How to Make Money Buying Bonds

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There are two components to making money in the bond market, including being safe and paying attention to bonds that do well when interest rates are falling. Learn how bonds fall in price when interest rates go up with help from a personal asset manager in this free video on the bond market and money management.

Part of the Video Series: Bond Market
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Video Transcript

Hello I'm Roger Groh of Groh Asset Management and today we are here to talk about bonds and what it takes to make money in the bond market. Well there are two components. One is are you really going to get paid back, that from a safety point of view is a #1. Number two, bonds do well when interest rates are coming down but bonds fall in price when interest rates are going up. With interest rates today at 0 there is nowhere to go but up for most bond yields. As a result if you are going to be in the bond market we suggest that you own shorter term bonds where you can hold them until they mature. How long is that three months, six months, a year? I don't know it's up to you. The point is own short. If you own a 30 year bond you can find the value declining significantly as interest rates begin to go back up perhaps in 2010 or 2011 as the US economy improves. But there may be one other way to do it. Suppose that you really believe that interest rates were going to go up and with rates at 0 it seems like that is the only way that it can go. Well you could go short the bond market, you could start to bet that interest rates were going to move up and in fact you could make money if the value of the bonds went down. It sounds weird but that's the way you do it. Be very careful though. If you are wrong then you will lose money so there are two ways on short term bonds or go short at the bond market. In either case you have to be very sophisticated now in playing in the bond market only on the highest quality bonds that you can find and be very careful, think short in terms of maturity. I'm Roger Groh and thank you very much for spending some time with me.

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