October 18, 2012

Why Your Financial Guy Loves Buying And Selling You Bonds

Don't get me wrong, bonds are a good investment and should be a part of most portfolios but there is a dirty little secret about bonds that investors do not know.

Your financial guy loves selling you bonds, why?

Because there is a hidden commission in bonds that you do not see.  It is called a concession and on every bond bought or sold, your financial guy gets paid but you don't see how much!

That is gold for a stockbroker, financial advisor, wealth manager, financial planner, whatever they want to be called today, because it doesn't appear to be churning.  

Recently, with interest rates decreasing which means prices increase on anything fixed (like a bond), you can be sure that your financial guy will be all to happy to sell your bond (that you bought only months ago) for a small profit for you AND A LARGE CONCESSION FOR HIM.

Ever wonder why you buy and sell bonds?  Now you know!

Ever wonder why brokerage firms earnings reports are filled with great news from bonds / fixed income?  Now you know!

PS.  Bonds may not necessarily be a good investment in 2013 and beyond since interest rates are likely to go sideways or higher which means anything fixed, like a bond, will decrease in value.

2 comments:

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  2. Scott is right on. I asked my broker to see the actual concession he made on the sale of a bond I held and after the run around, I finally found out and it was close to 5%.

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