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Reinvesting bonds

  • 27-10-2014 1:56am
    #1
    Ancel
    Registered Users Posts: 22 ✭


    Hello all.

    I'm creating a program to help my friends charity buy Irish (Or other) government bonds and reinvest them so his charity can survive in future from the interest and not rely purely on donations.

    I want to create a system where he'll take some of the interest and put the rest back into another bond but in a way so the bond will grow and his organisation can just get larger from the "bond cycle".

    For example:

    If i buy a bond for €10k for 10 years with a return of 30%.
    I get €13k back.

    I take just the interest ( €3k ).
    Say inflation is 15% over last 10 years.

    So i take 15% from the interest i got back from the bond.
    Inflation: €3k - €450 = €2550

    Amount to reinvest so far is (€450 + €10k).
    Is €10450 worth €10k 10 years ago?

    Now i want the bond to grow.

    So in my example i take 25% (Random) of what's left of the interest.
    (€2550 * 0.25) = €637.5
    and add it to the new bond:
    €637.5 + €10450 = €11087.5

    So he takes (€11087.5 - €13k) €1912.5 to his charity.

    So i would get another bond for €11087.50 and repeat the cycle.

    Is this the correct way to create the system?
    Are there other variables that i don't know of that will affect this idea?
    Do you have any advice on how much i should use for the growth percent?


    Any advice would be welcomed. I'll be looking at stocks later, i know bonds aren't the best way to make money but it's more predictable imo.

    I've very little experience with this type of thing so please forgive my ignorance.
    Tagged:


Comments

  • #2
    rustymetal
    Registered Users Posts: 29 ✭rustymetal


    A couple of bits that may interest you if you are looking at bonds.

    Tax see what applies.

    Have a look at the different types of bonds sovereign debt AAA, companies or inflation indexed bonds as an example.

    Although bonds are very low risk depending on which one you choose there is a possibility of default. High risk high return bonds for example.

    There are always hidden costs somewhere.

    Not sure but you may need a broker for certain bonds (more costs).


    Research as much as you can.


  • #3
    noodler
    Registered Users Posts: 26,141 ✭✭✭✭noodler


    rustymetal wrote: »
    A couple of bits that may interest you if you are looking at bonds.

    Tax see what applies.

    Have a look at the different types of bonds sovereign debt AAA, companies or inflation indexed bonds as an example.

    Although bonds are very low risk depending on which one you choose there is a possibility of default. High risk high return bonds for example.

    There are always hidden costs somewhere.

    Not sure but you may need a broker for certain bonds (more costs).


    Research as much as you can.

    Inflation is incredibly low at the moment but so is the yield on Ireland's Government bonds.

    You can generally get a forecast for inflation a couple of years ahead from the Government (DoF's recent budget documentation) and from the IMF.


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