If a bond is actually a loan, how and why do people invest in them?
In this week’s show, Doug and Efraim talk about how bonds are affected by inflation and interest rates. What are the differences between high and low interest rates, and what causes them to change?
Doug explains why when the government is concerned about the economy, the Fed lowers the interest rates which affects the banks and allows them to lend more money to companies and individuals… who will hopefully spend that money and strengthen the economy. While the theory sounds good, in reality, this is exactly what increases inflation.
Keep listening to learn about what the dangers of inflation are, and what governments can actually do to negate inflation.
Inflation eats away at a bond’s value, because the initial dollars you put are worth less than when the bond matures in an environment.
Some folks feel that by buying TIPs (Treasury Inflation Protected bonds) they are protected from inflation. Listen to find out if this is true or just a myth.
Efraim is a first-year business student, former IDF officer, and an entrepreneur, launching the “Day with an Officer” business. Contact him at: efraim@goldstein.co.il
