The following is excerpted from Bonds, Second Edition by Hildy and Stan Richelson. Copyright 2011 by Hildy and Stan Richelson. Published by John Wiley & Sons. Used with permission.

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There are two times in a man’s life when he should not speculate: When he can’t afford it, and when he can.
—Mark Twain

Like Rodney Dangerfield, bonds get no respect. Their advantages of predictable growth and cash flow are woefully underappreciated. We believe that plain vanilla bonds have proven themselves to be the best investments available, and we wholeheartedly agree with Andrew Mellon’s prescient late-1920s observation that “gentlemen prefer bonds.” We believe that ladies should, too.

Mellon’s statement was memorable, although a bit too pithy. Bonds are an extremely diverse financial category. They come in all denominations and maturities, from ultra-safe Treasury bills to risky junk bonds and unfathomable CMOs, and they serve a variety of needs and purposes. You don’t simply buy “a bond” just as you don’t simply buy “a car.” There are important choices involved, and you need to understand the specific reasons for your intended purchase, what you are going to use it for, and how long you intend to keep it.

Investors tend to buy bonds with different strategies in mind. The All-Bond Portfolio is a strategy for investing in very conservative, plain vanilla bonds in order to preserve principal and receive a steady stream of cash to support the life objectives and financial needs of the investor. This is in accord with Richelson Investment Rule 1: Define your objectives and Richelson Investment Rule 3: Don’t lose money.

Create cash flow with bonds

We believe that cash flow is the key to financial planning and retirement planning for individual investors. You can’t eat gains and losses but you can live on cash flow. In this section, we explore the reasons to use bonds to create the needed cash flow.