Bonds: The Unbeaten Path to Secure Investment Growth

Chapter 19. MAXIMIZING PROFITS How to Make the Most Money From Bonds

LET'S GET DOWN TO the nitty-gritty: making money from bonds. In this chapter, we review a variety of techniques and strategies that will help you determine when to buy and sell bonds, how to take advantage of tax benefits, how to minimize the risks to your capital, and how to increase your returns. In short, we'll offer practical and profitable ways to use all the previous information presented in this book.

Knowing When to Buy and Sell

There are two types of bond buyers: those who engage in a buyand-hold strategy and those who try to time the market. We view the former as investors and the latter as speculators. Those in the first group buy bonds and, in the absence of personal financial or strategic reasons to sell, hold them until they come due. The market timers in the second group, however, seek to anticipate interest-rate movements and then capitalize on short-term market swings by a strategy of in-and-out trading.

There is little evidence that even the top economists can consistently predict the health of next year's economy much less the direction of interest rates. If the world of finance has yet to produce a professional who can accurately and consistently predict the future, what is the likelihood that you or your broker can? Even if, through sheer random luck, you properly guess the direction of interest rates, you still might not make money unless you overcome the dual costs of trading spreads and taxes ...