Bond Basics

Well, we're so glad to have you with us today on Faith and Finance Live. I'm Rob West and we're going to be talking today about bonds.

That's right. They can be difficult to understand, but you shouldn't feel bad if you need someone to explain these fixed income securities to you. Fortunately, we have Mark Biller with us today to do just that. And then we'll be taking your calls today on investing related topics. The number is 800-525-7000.

That's 800-525-7000. This is Faith and Finance Live, biblical wisdom for your financial decisions. Well, let's face it. Bonds are a little mysterious to many people. For example, when interest rates rise, bond prices go down.

What's up with that? Well, Mark Biller is going to make bonds a lot more understandable in the next few minutes. He's, of course, executive editor at Sound Mind Investing, where they have a knack for getting down to the basics. And again, I'll mention we do have lines open today. And if you have investing related questions, Mark and I would love to weigh in on that today.

The number is 800-525-7000. Mark, great to have you with us. Thanks, Rob. Great to be back with you.

All right. We're talking bond basics today, Mark, as you know, and folks can, of course, read more about it on your website at soundmindinvesting.org. You have an article there titled duration, a simple way to gauge bond risk. Now, we probably don't need to point out that things have been pretty tough for bond investors recently.

Yeah, that's absolutely right. You know, after a decade of the Fed and other global central banks pushing interest rates down to historic lows and then holding them there for most of the last decade, the last three years or so since covid have been quite a shock to bond investors. Probably the best example of that is the 30 year Treasury bond. The yield on that bond bottomed at just under one percent back in 2020 recently soared and touched five percent recently. So from under one percent all the way up to five percent in the last three years. And as a result of that move, owners of long term bond funds have seen cumulative losses of about 50 percent over the last three years.

Now, that's as bad as the worst of the stock market declines during the big bear markets of the 2000s. Well, that's right, especially when it's in this bond category, because so many retirees count on this as stable, dependable income. So how does something like this happen? Yeah, well, to answer that, Rob, we kind of need to go through a brief crash course. We'll call it Bond Investing 101. So when you buy a bond, which is essentially a glorified IOU, you're acting as a lender. So you're lending your money at interest to a company or a government. Now this is in contrast to when you buy a stock and you become an owner.

So when you buy stock, you're buying a partial equity stake in a company. But when you buy a bond, you're lending your money to somebody. Now, that means there are two big risks when it comes to buying bonds. The first one is credit risk, and that is that you may not get your money back.

The company or government, whatever organization may not be able to make the interest payments, may not be able to return your principal when the bond matures. And the best ways of minimizing credit risk are to only lend to really safe companies and institutions, governments and whatnot. The other real common way to minimize that credit risk is to diversify. So that's what a bond mutual fund does. It spreads that money across a lot of different bonds. Now, the second big risk for bondholders, and this is the one that's been causing all the trouble lately, is interest rate risk. And that's the possibility that you can get locked into a below market rate of return. Now, it's really the same risk that you face when you're trying to decide how long to tie up your money in a bank CD, but it has a much bigger implication with bonds, because if you think about this, if you're buying a one year CD at a bank and interest rates go up, well, you're locked into a below market rate of return for a few months. But if you're doing this with a long term bond, that can be years of inferior performance. And because of that, if you want to sell a bond that's saddled with what's now a below market interest rate, you're going to have to drop the price quite a bit to entice a buyer. That's why you get the iron rule that when interest rates go up, bond prices go down and vice versa.

Yeah, that's exactly right. Well, thanks for that helpful explanation. When we come back, we'll dive into this a bit more. We'll talk about how inflation affects bond prices, where bonds stand today, and the outlook for bonds as we head into 2024. We're also taking your investing related questions today with Mark Biller, 800-525-7000. Call right now. We'll be right back. Great to have you with us today on Faith and Finance Live. I'm Rob West.

With me today, my good friend Mark Biller. He's executive editor at Soundmind Investing, where you can find a wealth of information on investing, including the article we're discussing today. It's about bonds. It's simply titled duration, a simple way to gauge bond risk. And a lot of folks asking questions, wondering about the place of bonds, especially in light of some significant declines in the recent past. Ahead in the broadcast, we'll talk about where we might be headed in terms of the outlook on bonds.

But let's build on what you were sharing a bit before the break, Mark. You said that the length of the bond is going to be pretty important as rates rise, because the longer you're stuck with the lower interest rate, the more that bond will have to be discounted, right? Yeah, that's exactly right. So the longer you have to wait until a bond reaches maturity, the longer you're vulnerable to that interest rate risk. So another way of thinking of that is the shorter the maturity, the less volatile a bond's price is likely to be. The longer the maturity, the more volatility you're going to get. And so when you're talking about bond mutual funds, then the shorter the average maturity of all those individual bonds in the bond fund, the less volatile that fund's price will be. So that's why we usually lean towards short term bonds when we're trying to lower risk with our bond investments. Yeah, that certainly makes sense. And that's, of course, where we get into the title of this month's article we're discussing, which really focuses on this idea of bond duration, right?

Yeah, that's exactly right. And while the exact details of duration can get a little complicated, the main point that we're trying to get across here is that the shorter the average length of the bond fund, the less it's likely to move in response to changes in interest rates. So this article we're discussing this month, which really goes into the detail of duration for those who really want to dig deep. Probably the most interesting aspect of that for most listeners is the duration of a bond fund can tell you roughly how much a fund's value is going to change in response to a given change in interest rates. Let me translate that into English for you and give a rule of thumb because I know, Rob, you like rules of thumb.

Yeah, for sure. So for every 1% change in interest rates, a bond fund's price would be expected to move in the opposite direction by the fund's duration. So, for example, if a fund, a short-term bond fund with a duration of three years, we would expect that fund to fall by about 3% if interest rates went up by 1%. Now, in contrast, a long-term bond fund with a duration of 10 years, we would expect to fall by 10% if interest rates went up by 1%. So you can see the big difference between short-term and long-term, and that's also a really easy way to look at the bond funds you have access to and figure out what's the range of outcomes I should expect from a given change in interest rates.

Yeah. Does this change, Mark, how we think about buying bonds in the sense that, okay, because of what you just said, the opposite is true about rates falling? And if we believe we're near the end of the cycle, regardless of how long it takes the Fed to start cutting, that that may present an unusual opportunity for upside as the prices move higher. Is that true?

That is exactly right, Rob. Now, I would just caution people that one of the reasons that people have lost so much money in long-term bond funds is because people have been expecting that interest rate direction to change for really this whole past year. So if you remember coming into this year, it was a really hot call that we were going to have a recession at the beginning of 2023. And so because of that, as we're going to talk about here in a minute, when people expect recession, usually that means bond yields are going to be falling. So people piled into long-term bonds expecting that, and instead they got a relentlessly rising yield throughout this year. So people not only were losing big percentage-wise in long-term bonds, but if you look at the asset levels in these long-term bond ETFs, they've been going up, up, up, up, even as these big losses have been piling up. So it's really kind of been a double whammy. And it really just gets to the fact that predicting interest rates is really difficult.

It's statistically as difficult as predicting the stock market, which we all know is very hard to do. Yeah, there's no question about that. By the way, we are taking your questions today and we'll begin doing that in just a few moments on anything investing-related, your portfolio, how to think about your investments in these volatile times, what about the economy, how do you think about your bond portfolio, all of those investing-related questions on the table today from Mark Biller. We've got lines open and we'll begin taking your questions in just a moment. 800-525-7000 is the number to call.

You can call right now. All right, Mark, we've talked about duration. Of course, the big story above the economy as of late has been all around inflation. So what role does inflation play in bond prices? Yeah, so inflation and interest rates are directly related, and that's largely because the main tool that the Federal Reserve and other global central banks have to combat inflation is to raise short-term interest rates. So think of inflation as there being too much money chasing after a certain number of goods. So when the Fed raises interest rates, people have to use more of their money to pay interest expense, and that reduces the amount of money that's left to chase after that pool of goods. So that's why the Fed raises interest rates when inflation is high, because it relieves that pressure that's driving prices higher. So what I'm saying basically, Rob, is higher inflation is normally going to go hand in hand with higher interest rates. And then as we've discussed, as interest rates go up, bond prices fall. So it's no surprise when you put those two things together that inflation is the boogeyman that bond investors fear the most.

Yeah, no question about that. All right, so in light of all of that, Mark, then where do we stand today with bonds? Yeah, so it's a tricky question, because like we just were alluding to, when Treasury bond yields were 2%, people said, well, they'll never get to 3%. Then when they were 3%, they said, well, they'll never get to 4%. Well, the 10-year Treasury bond hit 5% in October a month ago, and people are still saying, well, it won't go any higher.

And that could be true. We may have seen a peak. Rates did come down quite a bit in November, but I would say it's just a little bit early to say for sure that rates have turned and are only going to go lower now. Now that said, we've also had a massive repricing in bonds over the last three years, as we've been discussing, from the lows in interest rates right after COVID right up through last month when they were peaking. Any time you see a major asset class down 50% as an investor, that's got to grab your attention and make you wonder if maybe there's an opportunity there. So bonds may actually be looking more attractive, even though we've had a lot of losses lately. Yeah, very good.

That's really helpful. All right, so where do bonds go from here? We'll talk to Mark about 2024, especially in light of the fact that a lot of economists still calling for a recession next year.

How will that affect the bond performance moving forward? And your questions today on anything investing-related, stocks, bonds, the economy, your portfolio, call right now. We have lines open. We'll be taking your questions on the other side of this break, 800-525-7000.

We'll be right back. Great to have you with us today on Faith & Finance Live. I'm Rob West. We're taking your calls and questions today on anything financial. The number to call, 800-525-7000. Specifically though, I'm Mark Billers here today.

If you have questions on investments, your bond portfolio, maybe stocks, how to think about investing in light of recent market movements, or the economy headed into next year, we'd love to hear your investing-related questions. 800-525-7000. We've got some lines open, and Mark's ready to tackle your questions. Again, 800-525-7000. You can call right now. Let's head to the phones to Chicago. Hi, Kay.

How can we help you? Hi. Thank you.

I would love your opinion. I bought an... Not an IRA. Oh my gosh. An annuity.

Excuse me. When I ended a job several years ago, I had an IRA from the job, and I rolled it over, and they told me I could get this IRA that would start paying me in retirement. It kicks in when you're 66 years old, and it pays a set amount of, I think it was $201 per month. At the time, I thought, oh, this sounds okay. I have to admit, I'm not that savvy. I didn't think too deeply about it, but now I have another year or two to go before it's going to kick in. I'm thinking to myself, well, 200 a month is not that great. I have friends telling me that they've never heard of a product like that, and that they would never have sold a product like that.

Did I really mess up by getting that? Because I gave them $25,000. Okay. That was what I was going to ask.

You put $25,000 in one time. Is that right? Yes. Okay. How long ago was that? That was 2015 or 2014, rather.

Okay. It's been accumulating. Do you know if it's a variable annuity where there's investments embedded in it, or was it a guaranteed annuity where it's going to grow at a guaranteed rate?

I don't know how they grew it, no. But I thought I remembered it being something like an income builder or something like that. It was designed to pay me when I retired that amount per month. You can convert it to an income stream when you get to a certain age. Exactly. Mark, we talk about annuities a lot. How would you help Kay understand what she's got? Yes.

Okay. I think the first thing that I would do to help set your mind at ease a little bit is when you take that $200 a month of income that you'll be eligible for, if you convert that to an annual amount, of course, you're talking about $2400 a year, which compared to the $25,000 that you put in, may not sound like a tremendous amount. But if you're starting that at 66 years old or whatever, and you have a typical couple decade or more length of retirement, then you can see how after 10 years, you're basically getting your principal back. The following 10 years, you're getting a bunch of money back that it goes beyond your principal. So I wouldn't feel horrible about the decision that you made.

I can understand friends saying, well, I might not have done that, or this might be different from what I've seen. But you know, I don't think that you're horribly out of balance with what you've got here. Now, I think that the big question for you right now in terms of should I be doing something different with this money is to look at the rate of return that it's generating for you, the principle that you'd be able to get out of it if you were trying to get money out today versus that income stream.

And of course, any time we're talking about annuities, we're always focused on expenses and other charges, especially like surrender charges for annuities you're already in, you have to really pay attention to those types of penalty charges. Because it could be that, especially at this point, this close to where you're going to start drawing on it, that that may actually be the best place for that money right now. So those would be the things I would be evaluating.

Rob, how would you size this up? Yeah, I think that's exactly right. I think Mark's given you a great overview there, Kay. So this is just one piece of your overall retirement plan. I think the key is to make sure you know what are my expenses going to be in that season of life, compare that to your known income sources, including the income stream coming from this annuity once you understand the fine print or have somebody else confirm what in fact you think you'll get from it. But if you can lock in an income stream for life from this, plus Social Security, plus any other assets that you have, the key is to make sure that you know how that's going to fit with being able to maintain the lifestyle you want to have in retirement and the monthly expenses associated with them. And that'll tell you whether you're on track, ahead or behind. And we'll give you a goal to shoot for as you plan for that season of life. Having an advisor walk you through that comprehensive retirement planning, I think could give you a lot of peace of mind, Kay. That person can not only help evaluate this product to confirm what it is you think you have, but also help you do some of that planning around how much will I ultimately need and am I on track to reach those goals or do I need to think about working a little longer or putting a little more aside between now and then. If you don't have an advisor who can help you with that comprehensive planning around retirement, you can head to our website, faithfi.com.

That's faithfi.com and click find the CKA. But hopefully that helps you today. We appreciate you being on the program very much and call back anytime.

Well, folks, Mark Biller with us today. We're going to take another quick break here in just a moment. But when we come back, we'll continue to tackle your questions today. I know Cynthia wants to talk about some municipal bonds that her father who passed away owned and she knows they'll come do here in the next five years.

Wondering how to think about those. We'll tackle that question. And then Diana in Fort Lauderdale also wants to know about investing and being able to continue to invest even through retirement. We've got two lines open for your investing related questions today. If you have one, we'd love to tackle it.

The number to call right now is 800-525-7000. Mark Biller with us today. We're also going to continue to talk about the topic of the day and that is bonds. When we come back, we'll get Mark's outlook on the bond investments, bonds moving into 2024 right up to this break. Now, by the way, if you'd like to check out the article we've been discussing today on bonds, go to soundmindinvesting.org. Back with more after this break.

Stick around. Thanks for joining us today on Faith and Finance Live. With me today, Mark Biller, Executive Editor at Soundmind Investing.

Learn more at soundmindinvesting.org. Taking your calls and questions today and talking about bonds. Let's head back to the phones and talk to Cynthia in West Palm Beach. Go right ahead. Hi. Good afternoon, Rob.

Thank you very much for taking this call. I recently came across the information. I guess my father, when he was alive, dealt with a broker who sold him a few, I believe they're municipal bonds. One of them was the Tennessee Valley and the other one was New York State, something or other. My main question is to find out what is the status on these bonds. One of them, I believe, is valuation, date. The other one is one, I guess, to come because it's a 30-year, was purchased back in 1993. The interest rates were great. They were 9.25%.

I just would like to know where do I begin to research these or find out what the status is on them. Yeah, thanks, Cynthia. Mark, where would you direct her?

That's a good question, Cynthia. Was there an executor of the estate involved that you might, on the financial side, that you might be able to get some answers about the components of the estate like that? Well, my dad named me as the executor of his estate. I am the beneficiary on the bond. My name is on these bonds as well. His name is along with mine.

Yeah. Well, I would probably try getting in touch directly. I would think that the Tennessee Valley Association would probably have an investor relations type of phone number or person that you could probably reach out to about the status of that. Sometimes, if they don't have all the information when a bond gets passed on, then it's kind of in limbo. Hopefully, that would be a fairly straightforward process to get in touch with them, let them know what you have, and they would be able to direct you from there. It sounded like that other one, if it was a 30-year bond from 1993, like that one's probably either coming due or has just come due as well. So, hopefully, that is one path you can take to just reach out directly to the issuer of the bonds and try to straighten it out that way.

Rob, what other techniques have you seen on that? Yeah, you know, I think the key here, Cynthia, is now that you're the steward of these, we want to look at these investments in light of your overall investment plan. Do you have an advisor for your own investment, somebody who's giving you counsel or perhaps managing any investments that you have?

No, I really don't. I pretty much manage my own finances, and I've done pretty well with it, and so far I don't think, and I always thought that I don't have enough to seek advisors, but I guess you don't have to have a certain amount to get an advisor, do you? Well, it just depends on the advisor. Yeah, often they will have a minimum asset level that they will need in order to take you on as a client, but others don't. I mean, you have even some these days that work on a subscription basis or will just do, you know, fee-only advice based on the planning side of it. So I think, you know, looking at this in light of your overall portfolio, not just because, you know, they were your fathers, but how do they fit into what you're trying to accomplish based on your age, time horizon, risk tolerance, that type of thing, and, you know, you could deposit these into a brokerage account and then, you know, liquidate them potentially or just as Mark said, go directly and then try to redeem them and then redirect those assets elsewhere. But I'd love for you to do that in light of your overall plan, not just looking at these bonds in isolation.

And I think that's where the advice of an advisor could come in. If you don't have one, you can head to our website, faithfi.com, click the button that says, find a CKA. So I hope that helps Cynthia. We appreciate your call today. May the Lord bless you. Let's head to Fort Lauderdale. Hi, Diana, go right ahead.

Hi, how are you? Thank you for taking the call. Thank you.

Thank you. So I'm 71 years old. I have Social Security, but I'm still working. And I would like to know what would be a smart investment being I don't have a long term 20 years to do an investment that would help me when I stopped working because maybe I'm going to stop working in another four or five years. So it's not through employer.

This is strictly myself. So I wanted to get your advice. What would be the smartest road to take to do this investment? It's a CD or should I go with a portfolio like with, you know, with a company or I don't really know.

Yeah, it's a great question, Diana. So let's say you were to retire at 75. And obviously that may change, but that means that's four years away. What what income sources would you have four years from now that you would be relying on to pay your bills currently? Just my Social Security, which is really not that much at all.

So you've already started taking that, correct? Correct. All right. And is that enough to cover your bills if you're not working?

Not at all. Okay. And what other assets do you have?

Do you have a savings account? Nope. Okay. Okay. And you don't have any retirement plan at work, correct? No, they don't. Okay.

Okay. And so what is that when you look at what your retirement budget might be, and this might be the next exercise for you, a lot of times folks will live on 70 to 80% of their pre retirement income because they're not saving for retirement any longer. They're hopefully they're out of debt at that point.

Maybe they're not eating out as much during lunch or not buying work clothes. I mean, so when you put all that together, maybe you drop your life insurance if you had any. It does bring, you know, take some expenses off the table, you know. So I think going through that and building your budget and then saying, okay, based on how much I need every month after I've really cut back as much as I can, what is the gap between my income, which for you is is Social Security and that amount? Because that's the monthly income that we're going to be solving for. And then we can begin to back into, okay, how long do you ideally, as long as you're able, how long do you need to work and what is your savings goal so that you can fund that gap for your life expectancy, which we need to be planning for 20 plus years because of the Lord Terry's and you're in good health.

It's very realistic that you could live to 95 plus. So I think that's the goal is to figure out how much income are we trying to make up, which is the gap between what your monthly need will be in retirement and what your Social Security is. Does that make sense? Yes. Okay. And once we know that, then we can kind of back into that number and see, well, what's realistic and if it's not realistic for you to accumulate enough that you might be able to, you know, pull an income from what you've accumulated, well, then something's going to have to give, either we're going to have to continue to trim the budget or you're going to have to work longer, Lord willing, or maybe a transition to part-time work where, you know, your part-time work plus your Social Security is, you know, going to make up that gap. I think those are the next steps. And it really does start with what is my budget going to look like in retirement, which will then tell us again, what you're trying to solve for in your long-term savings.

So why don't you go through that exercise and then feel free to give us a call back or connect with a Certified Kingdom Advisor there in Fort Lauderdale at faithfi.com. Thanks for your call today. Folks, we're going to take our final break. And then in our last segment, back with Mark Biller, more of your investing related questions, and Mark will give us his outlook on bonds moving into 2024. We'll be right back on Faith and Finance Live.

Stick around. Well, it's great to have you with us today on Faith and Finance Live. By the way, as we're now in December, the final month of the year, this is a really important time for us to hear from you with your financial support as we head toward our $250,000 year-end goal for listener support. Already $70,000 into that, but we still, as you can see, have a ways to go this month.

That's all right. This is the most important and biggest month of the year that we hear from you, but we would be grateful for a gift of any amount during the month of December. You can learn more when you head to faithfi.com slash impact. That's faithfi.com slash impact to see all that God has allowed us to accomplish this year, where we are with that goal, where we're headed next year, and how you can support the ministry.

Faithfi.com slash impact. During this broadcast today, we've been joined by Mark Biller, our good friend and executive editor at soundmindinvesting.org. We've been talking bonds and your investing-related questions.

By the way, if you want to check out the article that was the basis of our discussion today around bonds, you can go to soundmindinvesting.org and then just click on the article titled duration, a simple way to gauge bond risk. All right, let's go back to the phones to Wes Palm. Hi, Scott, how can we help? Okay, I'll keep this real quick and concise. Coming out of a chapter 13 this coming March, had a 401k. Wife and daughter both got cancer.

Both are alive, thank God. Great. And I've got a very little bit invested now in a rollover IRA. I'm still working part time, I'm 66 and a half collecting social. And I'm trying to figure out what's my best avenue going forward. Is that IRA the best thing to be doing? It's with one of the large investment companies. I'm trying to put in maybe 100 bucks a month out of my income.

Something a little bit more, sometimes a little bit less. And then you said you're also you've restarted your 401k? What percent of your income are you putting in there?

Well, I know I have I'm a freelance camera man. So I don't have a 401k. I had one but cancer battles basically vaporize them.

So got it. Yeah, well, I'm delighted to hear your, your daughter and wife are doing well. So what do you have accumulated in retirement assets between any of the accounts that remain?

Not much around two grand. Okay, I'm in relatively good health. And I'm staying fairly busy. So I have a fairly decent monthly income on top of the social. All right. And are you self employed? I am. Okay. And what do you think you could put away per month is the hundred about that max? Or do you have the ability?

No, I think once we come out of the chapter 13, which is in March, I can probably start if I really tighten the belt, which I want to probably between 500 and maybe 1000. Okay. All right.

Yeah. So Mark, your thoughts on that as a freelancer, let's say he gets up to that point where he can do 500 or 1000 a month, he's trying to make up, you know, for lost time here at 66. Obviously, he'll cap out on that IRA.

What Council would you offer? Yeah, so that is true, you'll probably cap out on that IRA limit. But if you are able to contribute to a spousal IRA as well, then of course, that would double it and you would be able to do even $1,000 a month all year long between the two IRAs. I like that idea Scott, I like the traditional IRA, probably in this case, you hear us recommend Roth IRAs a lot. But the traditional in your specific case will give you a tax break now and you know, down the line, you'll have to pay taxes in retirement.

But if Social Security is the other primary source of income that you have, then you would probably have those tax bills be relatively low, taking that money out in retirement. So I think that the fully funding that IRA to the best of your ability as you tighten the budget up, come March, I think that sounds like a great path forward. Rob, any other thoughts?

No, I think that's exactly right. I mean, the only other thought would just be to make sure you are doing some planning along the way, Scott, just so you know where you're headed, what your ultimate savings goal is, what that time horizon is, so that if you remain in good health and the Lord Terry's, you know, kind of ultimately what your, you know, retirement need is so that you can, you know, fund your expenses alongside Social Security. Thanks for your call, Scott.

In the Lake Forest, Illinois. Hi, Sam, go ahead. Hey, gentlemen, great show.

Thank you. I am turning 65 next September. And I'm trying to decide what I'm going to do, you know, with a wealth management, a CFP, do it on my own. But I am worried about the safety of banks. I've had horrible investment performance with three different people for the last 40 years, basically have made nothing. But I've got a substantial amount of money in JP Morgan Chase Bank. My first question is, how safe are the banks, especially the big ones of big name like that? I hear about all these bond issues and everything. And it's all these banks are going to fault.

They're all going down and they're going to take your money with you beyond the IC and maybe including FDIC. And the second question which combines with that is they've been calling me and saying the money's just sitting here in a zero interest savings account. And we've got a few of these vehicles coming over to the investment side where you can make, you know, a nice little percentage for yourself. And with the amount of money you've got, it's really quite a bit of money. You don't want to leave that on the table while I'm making decisions over the next year as to how to structure retirement.

So I'm worried about the safety of those vehicles and the safety of the bank, both just in general and beyond FDIC limits. Yeah. What do you have in JP right now?

1.5. All right. And it's all in one title or do you have one savings account and a checking account that I push into to use the money. But are they both either jointly held or held individually? Individually. Okay. So you've only got the 250 because even with the one savings, one checking, if they're both titled in your name with one institution.

Yeah. So all of that, you know, 1.25 over the 250,000 is not subject to FDIC insurance. And there is a way to solve for that. Mark, how would you help him think about this? Obviously a lot there.

Yeah, there is a lot there, Sam. But I think the way I'd break it down is that as you're aware, you've pointed out the FDIC is a quarter of a million dollars per account, per individual there at the bank. Now, what they are probably trying to get you into at least one option would be like a money market fund that instead of yielding next to nothing would be yielding close to 5%. There is a parallel program very close to the FDIC limit for banks that's called the SIPC. That's for bank accounts and money market funds fall under that. And that limit is actually higher.

It's half a million dollars. So the very first step, Sam, that you could take to really reduce your risk a lot would be to divide this money up between a few of the largest banks. I do think that JPMorgan is probably, Chase is about as safe as it gets only because the government has made pretty explicit that there is a handful of the largest banks that they just are not going to let fail, or at least that's the story that we're being told. And you do have to put some credence on that, I think, because to let those biggest ones go after essentially guaranteeing that nothing bad will happen to them really would be the implosion of the whole American financial system.

So that would be a very, very drastic thing and a very drastic step. I don't think the government will let it happen. I think we would see big inflation before we let them see our whole financial system collapse like that. So I think, Sam, the first thing you could do would be to divide that up into at least three different banking deposits. Of course, you always have the option of going beyond just the bank. But if you were to go into money market funds at three of the biggest institutions, that would get you very close to being covered by that default insurance, that government backing. Rob, your thoughts? Yeah, I would agree with that. There's also a sweep program a lot of these banks offer where they will manage it for you in one account, but make sure that it's parceled out so that you're never over the $250,000 limit. I would have confidence with the full faith and credit of the United States government.

Despite our headwinds, we're still the biggest and strongest economy in the world. So I think that's your best option, Sam. We appreciate your call. Thanks for listening to the program today.

John in Spokane. Go ahead, sir. Oh, yes. Thank you. Thank you for taking this. Mark question for you specifically. I've been following SMI since your inception. Oh, great.

Larry Burkett. And I'm currently 71 and have the 50 40 10 portfolio. But I have never gone into adding the bond upgrading because of the CIA bond exposure and the cash option in the 50 40 10. Is that being prudent?

Or is that? Should I be adding bonds at this point? And Mark, we've got just about 30 seconds or so.

OK, yeah. John, with that 40 percent of the 40 in the 50 40 10, I would split that between stock and bond upgrading based on your season of life and your risk tolerance. So you'd probably end up with maybe, you know, 50 50 or 60 40 within that that one piece.

And then I think putting that that portion and bond upgrading would be very appropriate at 71 years old. Since we have so little time, John, if you want to email me directly, I'd be happy to to help you with that. I always love hearing from my subscribers on the radio. I wish we had a little more time. Excellent. And we if you hold the line, John, we'll get your information and make sure we can get you Mark's contact information. Thanks for your call, sir. I apologize.

We were short on time, but I wanted to get you on the air. Mark, bottom line, the the direction of the bond market for for folks who have a diversified portfolio that includes short and intermediate term bonds. Where do they go from here in light of a possible recession next year?

I would stick with your allocations in short and intermediate term bonds because I think the headwinds could turn to tailwinds and bonds should do well next year, especially if we have a recession. Excellent. Well, Mark, always appreciate your time.

Always wish we have more of it when we're done. But you gave us some great information to think about today. Thanks for being here. Thanks, Rob. All right.

Check out SMI at soundmindinvesting.org. Faith and Finance Live is a partnership between Moody Radio and Faith Fi. Thankful for my team today and thankful for you. Come back and join us tomorrow. We'll see you then. Bye bye.