Secret Risks Lurk When Investing in Bonds
Financial advisors frequently tout bonds as a safe investment tool for retirees looking to generate a steady stream of income at low-risk.
However, as we’ve unfortunately come to learn in recent years, bonds are far from a safe investment vehicle.
This lesson should have been learned in 2009, when the world’s economy was in turmoil and American carmaker General Motors stood on the verge of collapse. The US government decided to put some of its money into the company in order to restructure the company and keep it afloat. As part of this arrangement, GM bondholders saw the value of this asset trimmed by a dramatic amount, leaving them holding the bag.
Corporate bonds are one thing. But municipal bonds get pushed on unsuspecting investors even more. After all, they’re tax-free and highly unlikely to default as they’re backed by taxpayer dollars.
But take, for example, the holders of municipal bonds issued by Harrisburg, PA, Jefferson County, Alabama and Stockton, California. All three of those communities issued bonds in order to fund dicey propositions like garbage burning plants and gigantic parking garages. The communities, though, ran into economic difficulties and declared bankruptcy, making it highly unlikely their bondholders will recoup what they originally believed they would receive.
Even international bonds have become a dubious bet.
Just ten years ago, countries like Spain, Italy and Greece looked like a good place to invest in. Why not purchase a multi-year bond to absorb some of the debt used to build the infrastructure in these growing economies?
The answer is simple: The governments of those countries started to have major economic struggles, complete with large budget deficits and growing unemployment numbers. Paying off their debt became more and more unlikely. True, those countries have yet to default on what they owe investors. But they continue to teeter on the edge. It remains unclear just how long other countries will be willing to support the likes of Spain, Italy and Greece. If it becomes impossible to keep these countries afloat, their bondholders will likely find themselves holding a worthless asset.
However, there are investment vehicles out there which are indeed Crash Proof. Contact First Senior Financial Group today to learn about the many ways you can keep your retirement plans intact. Read more on guaranteed investments.
The information contained in this page is strictly for educational purposes and is not intended to provide specific financial advice. First Senior Financial Group does not recommend or sell securities to anyone at any time.