Bias for action. Gets things done. Go-getter. Traits companies big and small look for. And for good reason, you're being hired to do things! However, action is a secondary step that often overshadows the primary step, direction. Clear direction is the foundation that enables our actions to takeoff. Without it, we're stuck in the mud. Striving for clarity is an underrated skill. Having the courage to ask ( seemingly ) obvious questions, and to check in, making sure we're all on the same page. "O bvious " questions are a low risk, high reward way to add value. At worst, you'll add confidence to our actions. At best, you discover a misalignment that saves us from a dead-end. The more people, the more clear we need to be. The bigger the initiative, the bigger the risk of reaching the finish line, only to realize expectations were off. Success is always uncertain. But we can be certain about what we want and what everyone's job is. Things that can be clea
We've talked a lot about stocks, today let's take a look at the safer side of portfolios and talk about the value of bonds.
First, How Do Bonds Work?
Bonds are loans. We're all familiar with borrowing money, whether it's mortgages, credit cards or student loans.Regardless of how you borrow, the process typically looks like this:
1) A lender gives you money.
2) You promise to pay it back (with interest) in the future.
This is how bonds work but the roles are reversed. You become the lender. Bond issuers are the borrower and they are obligated to pay YOU back. Oh how the tables have turned.
Bond issuers are typically governments and corporations. Governments issue bonds to fund initiatives such as roads and schools. Corporations issue bonds to fund their business.
So Why Buy Bonds?
Bonds typically generate a much lower return than stocks. Returns are even lower these days given the rock-bottom interest rates. Given the poor returns, why buy them?
It all comes down to risk management. Bonds are less volatile, providing a much more stable return. This means smaller upside potential but also less downside potential. Lower rewards but lower risk. This comes especially handy during times of turmoil.
Investors with a long time horizon (or higher risk tolerance) will typically have more stocks in their portfolio, they can handle the turbulence. Those who are retiring soon (or can't stomach the rollercoaster ride) will have more bonds. It would be risky for near-retirees to own mainly stocks. A common theme in portfolios is a gradual shift from stocks to bonds as one grows older.
Bonds are a valuable investment, but their value comes not from creating wealth but from protecting it.
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