Don't Invest In Bonds Until You See This! (Don't Make The Mistake!)

Bonds Are Loans Quick Recap

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Quick recap, a bond is a loan. You lend money, you get paid interest, and you get your principal back. Today we find out it matters a lot who you're lending to.

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Which is why I'm about to win this entire debate in about 10 seconds. You have never won anything in your entire life.

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Three bonds, three arguments, one of them is lying. One of them is boring, and one of them is telling the whole truth and it's costing you votes. Let's go. Rules.

Debate Rules And The Pitch

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Each of you makes your case on why someone should send you their money instead of to the other two. Then we roast each other, and the audience decides who they'd actually give their $2,000 to.

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See, she agrees with me, and she still made it sound like an insult.

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So basically, your whole pitch is I'm boring, but I show up.

SPEAKER_00 2:05

My pitch is I've never once ghosted anybody in 250 years. Beat that.

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Okay,

Corporate Bonds And Credit Ratings

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now it's my turn. I'm the corporate bond, and I'm issued by real companies. The big established been around a while kind. I'm paying you more than the government bond does because I'm carrying slightly more risk.

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How much risk?

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Depends on the company. That's the whole point. Before you lend to any company, you check its credit rating. There are agencies that actually grade companies on how likely they are to pay you back. The same way a report card grades you on how likely you are to actually do the homework.

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She's the only one of us that brought paperwork to a costume fight.

SPEAKER_02 2:47

Because the paperwork is the entire pitch. If the company's rating is strong, I'm nearly as safe as Brandon. And the company pays a little bit more. That is a genuinely great deal when you find it.

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And if the rating's not strong?

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Then congratulations, you've basically found your way right over to him.

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Okay,

Junk Bonds And The Real Trap

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my turn. Forget everything they just told you. I'm the cool bond. And I'm about to make you rich. Look at this yield. Numbers like this from companies like mine? You're not gonna find this from these two. I'm talking about real money.

SPEAKER_02 3:24

True. Cool bonds, also known as junk bonds, do pay considerably more. That's not a trick.

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Thank you.

SPEAKER_02 3:32

The trick is why they pay more. These bonds are from companies that credit agencies have labeled as a real risk of not paying you back. The extra money you're being paid, that's the company bribing you to take that chance.

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Don't look at my financials, by the way. They're not even relevant.

SPEAKER_00 3:48

That's like the exact opposite of not relevant.

SPEAKER_01 3:52

Look, sometimes junk bonds turn it around and become way better than anyone really expected.

SPEAKER_02 3:58

Yeah, sometimes. But sometimes it doesn't. And that's called a risk and not a real guarantee.

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Okay, when you say like that, it does sound a little worse.

SPEAKER_00 4:08

So let's get this straight. You pay more because nobody thinks you're gonna pay them back. I prefer the cool one.

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And you pay the least because you're the safest possible thing on the stage. You're basically the group project partner that does 100% of the work and only asks for a B minus.

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I'll take it. I mean, I've never had to say trust me and mean it ironically.

SPEAKER_01 4:31

And you're just him with slightly better numbers and worse posture.

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I'm literally sitting up straight right now.

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Metaphorically.

SPEAKER_00 4:40

At least you tell him what happens if your company doesn't actually pay.

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You could lose some or a lot of what you put in. I can't hear you. You could lose your whole investment. Are you happy now?

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That's the actual trade-off underneath all the costumes. More reward almost always means someone out there decided there was more risk baked in. Nobody's just handing out free money.

Choosing Bonds Based On Your Goal

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So who actually wins? Honestly, it depends on you and what you're saving for and when you actually need the money.

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If it's money that you absolutely cannot afford to lose and you're fine with having a small return, then a government bond or a strong corporate bond does the job.

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And if you have money, you're fine throwing away, chasing a bigger upside.

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A small slice of junk bonds is how some investors play that, knowing full well that some of those bets won't pay off.

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Hearing this all out loud, I might not actually be winning this debate. You are never winning this debate, buddy.

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Government bonds, safest, but with the lowest payout. Corporate bonds, a little bit more reward, a little bit more risk, but it all comes down to the company's credit rating. Junk bonds, highest payout, but there's a real risk of losing a lot of your money. Because junk just means lower credit rating and not a guaranteed jackpot.

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Higher reward almost always means someone decided that there's a higher risk hiding underneath it.

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And

Final Takeaway Check Rating First

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check the rating before you check the yield. I learned that one the hard way.