Minimalist Wealth

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Investing in Bonds and Bond Funds for Novices

Summary: Buy I-Bonds up to the $10,000/year purchase limit before looking at other bonds. Aside from municipal bonds, other bonds and bond funds are not good investments without an IRA.

I talked about what bonds are and different types of bonds already, and I recommend reviewing that article first. Here, I will discuss specific bonds and bond funds in more depth. This article assumes that the investment is being done in a regular (taxable) account rather than an IRA.

Just as with stock funds, Vanguard’s bond funds offer a discounted Admiral version of each fund for investing $10,000 or more.

Important Review: Expense Ratios

The expense ratio is the percentage of your investment charged as a fee. Expense ratios rarely change, though Vanguard funds’ expense ratios have decreased slightly. Low expense ratios are the most predictive indicator of future performance, and therefore paramount to long term returns. In bonds, expense ratios are a much larger percentage of return, because bonds grow less than stocks.

In Taiwan, Every Receipt Is A Lottery Ticket


One of the more important challenges for running a successful modern nation-state is figuring out an answer to the question of tax coverage.

The vast majority of people believe in at least some taxes, and practical statesmanship sees that outside of a few rare cases (a state controlling natural resources), you need to have decent tax coverage to fund your treasury and run your administrative programs.

Again, this question is totally orthogonal to what should be taxed and what tax rates should be. Regardless of where you stand in political opinion and practical evaluation on those questions, if a country has poor coverage, they stand to get in lots of trouble. My personal opinion from the history books is that a main contributing reason to the German Empire losing World War I is having poorer tax coverage than the Allies.

Taiwan, and indeed, much of Asia had and has poor tax coverage. Again, it's not about the rates -- it's about getting people to pay the rates. In a country where there's many more small vendors and independent shops, it's easy for people to artificially decrease their revenues.

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