Understanding Bond Investments for Individual Investors

Bonds are essential for stable returns, tax savings, and emergency funds, requiring thorough understanding and cautious investment, especially in diverse ETF options.

### Understanding Bond Investments with Manager Lee Giwon
* 📊 Lee Giwon, a bond investment expert managing around **1.5 trillion won in assets** at Yurijasan Asset Management, shares insights on bond investments in a live session.
* 💰 Bonds offer stability and low but predictable returns, making them suitable for investors looking to **preserve capital** and **diversify their portfolio**.
* 🏦 Government bonds are considered **risk-free**, followed by special bonds, bank bonds, and corporate bonds in terms of **credit risk**.
* 🔍 Lee emphasizes the importance of understanding bond concepts, such as **credit ratings, maturities, and liquidity**, before investing.
* 📈 For individual investors, Lee recommends bond ETFs as a **convenient and cost-effective way** to access **diversified bond portfolios**.
* 💡 Warren Buffett's significant bond holdings are highlighted as a strategy to **maintain liquidity** and **prepare for potential market opportunities**.
* 🏛 Lee discusses the legal frameworks and support mechanisms in place for special bonds, emphasizing the **low risk of default** for these instruments.
* 🌐 The global bond market, with around **$120 trillion in issuance in 2021**, is highlighted as **larger than the stock market**, underlining the **importance of bonds in the investment landscape**.

Hello everyone. Good day. Today, July 22nd, Monday, News Toast Live begins. In today's live session, we have invited our first expert. Many of you were very curious about bond investment experts. We have Manager Lee Giwon here. Welcome, welcome. Now, please look at the camera and say hello. Hello, hello. Yes, today we have Manager Lee Giwon as our bond investment expert. First of all, please introduce yourself to our viewers. Yes, hello. I am Lee Giwon. Currently, I manage bond funds at Yurijasan Asset Management, with assets under management of around 1.5 trillion won. I have been involved in bond investments at other financial institutions before and have a lot of interest and knowledge in various investment areas, not just bonds. Please feel free to ask many questions. Yes, nice to meet you. Managing assets over 1 trillion won is quite impressive.

I was also momentarily surprised when I heard it. Now, bonds need to be managed more extensively because the management fees are much better than stocks or other assets. Yes, it was like answering some questions a bit. Oh, there are already so many things I'm curious about. That's why I actually prepared several questions first today, and I also included questions from our viewers who kindly left comments on our YouTube community. So, let's start with the main topic step by step. The biggest advantage of bonds under the tax system in our country is tax savings. To enjoy tax savings, when interest and dividend income exceed 20 million won annually, it has the greatest effect.

I think social security beneficiaries may not have so many financial assets, so they may not be able to enjoy that part. But now, all of you readers, it's 2030 now, and in the future, it will be 450. Yes, our future asset owners. So, at that time, there will definitely be much more assets than now, and you should consider the tax part. So, it's very good to think about the tax-saving benefits of using tax bonds in advance for the future. And basically, fundamentally, bonds are all interest-bearing products, so studying interest rates and macroeconomic trends in advance by investing in bonds will be very helpful not only for bonds but also for all investments. So, whenever we talk about taxes, I can totally relate.

In fact, even if we study income deductions or tax deductions diligently, we cannot save a huge amount at the moment. But what you should always keep in mind is that experience is also an asset. So, when you mentioned that investing in bonds is all about interest rates, it started to get a bit dizzy from there. I will explain more later. Therefore, for now, it's okay to approach bonds as a learning opportunity. Yes, you need to study. Yes, interest rates are the basis of all asset returns. Government bond rates plus risk premiums of stocks and real estate are added to form investment returns. That's why this is a bit theoretical, but fundamentally, government bond rates are the basic base of all returns.

So, all investments start with government bond rates. Therefore, understanding how government bonds, corporate bonds, and such form their returns is essential in studying investments. Initially, bonds may seem uninteresting, with low returns, and not very exciting. Some may think that way. What are your thoughts on this? Firstly, it's natural for the returns to be low because the reason for investing in bonds is stability. While you may incur losses in stocks, no one invests in bonds expecting losses. Therefore, it's natural for the returns to be stable. If it's both stable and high returns, you should be suspicious. Yes, that's a very important point. For example, if someone guarantees a 200% return on investment with principal protection.

If it's like this, you should start doubting, but bonds are not like that, right? So, when investing in bonds, of course, you expect low profits but stability. Then why do you need to do this? Wouldn't it be more advantageous to just hold onto stocks for the long term like young people in society? That's a valid point. Therefore, for those with a long time horizon for investments, like 20 or 30 years, it's actually fine not to have a bond allocation. You can just keep receiving your salary and continue to invest in index funds or ETFs through dollar-cost averaging. If you hold onto them for 30 years, it will be much more profitable. However, on the other hand, Warren Buffett, who is currently the wealthiest person in the world, has about 25 trillion won worth of short-term U.S. Treasury bonds in Korean won.

It's strange. The person who is best at stocks in the world has a company called Berkshire Hathaway, which holds the most bonds in the world as a single company. Why would the person who is best at stocks also hold the most bonds? Because there is an emphasis on being prepared for difficult times. You should always have plenty of cash on hand in case a difficult time comes. The person who is best at stocks also holds the most bonds. But as of now, they hold more bonds than before. Oh, this company Berkshire Hathaway makes an annual operating profit of around 40 to 50 trillion. Instead of investing it elsewhere, they keep piling it up in bonds. So, every year, the bond balance is increasing. Everyone reads books like Invest Like Buffett. But even that book is a past book. The current strategy of Buffett is operating.

It is a strategy to continue steadily buying bonds with the remaining profits. So, because there is nothing worth investing in stocks right now, they are accumulating like this, thinking that when the next opportunity comes to buy cheaply, they will probably sell these bonds and buy stocks, or maybe acquire large companies. In that way, they are securing an emergency fund at the moment. This emergency fund is what I keep talking about. So, it can be seen as a valid strategy to purchase safe assets like bonds for the purpose of an emergency fund. From the perspective of safe assets, I believe that purchasing bonds is effective enough. It could be in the form of bank deposits or bonds, depending on the choice. In fact, from an individual's perspective, deposits with a maturity of less than 1 year and bonds with a maturity of less than 3 years.

I think these are sufficiently safe assets, so if you keep them in reserve as usual, you can really use them effectively when the opportunity comes. So, having actual cash on hand doesn't just mean keeping cash in a bank account. It's also a way to create short-term bonds in a liquid form. So, when we talk about cash here, it means assets that can be liquidated immediately when needed. Even with bank deposits, even if there is still time left until maturity, you can just cancel it and get back the principal. Bonds, too. If you buy a 3-year maturity bond and sell it in the middle, you may see a slight loss in the principal, but it's not that significant. So, with that, you can buy stocks when they are low or seize the opportunity to buy a house. In essence, you can consider it as cash when needed.

Buffett now talks about having cash. It's not just about having pure dollar cash. Most of it is put into the U.S. or held as short-term bonds for less than a year. It's held internationally in the U.S. Most of it. Oh, that's Buffett's cash. Yes, that's cash. Yes, there are basic concepts that must be understood when talking about bond investments. So, you must know these concepts. You need to know this. Well, bonds are loans. When you deposit money in a bank, you are actually lending money to the bank. And the bank lends the deposited money back to homebuyers or to companies.

The biggest difference between deposits and bonds is that bonds can be bought and sold as loan certificates. When a company issues bonds and you buy them, you are directly lending money to the company. The company can then sell that loan certificate to someone else. Whoever buys it, the company is obligated to pay back the principal and interest to that person when it matures. At maturity, the principal must be repaid, and interest must be paid on the interest payment date. Generally, corporate bonds pay interest every three months, so a 3-year bond would have 12 interest payment dates. At maturity, both the interest and principal must be repaid at once. On the other hand, with deposits, you have to break the contract in the middle because it lacks liquidity, making banks more powerful in this regard.

When you cancel, you only get back the principal. In the case of bonds, most bonds can be sold in the market, and depending on the situation, you may make a profit or incur a loss when sold. However, bonds with a short maturity period tend to have minimal profit or loss, making it highly likely to recover an amount close to the principal. There are many types of bonds, so there has always been something called a credit rating. Some bonds have a very high yield, while others are at the level of time deposits. Is this difference due to the credit rating? For now, bonds can be classified according to the issuer, such as government bonds and public institutions, in our country.

Special bonds are issued and classified. For example, they are classified as government bonds, local government bonds issued by local governments, and corporate bonds issued by private companies. Bank bonds are also categorized within corporate bonds on a broader scale. Depending on the issuer, government bonds, special bonds, local government bonds, and corporate bonds are separated. Sometimes bank bonds are classified separately. Corporate bonds can be included in a broad sense and can also be classified separately. So, what about the difference in yields? In the case of government bonds, it is considered that the government will never default. It's a matter of trust. Therefore, government bonds are seen as risk-free bonds. Now, considering government bond yields as a benchmark, other bonds are stacked on top of them. Special bonds...

What happens if Korea Electric Power Corporation or Korea Gas Corporation does not pay their bills? The country will stop, right? However, despite the negative news about Korea Electric Power Corporation having a lot of debt, in reality, the risk of default is close to zero. If Korea Electric Power Corporation does not pay interest, the bond will default the moment it is not paid. It is not a legal problem for a company not to pay dividends. Investors may be upset, but it does not mean that the management or the company is in trouble. However, if the principal of the bond is not paid, all financial transactions will stop from that day. Just like in the case of individuals who become credit delinquents by not paying credit card bills or loans.

So, it's like this, a very precise concept. For example, if a Korean company like KOREA JINRYEOK doesn't pay back its interest, then on that day, all financial transactions stop, and things like importing oil from overseas become impossible. Then, it means that electricity cannot be produced. If KEPCO cannot produce electricity, SAMSUNG Electronics will stop, Hynix will stop, and the oil refineries in Ulsan will all come to a halt. This is an example where everything comes to a standstill, and all the red lights come on. Then, because South Korea itself stops, these companies can't afford to have such a situation. That's why there is a law called the KEPCO Act, which allows the government to support the repayment of principal. Yes, there is a separate law for this. Yes, a separate law exists. There are separate related laws. Therefore, the necessary legal basis is established so that the government can provide immediate support when needed, as the related variables are prepared. This fund is about 30 trillion to 40 trillion won, and the government can be mobilized at any time if needed, as there is a legal basis.

You should consider special bonds as being slightly more risky than government bonds. On top of government bonds, there are these special bonds, which are relatively safe. Then, in order, it seems like what should come next is bank bonds. You should look at the bonds issued by banks. For example, because banks in Korea, such as Shinhan Bank and Kookmin Bank, which are just a few, about four or five, are very reputable commercial banks, banks are considered relatively safe. Concerns about banks being risky are very old-fashioned, as currently, they are managed very safely under strict government regulations, and their credit risks are almost low. Oh, here comes a pure but harsh question: then, are internet banks, and such, very reputable too? In the case of internet banks, they do not issue bonds, so there is no basis for such an evaluation. For example, if they were to issue bonds, their credit rating would likely be.

The credit risk will be lower than commercial banks, but since bond issuance is not currently taking place, there is no urgent need for that situation. If it happens, the rating will be lower. So, one more concept comes up here. Thinking only about my credit rating, I recently got a signal score, like a grade of 1,000 points. But when it comes to bonds, you also learn about the credit ratings of companies. Companies also have credit ratings, and the higher the credit rating, the better. However, from an investor's perspective, how should we view this? The higher the credit rating, the safer it is. But is it better to have a higher rating? Because the higher the rating, the lower the interest rate, so the right balance is important. I have the principal amount.

If the sole purpose is to receive payment, of course, it's government bonds. Otherwise, even if the interest rate is slightly higher, it's okay. There are bank bonds, special bonds, or corporate bonds. Even among companies, well-known large companies are considered good. Companies with credit ratings fall into this category, which may include various industries like oil companies or companies like SK Innovation. These companies may offer slightly higher interest rates, but the risk of default is extremely limited or low, so there doesn't seem to be a need for extra concern. However, if the credit rating is too high, the interest rate may not differ significantly from regular deposits. Bonds from companies with a reasonable credit rating, not too low, that can yield slightly more than regular deposits are fine. Bonds are much more diverse than stocks, with a large number of issuing companies.

When it comes to listing stocks, there are just two types of stocks for a company, common stocks or preferred stocks. Preferred stocks are much less common, and bonds have a wide variety of maturities. There are bonds with 1-year maturity, 10-year maturity, and some companies even issue 30-year bonds. So, there are many more types, not just regular bonds. There are also some quasi-equity securities that have a bit of a stock-like nature issued. Since there are actually many types of these bonds, if you delve deeply into this, there is quite a bit to study. Initially, the world seems difficult to us, and it feels somewhat vast, not just in a vague sense but truly the world is vast. In terms of issuance balance, the bond issuance balance is larger than the stock market capitalization globally. Well, the stock prices have recently risen.

The total amount of bond issuance in 2021 was about 120 trillion dollars globally. Usually, the bond market is larger than the stock market, but recently, due to the significant increase in U.S. stock prices, the bond market has become even larger than the stock market. Bonds are not minor. Bonds are much larger than we think. There was a question about the difference between listed bonds and over-the-counter bonds, asking if over-the-counter bonds are slightly riskier. It seems like you are referring to individual small bonds when you mention listed bonds.

Individuals can conduct funeral transactions, and they can also trade the same rights over-the-counter and on the exchange. In order to facilitate individual convenience, a system has been established for individuals to trade among themselves within the market. There is no connection with risky transactions. However, one thing to be careful about is that when trading small-scale bonds within the market, it may not be easy for individuals to determine whether the interest rate is appropriate. For example, if the other party is skillful, they can sell at a high price. Therefore, trading is conducted with buying and selling forming prices like stocks. Unlike stocks where trading is not as active, as buy and sell orders accumulate, transactions can take place. But the question is whether this trading interest rate is appropriate.

Now, in fact, it's not easy to judge bonds, so from a personal perspective, if you are going to do this, just invest in ETFs. So, if you know about bonds well, it doesn't matter, but surprisingly, the price can deviate from the actual fair value. But what was mentioned informally is that now it's good to approach ETF Pro bonds. In many ways, as I mentioned, in the case of bonds, there is liquidity, but the degree varies by each item. In the case of national bonds, liquidity is high, and as it comes down to corporate bonds, especially lower-grade corporate bonds, it may not be easy to trade. Especially for individuals, it is not easy to buy and sell them, but if you invest in ETFs, the asset management company managing the ETF will take care of the trading for you, so you can comfortably buy and sell ETFs. Just to let you know in advance, I have no relation to ETFs. I have no relation at all.

My company does not have ETFs, so I want to mention in advance that I have no relationship with them. However, in my opinion, ETFs seem to be a very reasonable product for individual investment. There have been questions like this. How many years do we consider short-term bonds? There is no clear definition for that. In international markets, if it's short-term, it's within a year. But personally, I think if it's within 3 years, it can still be considered short-term. So, in terms of personal investors, even if it's within 3 years, it can be seen as short-term. So, you mentioned the way individuals invest. Besides ETF bond types, there are various ways to invest in bonds. First of all, the most basic way is to buy them directly.

It will be done in the traditional way, right? If this individual wants to buy bonds directly, they need to go to a securities firm or a bank branch. There will be a list of bonds there, which they sell, and they can choose from there and buy. Then, they can put it in their account, such as buying a certain number of KEPCO bonds or government bonds. The biggest drawback of this method is that the fees are a bit high compared to doing it online. If done in person, they will charge higher fees. The advantage is that you can directly hold physical bonds, see and confirm it with your own eyes, giving you a sense of satisfaction. You can also directly check the evaluation price movement of individual bonds. You can actually buy physical bonds without face-to-face interaction. Yes, will it be delivered? Actually, it is delivered electronically, so it is considered a delivery, right? Yes, that's correct.

Since it is possible to trade without visiting the HTS branch, I know that the commission is a bit cheaper than visiting the branch. Also, various bond-type ETFs were presented. Firstly, this list is just arranged in order of market capitalization. So, starting from the largest, you can now buy Narebi. In my case, since I only deal with institutional bonds, I actually have no professional need to trade bond-type ETFs. Excluding personal cases, I don't have any transactions. So, even I was surprised when I pulled out this ETF list to explain this time. There are so many types, I didn't even know it would be this diverse. By indirect investment, almost everything that can be implemented has been realized. As for the question you asked earlier, Tiger 24-12 is a financial company, W minor or above, W minor or above.

Tiger is the ETF brand of Mirae Asset Management. Usually, the one in front of the brand is the brand, right? 24-1, maturity in December 24th year, and financial credit rating above A-minus, bonds with a maturity of December 24th year are included. Then, when this type of ETF is bought, after December 24th year, when the maturity comes, it will be returned to you in cash. The ETF will disappear; it needs to be liquidated. Oh, it needs to be liquidated. Oh, it's so fun. So, instead of buying individual bonds, it's like buying them together. If you're curious about which bonds are in which ETF, try searching on Naver. Then, you will probably be connected to the Samsung Asset Management website. The ETF management companies are required by law to disclose detailed explanations about the ETF on their websites. It's required by law.

Yes, that's correct. This is because it is a legal requirement to disclose this on the website. The definition of ETFs and the recent holdings are all disclosed on the website. So, if you are interested, please search once, and you will definitely find the information. Also, you mentioned the meaning of 2412 in detail earlier. When you read about ETFs, surprisingly, it contains all the information when you read it in sections. Even Song Di D also mentioned that it's fascinating and fun. You can roughly understand what kind of product it is from the name, right? That's correct.

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어피티 온에어

5 trillion won in bond funds at Yurijasan Asset Management, offering expertise in various investment areas.

The biggest advantage of bonds in the country's tax system is tax savings, especially for those with interest and dividend income over 20 million won annually.

Understanding government bond rates is essential as they form the basis of all investment returns, providing stability rather than high returns.

The Role of Bonds in Investment Portfolios

Warren Buffett, known for his success in stocks, holds a large amount of short-term bonds as an emergency fund.

Holding bonds is a strategy to have cash on hand for future investment opportunities or emergencies, which is crucial even for the most successful investors.

Bonds, especially short-term ones, are seen as effective and safe assets for creating a liquid emergency fund, providing flexibility for future investment or expenses.

The Difference Between Deposits and Bonds

Bonds can be bought and sold as loan certificates, allowing for the transfer of the loan to another party, while deposits lack liquidity and can only be canceled with a return of the principal.

Bonds have regular interest payments and the principal is repaid at maturity, while deposits do not offer the same opportunity for profit through selling.

The difference in yields and risk levels of bonds, including government bonds and corporate bonds, is influenced by the issuer's credit rating and the presence of laws to support bond repayment in case of default.

The Hierarchy of Bond Safety and Credit Ratings

Special bonds are relatively safe, followed by bank bonds, which are also considered safe due to strict government regulations and low credit risks.

Internet banks do not currently issue bonds, so their credit rating evaluation is not applicable at the moment.

The higher the credit rating of a company, the lower the interest rate, so it's important to find a balance, with government bonds being the safest option for consistent payment.

The Global Bond Market in 2021: A Comprehensive Overview

The global bond issuance in 2021 reached approximately 120 trillion dollars, surpassing the stock market in size.

There is a distinction between listed bonds and over-the-counter bonds, with the latter being considered slightly riskier, especially for individual investors.

Investing in ETFs is recommended for those who find it challenging to judge bond interest rates and values, as ETFs offer professional management and trading convenience.

Short-term bonds have no clear definition, but personally, a duration of up to 3 years can be considered short-term for individual investors.

In addition to ETFs, the most basic way for individuals to invest in bonds is to buy them directly.

Individuals can buy bonds directly from a securities firm or bank branch, choosing from a list of available bonds and facing higher fees compared to online transactions.

This traditional method allows for the direct physical holding of bonds, providing a sense of satisfaction and the ability to track bond price movements.

Alternatively, buying bond-type ETFs offers a diverse range of options, with detailed information disclosed on management company websites, and the ability to liquidate the ETFs upon maturity.