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The interest rate can be fixed or variable. The variable is calculated on the basis of the current base interest rate. The percentage can be paid quarterly or once a year. Until now, bonds were considered to be the safest way to invest capital. This was due to the fact that people believed and still believe in the solvency of the state, and therefore also the central bank, which issues bonds. Calculating the rate of return on bonds is, in fact, more difficult, but I have not yet described this topic, so as not to hinder understanding of the basic issue of bond yield.
– Real inflation is higher than the interest rate on bonds. High inflation causes us to lose twice as much. First of all, the purchasing power of money decreases. The average actual inflation is about 7% per year. This means that after a year of $1000 we have $930 left. Practically, we still have $1000, but we can buy 7 % less bread. Secondly, actual inflation is 5% higher than the bond rate. Therefore, our investment does not make sense from a business point of view. First of all, we want our money not to lose its value, and secondly, to earn money. If we only want to store value, gold, which is always worth the same amount of money, is better suited for this purpose. We will buy the same amount of bread or holidays on a beautiful island. If we want to make money then we have to look for other solutions, about which you will gradually find out on our portal for rich pensioners and not only pensioners.
– The return of the paid-in capital is not guaranteed. The state (or central bank) is theoretically our guarantor of bond redemption and return of our cash. This is only the case in theory because you can go bankrupt. Examples include Argentina, Venezuela, Greece or Italy. Please search in youtube for films about what happened in front of banks in Greece. The crisis has not been solved. Thanks to the fact that the European Central Bank redeemed Greece’s debt (mainly Greek bonds), Greece did not sinking like Venezuela (LINK). Italy is another example. Italy’s debt (read the bonds) is so unattractive that the Italian government came to Russia to buy their debt. Probably this debt will also be redeemed because the European Union cannot afford the bankruptcy of such a large country as Italy. The debt will be redeemed by one bank, then packaged in a beautiful new financial instrument and sold to other investment banks, and these banks will continue to sell this debt to their retail clients through investment funds, about which you can read in another section.
I have just given two reasons that discourage me from buying sovereign bonds. When you make your fingers up and search on the Internet, you will certainly find a few other reasons that will make you run away from government bonds. Another topic is corporate bonds. We will discuss this kind of bonds in a separate article.
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