{"id":12647,"date":"2025-03-30T02:19:59","date_gmt":"2025-03-30T02:19:59","guid":{"rendered":"https:\/\/finderica.com\/?p=12647"},"modified":"2025-03-30T02:19:59","modified_gmt":"2025-03-30T02:19:59","slug":"the-ultimate-way-to-stabilize-your-portfolio","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=12647","title":{"rendered":"The Ultimate Way to Stabilize Your Portfolio"},"content":{"rendered":"
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You always remember your first\u2026<\/p>\n

I\u2019m talking about investments, of course. What did you think I was referring to?<\/p>\n

I bought my first stock in 1990. It was Harley-Davidson<\/strong> (NYSE: HOG). I bought 50 shares at $12. Three months later, I sold it at $18. Stock trading commissions were $49 per trade, so I made a cool $202.<\/p>\n

A few years later, my wife worked at a household-name consumer goods company. The company was doing okay, but it had some upcoming initiatives I thought would work well.<\/p>\n

The company was privately owned, so there were no shares to buy, but then I discovered that it had bonds. I knew very little about bonds at the time, but I wanted in on this company.<\/p>\n

As I dug into the financials and learned more about bonds, I remember thinking, \u201cYou\u2019re telling me that I can buy this bond for $820 and in three years, I\u2019ll receive $1,000 \u2013 all while being paid 7.25% per year? I am definitely in.\u201d<\/p>\n

You see, bonds are very different from stocks. When you own a stock, you have an ownership stake in the company, and your fortunes are tied to those of the company.<\/p>\n

When you own a bond, you do not own a piece of the company. You are a creditor of the company. A bond is a loan \u2013 and loans must be paid back.<\/p>\n

Pretty much the only time those loans are not paid back is if a company goes bankrupt.<\/p>\n

I bought the bonds. And right on time, at maturity, I received $1,000.<\/p>\n

Now, here\u2019s the thing about bonds. Those initiatives the company had that I was excited about didn\u2019t work out as well as I thought they would. If I had owned the stock, it probably would not have gone anywhere. The price might have even gone down.<\/p>\n

But with a bond, it doesn\u2019t matter if earnings are down, if the company disappoints Wall Street, or if it is embroiled in a scandal. If the company is going to remain solvent, it pays back its loans. The bond is backed by a contract that is enforced by law.<\/p>\n

This company was still profitable, just not as highly profitable as many expected it to be. So paying off the loans was absolutely no problem, and I made a nice return \u2013 all while receiving a decent yield.<\/p>\n

Don\u2019t get me wrong. I\u2019m still a stock guy. I love collecting dividends, seeing the dividends increase every year, and watching the stock prices go higher. But as I get older, income and capital protection become more important each year.<\/p>\n

And bonds are how I achieve that. I collect solid streams of income, knowing I\u2019ll receive $1,000 back per bond at maturity no matter what I paid.<\/p>\n

If I paid $1,000, I get my money back while being paid a decent interest rate. If I paid less than $1,000, I have a profit at maturity, also with interest.<\/p>\n

If I can find a solid company whose bonds pay a good yield and are trading at a discount \u2013 say, in the $900s or even $800s \u2013 I jump on them, confident I\u2019ll be paid $1,000 at maturity.<\/p>\n

One thing many people don\u2019t realize about bonds is you can make big profits on certain speculative bonds.<\/p>\n

For example, let\u2019s say a bond pays a 4% coupon, but the company has run into trouble and the bond is trading at only $500 instead of $1,000. This is known as a distressed bond. The market is telling you that it does not have confidence in the company\u2019s ability to meet its obligations.<\/p>\n

But if you believe the company will<\/em> be able to fulfill its legal requirement to pay back bondholders, you could buy the bond for $500, collect an 8% yield (if the bond is half-price, the yield is twice the stated coupon) and double your money when the bond matures at $1,000.<\/p>\n

Keep in mind, that last example is for investors who can handle high risk. Most bond investors are perfectly content buying a safer bond in the $900s, collecting a solid yield, and pocketing a profit at maturity.<\/p>\n

Owning bonds is a great way to ensure you collect income, stabilize your portfolio during volatile markets, and make some profits along the way.<\/p>\n

I was a bit lucky that the first time I picked a stock, it ended up working out. With bonds, you don\u2019t have to be so lucky. They\u2019re built to work out \u2013 that\u2019s the whole point.<\/p>\n<\/p><\/div>\n