By Oyin Adedoyin, The Wall Street Journal featuring Brian Spinelli, CFP®, AIF®, Co-Chief Investment Officer
What you need to know about adding bonds to your portfolio as Treasury yields hover at 5%
Ignoring the potential money to be made in bonds right now is a mistake.
After bond returns hovered near zero for years, a series of interest-rate increases by the Federal Reserve has spurred a great return of yield in the bond market, be it corporate or government or almost any other issuer. The 10-year U.S. government bond, or Treasury, is yielding a high of 4.5%.
Investors have largely taken notice as sales of Treasurys more than tripled since 2021, according to the U.S. government.
Yet many people steer clear of bonds because they are more confusing than putting money in a bank certificate of deposit or a high-yield savings account. Part of the complexity is that bonds trade on the open market. This means buying a bond and then selling it has been a bad investment for almost three years now. Buying a bond and holding it to maturity, however, is what’s now making money.
For example, if you put $5,000 in a five-year bond with a 4% yield, assuming you reinvest your interest payments, you will have nearly $6,100 by the time it matures, according to Nerdwallet’s calculator.
Still, there remain many questions about what exactly to buy. Does it make more sense to jump on the highest-yielding bonds, or is it better to lock in good rates for longer? Is it better to buy bonds directly from the government, a brokerage or as part of a bond fund? How much do I make on bonds after taxes and fees?