity. The closer it is to maturity, the fewer coupon payments there are.
With UK bonds at significant negative yields this year and likely to be significantly negative again next year based on OBR and BoE forecasting a bond ladder constructed now using UK gilts would face very significant headwinds with regards the purchasing power of your fixed income. Far better to construct such a ladder when you are looking at positive real yields if you can.
Agreed, however all cash savings accounts are below the current bond yields. Hence if you need to stash cash this isn’t a bad approach.
bonds are only worth discussing while interest rates are up.. which they won't be for long..
Thought that bond ladder is prone to colapse following recent events in bond market. Also wow, we are finally mentioning DMO. Good luck buying Gilts from them. Spoiler: you will need patience combined with IQ above average. I'm bitter about bonds, I choose cash. It took me to long to realise this thanks to the fnancial channels advocating that bonds are negatively corelated to equities like some sort of axiom.
Why would it be prone to ‘collapse’? This would only happen if the gov defaulted. You know what you are going to get though you don’t know future inflation. Is that what you mean? There is far too little outrage out there towards financial advice regarding bonds and their supposed 1) non-volatiity compared to stocks and 2) negative corelation with stocks. This also includes the ‘risk rating’ on every fact sheet. All most advisors do is tell you the average of the last 100yrs; they do not assess current risks for you. All these middlemen make their money from a non-performance related cut, which is the biggest con in the finance world.
Just to clarify, Ramin is not an advisor and I am not referring to him.
The long duration bond got punished as hard as stocks this year due to rising interest rates from close to 0%. The short duration bonds like T-bills are performing ok, they yield about 4.5% and you can hold them to maturity without any loss in principal. Compared to S&P 500 index loss of 18% this year, it's a safe haven. Therefore, bond is not a complete failure in the portfolio if you know what to hold at this time.
So, why then isn't there a Band Ladder fund where people can pay in and then elect whether or not to reinvest the principle on maturity with the und manager taking a small cut o the overall return to the investor? Investors then have 'bond fund' without the price variability.
They can’t make money off of it as they do with bond funds, because they can’t churn it.
Is there much point in buying bond funds at the moment when you can get higher returns from high Street savings accounts? E.G 4-5% at Lloyd's compared to 1.7% vanguard bond funds
Lloyds does not have a savings account paying 4%.. Perhaps you are thinking of the Lloyds account attached to a mortgage application by a family member.
@@asmerom3025 was an example, but Nationwide offer 4% and im sure others offer the same or more dot dot dot
Answer it’s pointless 4.35% readily available for 1 year FCIS guaranteed fixed rate cash saved in a bank .. why take market risk on bonds with a lower yield .. It makes absolute zero sense
@@actuallythedog263 which UK banks or building societies are offering that much interest on 1 year fixed savings account
No, there is no point.
a bond ladder... a B. Ladder.. bladder.. bladdered.. 😵
Buy Argentina 🇦🇷 bonds at 49% 🤔
Why would you not just do a year bond or a savings account that is a year long , you can get above 3.15% easily
Because you can lock the bond at ten years. Interest can be anything then.
My online broker demands a minimum purchase of $5000. That means an investment of $25 000 for a ladder. Maybe not a problem for some people ……..
Didn´t see much mention of risk on Corporate bonds- clients could lose their entire capital.
This video is about gov bonds only.
Ramin, are you aware of the idea, that when CBDCs are introduced, the bonds will stay on old fiat currency which value will be withering away as time passes and they are not used anymore? so you might have 10k in pound gilts that in 10 years might be 500 britcoins? It seems it has happened multiple times in history when there is a monetary reset
I don't think we are any closer to that, crypto is getting destroyed at the moment, any idea of it replacing existing currencies is probably further away from reality than at any point in the last 5 years.
Bond ladder has low yields. 3 % ? Who wants this ?
Clearly, there are a lot of morons around, personally I'm in gold and silver I just come here for the comedy ;D
You can get about 4% on a fixed 1 year savings account now, more when the Bank of England increase the rate soon and a lot more if you fix it for longer. Why would we want something that yields 3%?
He literally explains in the video why people use bond ladders and what the advantages are over equity funds and gives examples of when they might be used. He at no point says they are right for everyone's circumstances.
@@barnstar2077 Yea... it really is important information for those who want to travel back to the 90s when inflation was 3% and bond yields were at double digits ;p
@@crashnreset6987 - It isn't about yields, again, if you watched the video you would know that.
Passive income is far from the info provided
Buying English bonds is risky as buying bonds from Argentina.
Complete political mess + A economy that have no real output growth in ages.
Better off buying Treasuries.
But that is just my opinion on Bonds.
How is it risky if it's a guaranteed payment?
@@NedFlanders39 guarantee 1000 pounds, in 2030… that have an equivalent value of 10p as of now.. of course I’m exaggerating, but you get the idea.
Mostly because of an economy in stand still + monetary policies and political decisions that doesn’t help the real economy.
@@zanychelly the points you make are why one would buy bonds. 🤣
@@NedFlanders39 He's talking out of his behind. The UK has only fully defaulted once in the 20th Century (in 1932 under inter-allied debt repayments, which were linked to German payments that were halted, so academics refer to this as an "excusable default" as Germany was considered the actual defaulter), and one not-a-default-but-yikes moment in 1917 when the coupon on 5% Chequer Bonds was dropped to 3.5% (but people were offered their principal back and most people took the haircut because it was better than what was available elsewhere). Argentina on the other hand routinely defaults on it's bonds. In 1979 The US defaulted on $120 million on treasury debt, a small part of debt repayments. If you're based in the UK and earn Sterling it makes sense to buy Gilts in most cases. If you're based in the US, Gilts are normally not worth it due to currency risk.
@@helixvonsmelix Sure. Go on buying debt.. while England prints money, and default by inflation.