Should I buy bonds with my bonus?

Question

Im getting a military bonus of ten thousand US dollars. Would it be a good idea to put some of it in bonds? If so, how long and how much?

Answer 1

bonds are good to provide current income. They are also good for IRA accounts, especially Roth IRA accounts. You can put $4000 of your bonus into a Roth IRA account if you so desire. Remember all earnings from a Roth IRA account are tax free forever or until they change the law, whichever comes first.

If you are not considering an IRA account, bonds are not so good. The interest is taxable and bond interest these days is not too great, about 5.5% which after taxes does not even match inflation.

You would be better off, I believe, putting your money into either mutual funds or index funds. The long term expected rate of return should be about 8% and the return will be tax deferred except for distributions. That is one of the big advantages of a index fund, little if any distributions. A couple of my favorites are IWM and IWN. IWM has a 5 year return of 10% annually. IWN has a 5 year return of 13.5% annually.

Among mutual funds I like Pennsylvania Fund and Bruce Fund. Both with very good long term returns. Bruce with phenomical returns, too good to last.

Answer 2

If you want a guaranteed return, be sure any bonds you purchase are AAA rated and insured. If you are seeking some tax-free bonds, consider those bonds which will give you the greatest advantage. You may decide to go with a bond fund... more diversification... be advised though that share prices fluctuate. I personally would recommend AAA rated and insured CMO's (collateralized mortgage obligations); just be sure to buy them below or at par... NEVER pay a premium, even with a tempting yield.

Answer 3

put at least 1/2 in Roth IRAs
T bills are safe
CDs are fair in interest rates

Answer 4

I highly suggest investing in stocks, but do your homework first, study the annual report, especially the balance sheet! :)

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