In this episode, we’re visiting the Motley Fool Answers vault and dusting off this fan favorite episode featuring Fool Steve Broido. The “man behind the glass” joined us to talk about the basics of bonds, including bond funds and his particular fondness for municipal bonds.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Aug. 3, 2021.
Alison Southwick: We’re taking a break this summer, but never fear, you still get some answers. We’re dusting off notable episodes from the archive. This week, we are joined by Steve Broido to talk about his love of bonds, particularly, municipal bonds. Take it away, past Allison.
This is Motley Fool Answers. I’m Alison Southwick and I’m joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool and he’s the lead advisor on Motley Fool’s Rule Your Retirement newsletter.
Robert Brokamp: Hello, Allison.
Southwick: Hi, Bro. Stocks and bonds. They go together like ham and cheese, like peas and carrots, like —
Brokamp: Kibbles ‘N Bits. I don’t know, how about that?
Southwick: That works. We talk a lot about stocks here at The Motley Fool, but not so much about bonds, and today, we are going to remedy that with the help of the original man behind the glass, Steve Broido. Right now, dozens of superfans of The Motley Fool are squealing.
Steve Broido: Hi, mom.
Southwick: So today is all about bonds because Broido loves bonds, and we promise to have a good time. All that and more, on this week’s episode of Motley Fool Answers. For today’s Answers‘ answers, we’re going to be talking about an email from a guy named Todd, and Todd has an issue with us here at The Motley Fool. I’ll just get into the letter. It was a long email. No problem, Todd, not complaining. It’s cool to send long emails, but I’m not going to read the whole thing. Todd writes, “From time to time on the shows,” and that means all The Motley Fool podcasts, “the topic of bonds will come up, I cringe whenever this happens, it seems that the usual insightful analysis and careful thought that is evident in your stock advice,” thank you, “is completely abandoned when talking about bonds. I’ve only heard bonds discussed on The Motley Fool with various levels of dismissal and derision, as I’m sure you know, bonds should have a place in most portfolios, including individual retirement portfolios.” He calls out to us to help educate people about how bonds should be analyzed and traded. “I found that the average investor is entirely ignorant of how the bond market works and The Motley Fool has a unique position to help change this. Help people understand the risks and rewards of bond investing.” Todd, we hear you and that’s what today’s episode is going to focus on. But first, let me talk a little bit more about who’s come by the studio to help us answer this.
Broido: Hey buddies, how are you guys doing?
Southwick: This is Steve Broido. You guys know him as the man behind the glass. What would you say it is you do here, Broido, exactly?
Broido: I’m the director of video operations here at The Motley Fool.
Southwick: That role, you have been editing and taping the Motley Fool Money radio show for —
Broido: Yeah. A couple of years.
Southwick: We did the NPR, Motley Fool NPR show for a while. Is cult following too strong of a word?
Broido: I would say it’s far too strong. I think there might be one person who might be related to this.
Southwick: That’s false. No, there are tons of people who are huge fans of Steve Broido.
Broido: That’s awfully nice for you to say.
Southwick: It’s true, I’m not lying, right?
Brokamp: It’s true. People love his voice. In fact, Steve was almost the voice of the Washington Metro. Did you know that?
Southwick: That’s right. Yes. You’re one of the three finalists, right?
Broido: One at a time, but I lost. That’s the main takeaway as I did lose. It’s not me, if you’re on the Metro.
Brokamp: What would it be like if it was you?
Broido: If it were me, it would say, the door’s closing. Please stand and clear the doors.
Brokamp: I love it.
Southwick: I love it.
Brokamp: I don’t even want to get close to those doors now.
Southwick: I feel like I’ve been guided yet in a way that wasn’t forceful, but I’m still going to listen and I’m going to stay clear off the doors. It was a lady’s voice, I think.
Southwick: Broido, we are going to hear more from you about your particular journey with bonds in the future. But for right now, we’re going to ask Bro to help us explain the basics of bonds. In fact, you’ve got five things that everyone needs to understand about bonds.
Brokamp: So one of Todd’s points was that most people should have bonds or especially in a retirement portfolio. I would say, first of all, I agree and in my earlier retirement service, that’s one of the actual places in The Motley Fool we actually do discuss bonds. So I will just say he’s right about that and it is important to know. Very quickly and make sure that we’re all on the same page about bonds. First of all, a bond is a loan. Basically, if you buy a $1,000 bond, you are lending $1,000 to whoever issued it, it could be a government, could be a company and there’s certain terms where it might be a five-year bond and pays you 3%. You’re going to get 3% of that $1,000 each and every year and after five years, assuming the issuer is still in business, you get your $1,000 back. No. 2, the bond market is actually huge. It’s bigger than the stock market. According to an article in The Wall Street Journal from last October, the U.S. stock market is worth $26.3 trillion, the U.S. bond market is worth $39 trillion.
Southwick: Oh, wow. So not a small chunk of change difference.
Brokamp: No. Globally, it’s even a bigger deal. The bond market is huge. No. 3, there are all kinds of bonds and this is a point Todd made in his emails, so I’m just going to quote what he said. He said, “Stop talking about bonds as if they’re all the same. As you know, there are Treasuries, municipal, investment-grade, high-yield asset backed. All these bonds are different and should not be lumped together.” He is absolutely right. You can go with the super safe bonds, which are U.S. Treasuries. For the most part, I think we all believe that the U.S. government will stay in business, you’re going to get your money back. You’re also not going to earn a huge return. On the other end of the spectrum are so-called junk bonds. These are companies that are in trouble. Because they are in trouble, they have to offer a high yield on their bonds. You can get 8%, 9%, 12%, 14%. Are you guaranteed to get the money back? Maybe not, but that’s the risk you take.
No. 4, they historically do have lower returns than stocks and this is partially why you don’t hear as much about them. Over the long term bonds in general have returned about half of what stocks have. That said, they don’t go down as frequently or as much. While the stock market goes down roughly once every four years, the bond market, maybe once every seven, 10 and a decline of 5% is a bad year for bonds, the overall bond market, so that’s why people choose them. They’re not as risky and you can get some interest along the way. The final point is, you can buy bonds individually as Steve does, and he will discuss, or through mutual funds, which is the easiest way to do it. But those also have some drawbacks as Steve believes and as Todd pointed out in his email and which we might discuss here. But the easiest way for most people is a low-cost bond fund. But there are some pros and cons to that.
Southwick: I feel like the conventional wisdom is that, is this some weird rule of thumb that it’s probably really wrong. I’m totally —
Broido: Bonds equal your age.
Southwick: Yes. Exactly. You’re supposed to have whatever percentage of your portfolio in bonds is your age. If I’m 70 years old, I should have 70% in my portfolio in bonds.
Brokamp: That’s been adjusted somewhat where people now say, start with 110 minus your age and that’s how much should be in stocks. So that makes it a little bit more aggressive. That old saying of your age in bonds people feel is a little too conservative. But still, it’s an interesting starting point. There are people, even John Bogle, the founder of Vanguard, who will often say that’s a good starting point.
Southwick: So when we decided to do a show about bonds, we knew there was one man and one man only that we could go to and that man is Steve Broido.
Broido: Well, thank you very much for thinking of me.
Southwick: Of course. Well, I’m excited to hear that this is actually the first time you have been on this side of the glass and sat in the chair and talked on the mic. I know you’re not an expert, but we’re still happy to have you.
Broido: Well, thank you so much and I’m definitely not an expert, but I am an investor who does do this on his own. Hopefully, that’s worth something.
Southwick: Your particular way of investing is not to be like pigeonholing you, but what you’re here to talk about today is investing in individual municipal bonds.
Broido: Sure, there’s a ton of ways to do it. I think we learn a lot from our families and a lot from our parents. I grew up in the ’80s and the 1980s were a terrific time to be investing, especially in municipal bonds, and bonds in general. I think my dad tells a story about investing in Treasuries. They were yielding 11% or something insane.
Broido: Yeah, not a bad show right there. Growing up during that time, bonds were a pretty cool place to be and you could earn a fair amount of money then.
Brokamp: Just to be clear, so everyone understands what a municipal bond is, it is a bond issued by a state or local government in most cases and the benefit is you don’t pay federal taxes and depending on the bond and where you live, you may not pay state taxes, so it could be completely tax-free.
Broido: Right, the tax upside is what a lot of investors look for, but if you look at it in terms of a 5% yield, if you look at the taxable equivalent of it, depending on your tax bracket, maybe more like 6%, 7%, or 8%.
Brokamp: Right. Because you’re not paying any taxes. If you earn 6% or 7% on a regular bond, you’d have to first pay taxes, grab that and run.
Southwick: Tell me a good story, a good love affair that you’ve had with the municipal bond.
Broido: Sure and I do look at bonds as individual stories. I used to live in D.C. downtown and I would drive by the Convention Center, which they were building at the time.
Southwick: Which was in the middle of a rough neighborhood, by the way.
Broido: Yeah, I was transitioning. Lo and behold, much later, there was a bond issued for the Convention Center and having seen that thing get built, I was interested, I don’t remember exactly what it yields. I think 5.5%, something like that and I bought them. I’ve seen this building go up. I’ve lived in D.C. for almost 20 years and I feel pretty good that this Convention Center is probably going to be here 20 years from now or 30 years from now. I feel pretty confident about that. I may be wrong, maybe lose all my money but I think D.C. will have a convention center. I saw how big production it was to build that convention center.
Southwick: It’s several blocks.
Broido: Yeah, it’s huge. I know that demand in this area for conventions is pretty high and that’s the place to go.
Brokamp: Right, and that highlights one of the risks of when you’re choosing a bond, you have to ask yourself, is the issuer going to still be around when that bond matures to give me my money back?
Broido: Right, and hopefully so.
Brokamp: Right. But the good thing is if they are, you know exactly what you’re going to get. You have a certain certainty about investing in an individual bond. You know how much interest you’re going to get each and every year.
Brokamp: You know how much it’s going to be worth at a certain point in the future.
Broido: Right. It’s a predictable income.
Brokamp: Right. As opposed to a bond fund.
Brokamp: You don’t know the income you’re going to get and it does fluctuate in value, which is why some people prefer individual bonds to bond funds.
Broido: Right. With individual bonds, as I understand it, and again, still, this is just my experience with it. It’s a known entity. You go in and whatever bond you own will change in value. It may rise or fall in value and if you’re not trading them, and really you can ignore it and then just wait until expiration.
Southwick: Yeah, I think that’s where I get confused with bonds because bonds in and of themselves, it’s a pretty simple concept.
Broido: It’s just a promise.
Southwick: I’m loaning you $100, so you are going to pay me five bucks every year for the next 20 years and then you’re going to give me my $100 back and look at all the $5 I earned along the way.
Southwick: But then when you start talking about bond funds and trading bonds, then my head wants to explode.
Broido: Sure. I’m not interested personally in trading bonds. I think you can just get killed that way. Because what you are betting on is interest rates. We’ve talked about interest rates for years, but interest rates definitely will be moving. That’s the one thing I think we can all agree on that they’re rising, I don’t know, what you all got your mortgages at, but I remember getting a mortgage at 5.75% and thinking and hearing, this is the best, it’s never going to go lower than this, it did. Interest rates change and they are going to continue to change. Will they rise? Absolutely. Will they go down? Absolutely. They’re going to change over time and I think that we can all be pretty confident about that.
Brokamp: Right. To Todd’s point about why often many people and maybe even some people at the Fool will speak about bonds with a certain amount of derision and all that, is because right now interest rates are so low and they are expected to go up eventually. When interest rates go up, the prices of existing bonds do go down. If you hold that bond to maturity, it’s OK. You’ll get that money back, but that is certainly one of the fears people have about being a bond investor these days.
Broido: Right. One of the risks you run, too, is inflation. If you’ve got a bond that’s paying 2% or 3% and you hold it for 30 years and inflation is 5%, you’ve actually lost money there, but you have gotten 2 or 3% a year for that. You’ve gotten the privilege of getting that income for that amount of time.
Southwick: What about bond ratings? I feel like AAA, BBB, all that stuff.
Brokamp: That is how ratings agencies will look at a company and assess its ability to stay in business and pay you back your money.
Southwick: Do munis not have their rating?
Broido: It’s something that I would encourage everyone to look at. It’s part of the story. I don’t think it’s the entire story. I think people tend to freak out about ratings a little bit too much and say, “I’m only willing to buy AAA-rated paper,” which is great. You just say the yields are going to be a lot lower and at the end of the day, the D.C. Convention Center, maybe the rating isn’t so great. Maybe it’s a BBB, which is still investment-grade. It’s lower than AAA, but it’s still investment-grade. What does that mean? Does that mean it’s going bankrupt? Does it mean it’s going under? Maybe. Unclear, nobody knows. We’ll find out in 30 years. I’m betting that it’s not going to go under. That’s my bet that I’m making. Is that I think it’s not going to be around and just because things aren’t AAA doesn’t necessarily mean that they’re garbage or that they’re junk or that they’re not worth investing in.
Brokamp: That does highlight an important point, just like stocks, if you’re going to be an investor in individual bonds, you do have to be diversified.
Broido: Very diversified.
Broido: You want to be very diversified.
Broido: If you bet on Puerto Rico, all the things that are going on there. It’s very uncertain. The yields in Puerto Rico are very high right now, because there’s a good chance Puerto Rico, the story there is not going to end well. No one really knows what that means yet, but there’s a lot of municipal debt available in Puerto Rico. It pays a lot. It pays a lot because there’s a lot of uncertainty there and a lot of risk. If you’re willing to take that risk, you will be rewarded for it, but if Puerto Rico goes bankrupt, you may lose all your money. It’s not that different from stocks. I think people freak out a little bit about bonds. When will I get all my money back? When we invest in stocks, you count on not getting your money back. I think that’s part of being a stock investor, is I’m willing to lose a certain amount because that’s just how it works. I’m going to have some winners, I’m going to have some losers. When you look at bonds, the idea of ever losing any money on anything just freaks people out and when you really look at it cumulatively, well, maybe one of my bonds fails.
Brokamp: Even in those situations for most people, if their issuer goes bankrupt, they do get some money back after the bankruptcy proceedings have taken place. Bond holders get money back before stockholders which is why stockholders usually get nothing.
Broido: The default rate historically, it’s under 1% for municipal bonds. I should count on 1% of them failing. I’ve yet to have a bond fail on me, but I will. I feel pretty confident I will at some point.
Southwick: How come whenever we’re not in the studio recording and I ask you about ratings, you say, “Ratings don’t mean –”
Broido: I think I’m channeling my dad, so I learned a lot of this from my dad. The reason why ratings don’t mean, frankly, is because Lehman Brothers was AAA rated the day before it went bankrupt. If there’s a hospital in Kentucky, what is Standard and Poor’s? What are Moody’s? What do these guys know? What do they really know? What if you grew up there? That place has been around for a long time. I don’t know. My folks work there, my friends work there. I feel pretty good about that. I went to that college. I feel like it’s pretty confident it’s going to be around in 20 or 30 years. Maybe I’m wrong. Who knows? It’s uncertainty and uncertainty is really what you will be rewarded for, is if you’re willing to take some risk and not a huge amount of risk but the more risk you take, the more your rewards will be.
Southwick: You both invest in stocks and in bonds. Which do you feel is more, not to make it sound like I’m lazy, but which do you feel is more labor-intensive or do you put the same amount of work into investing in stocks as you do when picking your bonds?
Broido: Well, the bond thing it’s kind of one and done. If your goal is to buy and hold them, it’s great because you’ll look at an issue and you’ll say, “What is this?” What my dad always told me is, “How you get paid back.” It’s a water treatment plant. It’s a sewage company. I get it. People flash their toilets, I get paid back, everybody wins.
Southwick: Nobody dies of dysentery.
Broido: Nobody dies of dysentery, if it’s an airport bond and it’s backed by the airport. Chicago is not doing great, but I think O’Hare Airport probably has a pretty good chance of being around for a while, so I feel pretty good about that. Once that investment is made, I’m done because I’m not trading that because that’s really where you can lose a huge amount of money is when you try to trade these things and you think, I’m smarter than everybody else. I know that interest rates are going down this week and next week they’re going to go up and then they’ll go back down and when you’re jumping in and out, you’ll incur a lot of expense and there’s capital gains taxes there.
Southwick: Here in the Washington, D.C., area, we have this little darling thing called the Metro and the Metro has been steadily going downhill.
Southwick: It’s been a mess, like they shut it down all of a sudden a couple of weeks ago where they were like, “By the way, we’re not running on Wednesday,” and people were like, “What? It’s Tuesday at seven o’clock, how am I going to get to work?” It’s in really rough shape.
Brokamp: It’s because of the voice.
Southwick: You’re right.
Brokamp: They chose the wrong voice, it’s hurtful.
Broido: Had they changed, things might have been different.
Southwick: It might not just be a coincidence.
Broido: Oh, goodness.
Southwick: You did or you were thinking about investing in one of the new lines here, the silver lines?
Broido: I did.
Southwick: Walk me through why you thought that was OK, even considering that WMATA is a hot mass right now.
Broido: WMATA is a hot mess right now, and I will say this before when I made this investment, WMATA was not a hot mess.
Brokamp: You want to explain what WMATA is?
Broido: It’s the Washington and Metro Area Transit Authority.
Southwick: Basically, the Metro and some buses.
Broido: It’s the Metro and some buses. The silver line, which is right outside our house is where I think it starts and it goes all the way out to Dulles Airport and it’s basically an extension of our Metro system, so you can take the Metro right to Dulles Airport. It’s really being built. I see it going up everyday. I’ve seen it going up the last couple of years and it’s really going to happen. There was a bond issued, it pays 5% and I was interested, so I bought some. So far, there’s a huge risk there because WMATA is doing badly. People are upset about the Metro. The Metro may go bankrupt where the city may close down public transportation. I don’t know. I don’t think so. Maybe, who knows, unclear. Totally unclear. I think we’re going to have a Metro.
Southwick: This has been investing in bonds with Steve Broido. I don’t know, maybe, whatever.
Broido: I really believe this is that you may lose all of your money there, but I don’t think so. I think there’s going to be a Metro year. I think WMATA is probably going to get it together. I think the idea of a tri-, you’ve got DC in Virginia and Maryland, and all these buses and trains in this whole organization, this idea of it just going away, it doesn’t seem likely to me.
Brokamp: The workforce for the federal government just relies on the Metro to work.
Broido: The whole area does. But if we were in Detroit, if you’re investing in the metro system in Detroit, you might feel differently, but the population in D.C. is growing, it’s not shrinking.
Southwick: But you don’t lose any sleep. Like when you heard that the Metro was going to shut down suddenly for a day, and, oh, by the way, they’re going to be shutting down whole lines in the future, does it make you lose sleep or are you like, whatever, I’ll worry about it in 20 years when the bond ripens? What does the bond do? Mature.
Broido: It matures.
Southwick: I knew that.
Brokamp: When it procreates.
Southwick: Always has to go there, doesn’t it?
Broido: If you’re diversified enough, it really doesn’t make that much difference. It’s just a tiny piece of your portfolio. It’s not something to really lose sleep over, and there will be years so far, so good, it hasn’t defaulted. I don’t really think it’s going to default, but it could. That’s something that I think people need to be comfortable with is risk. Is there risk in all investments? There is risk in putting cash under your mattress. There’s risk in playing slot machines, there’s risk in buying shares of the S&P 500. There’s risk in Treasuries.
Brokamp: Let me ask you this. Let’s say you get a bonus, $5,000, $10,000 whatever.
Southwick: Congrats, thank you for all your work.
Broido: Thank you, I’ll take it.
Brokamp: You are doing a fantastic job. Now, you have to decide, I’m going to put this money in the stock market, or I’m going go buy some bonds. When you’re making that decision, is it which is going to provide the highest potential return, or is it, when you buy bonds, you know that probably, the stock market is going to do better? But I like that certainty that I have by buying individual bonds.
Broido: For me, it’s just a balancing act. It’s knowing that I worked for a company that is a financial media company, so we’re at greater risk of stock. The stock market may impact us in ways that won’t impact my wife who works for the federal government. That’s something. I invested in our 401(k) plan and I invested in stocks in that, I’ve got a Roth IRA and that’s in all stock. It’s a balancing act. It’s a little bit here, a little bit there, and it’s trying to diversify your portfolio in such a way that a little bit here, a little bit there, and making sure it’s so I’m comfortable, and so there’s regular income coming in that I can choose to do something with annually.
Brokamp: Sounds great.
Broido: I hope I haven’t bored you all to death.
Broido: Are you all bored to death?
Brokamp: No, I thought that was great in particularly tying in your job because a lot of people don’t tie their human capital into their investment capital.
Brokamp: But I feel the same way. I have at times invested more conservatively because I work for The Motley Fool, a company whose fortunes do rely on whether the stock market is doing well to a certain degree. I think that makes perfect sense.
Broido: This is a terrible time to be a bond investor. I just can’t echo that enough, the yields are very low. But if you’ve got enough money and if you’re comfortable with the promise that you’re getting and the yield that you’re receiving and you can sleep at night, good on you, man.
Southwick: For someone who’s sold, now they’re in it, they want to learn more about investing in individual municipal bonds, what’s the next step they should take?
Broido: I would say maybe give your broker a call and say I’m thinking about this, talk to me about it, what do you think? Take a look at them. In your brokerage account, there’s a tab called bonds. Take a look at what’s available.
Southwick: See what is in my backyard?
Broido: Yes. See what’s trading and what things are trading for, what the yields are in corporate bonds. I mean, It’s the same deal. I don’t buy corporate bonds because I’d rather just buy the stocks themselves. I don’t feel like there’s enough reward there and the risks that I’m taking on rather take it through the stock itself. But in terms of municipal bonds, with some of them, I’m very happy with some of the yields I’m getting.
Brokamp: For those who want to learn more about bonds in general, investinginbonds.com is actually a great resource because it’s got a lot of good education and a lot of recent data on the bond market. For those who want a good book, there’s a book called The Bond Book by Annette Thau. It was written a few years ago, so the interest rate examples and stuff will be different. But it’s a great primer on bonds. If you’re looking for a good bond fund, start with Vanguard, because they have plenty of good options and an extremely low cost. When it comes to all investing costs matter, but it’s even more important when it comes to bonds.
Southwick: Steve Broido, thank you for joining us, but you are going to stick around.
Southwick: For a little game.
Broido: I love it, let’s do it. Bring it.
Southwick: OK. All right, Broido. I warned that this is coming. It’s time for a game of Would You Rather.
Broido: Oh, good. OK.
Southwick: I’m going to give you some bond options and you’re going to tell you which one you would rather buy.
Broido: I’m ready.
Southwick: The first one is, would you rather buy the New York City Municipal Water Finance Authority, New York water and sewer system revenue bond, or the Fairfax County, Virginia sewer revenue refunding bonds?
Broido: Refunding bonds makes me nervous because I don’t know what that means. That’s something really important about bonds is that if you read something that you don’t understand, step away, because there’s a lot of terms in bonds. It’s sinking funds and there’s all kinds of stuff that if it makes you nervous, just take a walk. You don’t need to invest in that one. In this case, I probably would be more interested in the Virginia bonds, because I live in the state of Virginia, and those bonds would be both federally and state tax free for me. But the New York bonds probably, I don’t know, New York’s a pretty big city and they use a lot of water there. That’s probably good, too.
Southwick: You’ll be OK with either?
Broido: Either one, but I’d probably go to the Virginia ones.
Southwick: Scenario 2. Would you rather buy a Parmesan cheese-backed bond that will pay you a yield of 5% until they mature in 2022? I’m not sure by the way, if they’re talking about the cheese maturing or the bond.
Broido: Good to know.
Southwick: Let’s just say both.
Southwick: Or a bond in a Noah’s Ark theme park in Kentucky, that’s going to pay you 6% for 12 years?
Brokamp: These are real-life bonds by the way.
Broido: Are they? OK. Parmesan cheese one.
Southwick: It’s in Italy, by the way. This is a consortium of cheese makers.
Broido: These are real things.
Brokamp: These are real things.
Broido: OK. Neither, I would buy neither, but if I had to choose one.
Southwick: You have to choose, that’s the game.
Broido: I’d do the Kentucky one because I know more about the United States and I know nothing about Italy, I know nothing about their interest rates and I don’t know very much about cheese either. I feel like Noah’s Ark, I’m assuming it’s a waterpark. Is it a waterpark?
Southwick: No, I think it’s just like Noah’s Ark, you walk around.
Brokamp: It is a biblically themed amusement park.
Broido: Well that makes me feel better. It’s got a religious backing, which is probably good people.
Brokamp: God would never let those bonds default.
Southwick: Scenario 3, here we go. Would you rather buy a corporate bond to build three Olive Garden locations within 10 miles of your house or a bond to help produce the next Rod Stewart album?
Broido: OK. This is a tough one. Because I’d like to buy both. I do love me some Rod Stewart and I love Olive Garden.
Southwick: I know.
Broido: But if I were a betting person, I go with Olive Garden because Rod Stewart is aging and I think the likelihood of him putting out a lot more records in the next 30 years is a lot less, a lot lower, than more Olive Gardens popping up across the world.
Southwick: These two are actually fake by the way.
Broido: Well, I’m sorry to hear that because it sounds delightful.
Brokamp: First of all, people need to understand that Steve loves Olive Garden.
Broido: I do love Olive Garden. It’s not an ironic, weird way. I just have a really good time when I go there.
Brokamp: The Rod Stewart was inspired by the famous Bowie bonds, so back, and this really did happen back in 1997. David Bowie issued bonds backed by the royalties of 25 albums that came out before 1990, and they matured 10 years later. At one point, they were given a very high rating then when digital music and Napster and all that came out. The assets backing these bonds were starting to be questionable and got lower rated by the ratings agencies. But they eventually all the investors got their money back.
Southwick: Having the Bowie Bond led him to having a psychotic breakdown.
Southwick: By the way, it was so stressful on David Bowie.
Broido: I don’t believe it.
Southwick: Because he realized that he had sold the royalties. Essentially, he lost the royalties, like he lost the rights to his music. I did a little bit more reading.
Broido: But you’re betting on David Bowie. If you believe in the future David Bowie, I think that’s a good thing to bet on. Mr. Bowie was a good dude.
Southwick: In your case, it was Rod Stewart.
Broido: Yeah, even better.
Southwick: All right. Last one, would you rather buy a bond in Robert Brokamp or me, Alison Southwick?
Broido: Oh, goodness, this is tough, because I like you both so much.
Southwick: That’s all the details you’re going to get.
Broido: A bonded Brokamp or Alison? I would say I would have to buy both. Can I do that?
Southwick: No. The game is not to go ahead and pick both. The game is called —
Broido: Which would you rather?
Southwick: Would You Rather.
Broido: Would you rather. OK. So I would say, this is a tough one. I would say Alison Southwick right now.
Broido: Because she is hosting a podcast and Robert Brokamp is the co-host but you’re not the host guy you’re the co-host guy. I’m going with the host.
Broido: Winner, winner, chicken dinner.
Brokamp: I’d probably go with that, too.
Broido: But I do like you both very much.
Southwick: We like you too. Steve, thank you so much for coming.
Broido: Well, thank you, it is an honor to be here.
Southwick: This was fantastic to have you.
Broido: Thank you so much. I hope I added some value.
Broido: The main piece of advice is just don’t listen to me, don’t listen to anybody. Seriously, don’t listen to anybody. Do your own homework, do your own research. Don’t invest in anything you’re not comfortable with.
Southwick: There you go. Words to live by from the man behind the glass, Steve Broido. Thank you again for joining us. That’s going to do it for today, folks. The show is edited bonding-ly — is that even a word? — by Rick Engdahl. Our email is [email protected] If you are on Facebook, don’t forget to go and check out our new private group that we have. You didn’t know about this, Broido?
Broido: That sounds weird. A bunch of hippies hanging out in your private room.
Southwick: No. It’s called a closed group. If you’re on Facebook, head on over and search for Motley Fool Podcast, I believe is the name of the group. You have to ask to be let in. You ask to be invited and someone here at The Motley Fool lets you in and then you’re in and you’re part of our group and we can all talk about money and investing in bonds or whatever.
Broido: Sign me up, I’ll be there.
Southwick: Are you on Facebook?
Broido: Yeah. Big time.
Southwick: Are we Facebook friends?
Broido: Yeah. I see pictures of your kids all the time. We’re friends.
Southwick: We are friends.
Broido: We are friends.
Southwick: Yes, you need to head on over there and join the group because I’m sure people will love chatting with you on Facebook.
Broido: I’d love to, sounds like fun.
Southwick: OK. Cool. Everyone, go to Facebook. Also, our email is [email protected] Feel free to drop us a line. For Robert Brokamp, I’m Alison Southwick. Stay Foolish, everybody.