Decide to Shorten Maturities
If you have long-term bonds, you should understand that they are at a greater risk with inflation rates compared to short-term bonds. A simple increase of 1% in inflation rates would knock 5% off the price of a short-term bond but it will knock off as much as 8% for long-term bonds.
Thus, if you can, you could sell 20-year bonds and try to buy shorter-termed ones. Another technique is that instead of buying $100,000 of 15-year bonds, you should buy $30,000 each due in 5, 10 and 15 years so that you won't be helplessly victimized by inflation rates.
Go for Junk Bonds
It is best to open a savings account for each child. Ask your bank to help you set up a custodial bank account for your child. You should also explain to your children why they are opening a savings account or why they are doing so separately. Explain the importance of individual financial responsibility and you will have kids that will grow up to be financially responsible.
Invest in junk
Go for corporate bonds in order to even the risk. Just take note that you are merely replacing inflation risk with credit risk. In this case, your bond money might get lent to a casino. The advantage of corporate bonds is that inflation cannot possibly affect them. Another suggestion is to go for convertible bonds or preferred stocks. If stocks take off, then you can cash in for a lot more compared to just bonds, but always have a professional finance manager to handle these converts.
Buy Put Options
Try to buy a put option as an alternative. This is useful in case prices of Treasury bonds crash. The put can make you more money in that case. However, if bond prices go up, then you only lose the money that you spent on buying the put option.
Be aware that trading in options means speculation in terms of rank. Moreover, it will require scalping by big bid or ask spreads. This is indeed a very useful strategy for money that you would have otherwise gambled at the casino.
Do Speculation in Currencies
Since you know that inflation is equivalent to a weak dollar, it means that other currencies are comparatively strong like the yen or the Swiss franc. Thus, although there is some risk to this, you have the option to hedge over your U.S. bond portfolio if you decide to make a side bet against the dollar in the Forex market. This could be risky for a conservative fixed income investor though so alternatively you can go for foreign-stock funds.
Get Bond Insurance
The bond issuer purchases the bond insurance in order to guarantee that the principal and all associated interest payments that should be given to bond holders will be paid. This insurance is very useful in case of default. In fact, in order to boost their credit rating to AAA level, bond issues purchase bond insurance. The insurer has the duty to take up the liability automatically in case the bond issuer goes into default.
Some Final Words
If you secure yourself by adding premiums and coverages to your current bond insurance, it will give you more peace of mind in the far future. At Bond Pro Insurance Brokers, we do everything to ensure that our clients can have availability of the best quality protection. Thus, we offer not just the most comprehensive policies but the most affordable ones. To learn more about our insurance products and services, don't hesitate to contact us at (636) 220-6377 or Click Here if you would like to request a free quote.