3 ms·

So if you buy a municipal bond for $1 on 2010 and it’s only yielded $.50 by 2020 have you in fact lost 50% of your money? Of course not. No one interested in i

So if you buy a municipal bond for $1 on 2010 and it’s only yielded $.50 by 2020 have you in fact lost 50% of your money? Of course not. No one interested in investing looks at money so simplistically.

jjeaff 4y ago
Investors would consider $0.50 return on $1 over 10 years to be a loss. Money isn't free and that same dollar invested in an sp 500 index fund would have yielded $2.50 for that same time period.
- prepend 4y ago
  It depends on the investors. Yes, the s&p returned more in this period, it usually does, but not always. There’s reasons why other investments exist and one is the risk of the investment. Municipal bonds are really stable and some investors just want predictable returns and will sacrifice overall returns for stability and lower risk. Oil investments aren’t municipal bonds, but I expect most oil investors want stable returns.
- dghlsakjg 4y ago
  You are misusing the terms yield and return, and seem to have a misunderstanding of how a muni bond works. A muni bond would have yielded $.50, but you still have the underlying asset, so it isn't a loss, its a guaranteed return of 50% every 10 yrs, until the bond matures (you get your $1 back) or is defaulted on. The SP500 doesn't guarantee anything, and there are 10 yr periods where it has negative growth.
  - jjeaff 4y ago
    No, I used the term yield correctly. $1 in the sp 500 over that time period would have increased to $3.50. Or a yield of $2.50 while maintaining the underlying asset of $1. As for it being a muni bond, the risk is low but still there. Municipalities do in fact default sometimes.
refurb 4y ago
In your example that's assuming it's a coupon bond, but many (especially the tax free ones) are zero coupon. So if you buy a $1M bond for $850k, but then interest rates go up and the value of the bond drops to $650k, then you've lost money through opportunity cost, but you'll still get your $1M at maturity. Not that different with oil fields. If you assume it will produce X barrels, but only produces 20%*X barrels, not only is the money you're making lower, but the value of the oil field also drops (since its value is dependent upon production potential).
- prepend 4y ago
  But that’s not what happened with these oil investments. The coupon paid out 50% over 10 years which is what like a 4% annual return, not very good. But this info isn’t enough to decide anything without the current value of the investment. If the investment is $0 then that’s horrible. If it’s $1 then it’s paid out 50% over ten years so not that great. But if it’s $2, then that’s a good investment. The fact that this crucial information is missing from the article makes me think the author is an idiot or excluding it because it doesn’t support his position.

jjeaff 4y ago

Investors would consider $0.50 return on $1 over 10 years to be a loss. Money isn't free and that same dollar invested in an sp 500 index fund would have yielded $2.50 for that same time period.

prepend 4y ago
It depends on the investors. Yes, the s&p returned more in this period, it usually does, but not always. There’s reasons why other investments exist and one is the risk of the investment. Municipal bonds are really stable and some investors just want predictable returns and will sacrifice overall returns for stability and lower risk. Oil investments aren’t municipal bonds, but I expect most oil investors want stable returns.
dghlsakjg 4y ago
You are misusing the terms yield and return, and seem to have a misunderstanding of how a muni bond works. A muni bond would have yielded $.50, but you still have the underlying asset, so it isn't a loss, its a guaranteed return of 50% every 10 yrs, until the bond matures (you get your $1 back) or is defaulted on. The SP500 doesn't guarantee anything, and there are 10 yr periods where it has negative growth.
- jjeaff 4y ago
  No, I used the term yield correctly. $1 in the sp 500 over that time period would have increased to $3.50. Or a yield of $2.50 while maintaining the underlying asset of $1. As for it being a muni bond, the risk is low but still there. Municipalities do in fact default sometimes.

refurb 4y ago

In your example that's assuming it's a coupon bond, but many (especially the tax free ones) are zero coupon. So if you buy a $1M bond for $850k, but then interest rates go up and the value of the bond drops to $650k, then you've lost money through opportunity cost, but you'll still get your $1M at maturity. Not that different with oil fields. If you assume it will produce X barrels, but only produces 20%*X barrels, not only is the money you're making lower, but the value of the oil field also drops (since its value is dependent upon production potential).

prepend 4y ago
But that’s not what happened with these oil investments. The coupon paid out 50% over 10 years which is what like a 4% annual return, not very good. But this info isn’t enough to decide anything without the current value of the investment. If the investment is $0 then that’s horrible. If it’s $1 then it’s paid out 50% over ten years so not that great. But if it’s $2, then that’s a good investment. The fact that this crucial information is missing from the article makes me think the author is an idiot or excluding it because it doesn’t support his position.