Don’t buy bonds, if the interest rate doubles, bonds loose half their cash value unless you wait until the maturity date. The interest rate hasn’t been this low in 40 years, now is the time to sell 30 year bonds.
Plus if the bond holder files for bankruptcy, you’re behind the vendors who are first in line for payment.
A $20,000 thirty year bond paying 5% today, if the interest rate went to 20%, that bond would sell for $5,000, thats a $15,000 haircut. You could wait 30 years and get your principle back.
Short term T-bills are the way to go if you want to protect your assets with a non speculative investment. If the interest rate were to jump to 20% you would buy the 30 year bonds. Then if the interest rate went to 5% the bond price would quadruple in resale value. A $20,000 bond paying 20% interest is the equivilent of a $80,000 bond paying 5%.
The example is not totally correct, but it gives you the general drift. Plus if you take the “Rule of 72,” and divide that by the interest rate, it gives you the approximate time it would take to double your money.
