What type of bonds do you purchase?
We buy Long-Term Corporate Bonds.
Why do you buy Long Term Bonds instead of Short-Term Bonds?
We are interested in earning as much income as possible which you cannot get from short term bonds.
What if I need to sell the bonds?
You can sell the bonds on any given day. But it is best to hold them for at least 5 years.
Will I lose money if I sell the bonds before maturity?
So long as you wait 5 years you will most likely make money. Keep in mind that you will be earning between 6% and 8% each year. Over a 5 year term you will have received 30% to 40% of interest income. It would be very rare to sell a bond for that much less then you paid. In fact, there is also a chance that you will sell the bonds for more then you paid plus the 30% to 40% interest you have received.
What happens if a bond is called?
You receive the full maturity value plus any interest owed.
Do you buy bonds at a discount or premium?
It does not matter to us. We are only concerned with the total return. If we pay a 2% premium for a bond paying 10% interest we will earn 48% over 5 years. That is 10% interest for 5 years less the 2% premium. That is better then paying no premium for an 8% bonds as that bond would only pay us 40% over 5 years.
How do you manage risk?
We limit the amount of money each client owns of a bond to less then 2%. In the rare event a bond were to go completely bankrupt you will still make money that year. If you earn 8% interest and lost 2% in principal you would still make 6%. Keep in mind that bankruptcies are very rare. Even in 2008, which was the worst year since 1929, we only had one bankruptcy which was Lehman. Prior to 2008, we never owned a bond that went bankrupt.
Where is my money kept?
All of our client accounts are held in the client's name at TD Ameritrade. You will never have an account at American Asset Management & we never have access to any of the funds in your account.
How often will I receive my interest income?
Most clients take the income every month on the first of the month.
What is a Trust Preferred Stock?
A Trust Preferred Stock is almost identical to a bond. It has a set dollar amount of interest that it pays each quarter, has a set maturity value, a call date and in most cases a maturity date.
