Do you want to make money? Part 2

In the first part, I gave you two online brokers to use for your bond investments. We talked about how to look up bonds to buy in your account. We reviewed the rule of 72, when your investments will double its money and the rule of 115, when your investment will triple its money. The idea is to make as much money as you can, as safe as you can. In this blog, let’s go over a trade that I recently made from one of these websites.

I made a trade in my IRA account on June 22, 2010. The Trade Settlement Date was June 25, 2010. I bought ten (10) United Refinery Company Senior Notes with a coupon of 10.5%, maturing on Aug. 15, 2012. The company will pay me interest semi-annually on August 15 and February 15 until and including Aug. 15, 2012.

The bond can be called by the company on Aug. 15, 2010 at $1,000 per bond, giving a Yield to Maturity of 14.48%. I had bonds called early on me before. If this happens, I will cry all the way to the bank. If I want to know more about the call provisions, I can look this information up or call my online broker for more information.

Moody’s rates them as “B3” and Standard and Poor’s rates them as “B.” Both rating services rates United Refinery Company as noninvestment grade corporate bonds.

I paid $927.50 per bond meaning that my principal amount was $9,275.00 for all 10 bonds. I had to pay the bond seller $379.00 because the bonds accrue interest daily paying them from February 15, 2010 to the settlement date, June 25, 2010. I will get that money back on August 15, 2010 when I receive my first interest payment. Each payment will be $52.50 per bond or $525.00 for all 10 bonds.

My commission for this transaction was $10.95 and I had to have $9,665.12 in my IRA account for this transaction to take place. The following is what I expect to get out of my 26 month investment.

The year 2010 – Interest from seller, $379.17 plus $145.83 in additional interest.
The year 2011 – Interest of $525 in February and $525 in August.
The year 2012 – Interest of $525 in February and $525 in August plus $10,000 in bond principal.

I hope to make a total of $3,350 ($2,625 Interest + $725 in principal) from a $9,275 investment over 26 months. I expect to have a return of 36.12% from my original investment over 26 months.

The interest and Principal from this investment will be reinvested into future bond investments. I did not always have the money to invest in my IRA.

Next we will see how to create and build an IRA account for your retirement when you don’t want to work or can’t work any longer.