In this week’s episode of Retire in Texas, Darryl Lyons, CEO and Co-Founder of PAX Financial Group, unpacks the complex world of bonds and why they matter to everyday investors. With market headlines swirling and interest rates shifting, Darryl breaks down what bonds really are, how they function in your portfolio, and why government debt isn’t just a political issue – it’s a personal one.
From explaining how bond auctions work to highlighting the risks of chasing returns, this episode offers a practical and reassuring look at what is often considered the “boring” side of investing – and why it deserves your attention.
Key Highlights:
• Why bonds still play a vital role – even if you prefer stocks.
• What bond auctions reveal about global trust in the U.S. economy.
• The four principles every investor should follow when it comes to bonds.
• Why professional bond management can make a major difference.
• How to stay calm (and informed) in the face of economic uncertainty.
Whether you’re nearing retirement or helping a loved one navigate their investment journey, this episode provides timeless insights with a steady hand.
For more insights or to connect with a PAX Financial Group advisor, visit http://www.PAXFinancialGroup.com.
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Transcript:
Hey, this is Darryl Lyons, CEO and Co-Founder of PAX Financial Group. And you’re listening to Retire in Texas. This information is general in nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXFinancialGroup.com for more information. Hey, thanks for joining me.
I wanted to encourage you to like and subscribe. Of course, I hear that all the time. I know you do and it’s legit for podcasters just to make sure that people know what you’re doing. So do that for me if you can. If you’d like to. But I really kind of like to synthesize what’s going on in the market in a way that you can capture and understand and apply.
And I love to do it. I look at life through a biblical worldview. Sometimes I talk about that on the podcast, sometimes I don’t. And then I also like to not use a lot of numbers. So, if you’re kind of thinking about what’s the profile of this podcast, it’s for me to be able to translate some of these financial things that are happening, make it very relevant to you, and then do in a way that you can say, man, I understood what you were saying.
So, I love it when people come up to me and say, man I get it. The way you explain it, I get it, and this one is going to be a little tricky because I have to talk about bonds, and I’ve done this before, but it’s so important because the bond market is like, I mean, it is really the whole world is hanging not on a thread, but it’s kind of on the bond market.
The bond market is a really, really big deal. And so I want to explain a little bit about it to you so you can understand the magnitude and maybe things will start to make sense as you turn on the news and you hear something about raising rates or lowering rates and Jay Powell and Trump fighting, I want you to just kind of understand a little bit of those nuances.
And so, then I also want to make sure that you understand how it applies to you. Now, if you’re younger, you probably don’t have bonds in your portfolio, but if you’re retired or retiring, you have a chunk of your money in bonds. Sometimes it’s 40%, sometimes it’s 30%. I’m still inclined at many ages, you know, to lean into stocks.
I think the profile of a stock is very attractive. And the fact that you have ownership in a company, there’s management that has an alignment and an incentive to be able to drive that company to success, pay dividends or grow. So, I love stocks. I think it’s really important. It’s really an opportunity for Americans to own, to have ownership in a company.
So, I’m a big fan of stocks, of owning companies and using the stock market as a vehicle to own those companies. The bond market is kind of a supplement to stocks. So I wouldn’t say like, hey, I’m a raving fan of bonds, but I see how they work in portfolios. But I like to talk about it periodically because you have more in your portfolios.
You have more bonds in your portfolio than you probably know. And the world economy is really depending on the bond market. So, you’ve got those two things going on, both like the world, and your own personal portfolio. So, you know, bonds are a loan that you make as a consumer, you make to a company.
So, you’re lending money to AT&T and AT&T saying, I’ll promise to pay you back in 30 years or 10 years or 2 years. Usually not 2 years on those corporate bonds, but they’ll pay you back. And while, so let’s say it’s, you know, $25,000 and you lend AT&T $25,000, they’ll pay you back as long as they’re still in business, in 10 years.
And then in the meantime, they’ll send you money, you know, an interest, a coupon every 6 months or so. And so those coupons are really a nice way to, you know, supplement your income, especially when you’re retired. Low risk, low thrill. Those coupons pay your Netflix bill. So that’s how I think about those bonds and how they work in your portfolio.
So that’s it, sounds pretty simple. You’re lending money to a corporation. You also lend money to the government. These are often called treasuries and they’re inside of your portfolio. I promise you could look in there and say, oh, I’m lending money to the United States government. Is that a good thing or bad thing? Like, I’m kind of nervous.
I think it’s a good question to ask. I’m comfortable lending money to Apple because I see that they’re selling a lot of phones. And I’m comfortable lending money maybe to AT&T. I’m comfortable lending money to Netflix, whoever. But, you know, the government, you’re saying I am in my portfolio right now, Darryl, you’re saying in my portfolio I have something called treasuries where I’m actually lending money to the United States.
Like, tell me if that’s a good thing, because I’m confused. I understand the government has a lot of debt. So that’s kind of what I want to unpack for you. So sorry to be long winded to get there, but how does it relate to, how does the government debt and the Jay Powell interest rates and the Donald Trump tantrums with Jay Powell?
How does it relate to you? Because you actually are lending money to the government, and you probably don’t know it in your portfolios. And it’s not a bad thing. It’s just I want you to know how the game works a little bit because traditionally, like 50 years ago, these bonds were just really no, like I said, low risk, low thrill coupons that pay the Netflix bill.
But, you know, back in the day, it was paying the electricity bill and the coupons, you actually, it was very systematic. You got your check each month and it was really easy and there wasn’t a lot of complexity. This is a totally different game today. So, the question that I often ask is if it’s a totally different game, can we rely on the historical returns of bonds to forecast what some of these futures might look like?
That’s a question I ask myself all the time. And we probably won’t be able to answer that because I think it’s an ongoing question. I’m going to synthesize this conversation into four points. And this is about how I want you to relate to bonds. And now, if you don’t own bonds, your parents probably do, or your grandparents do.
So, stay with me. And also, I want you to navigate the government conversation in conjunction with how it relates to you. So, let’s go through this. There’s four points I want to make. With bonds. First of all, I want to tell you to stay nimble. Bonds zig; stocks zag. And usually, it’s a good thing that they behave that way.
So, the thesis behind bonds is that when stocks throw a tantrum, then everyone kind of, runs to the safety of bonds. Okay. That’s kind of the thesis behind bonds. However, if you look at your portfolio or anybody’s, whether you’re with PAX or anybody’s, I’ve seen this across the board. If you look at 2022, diversification did not win.
Stocks threw a complete tantrum and bonds did too. So, both of, you know that diversification did not works like we’re looking at portfolio saying why do we even own bonds? They didn’t even work. And then if you look at this year, this April 2025, you look at the Liberation Day, again, stocks and bonds, both reacted negatively.
And we call that, you know, highly correlated. And we don’t like it when we like diversification. And so, we’re asking ourselves as asset managers, is diversification lost in bonds? I don’t think so. There’s not enough evidence to say, there needs to be a lot more evidence to make the claim that bonds have completely lost their shine in diversification.
But we’re seeing some problems where they are highly correlated, where we’re not getting that safety feature. So, one of the things I want to tell you is to stay nimble with your portfolio, because there’s a lot of different types of bonds, and some bonds are working better than others. So, they have something called short duration bonds. And I won’t get into duration, but it’s basically a present value, future cash flow calculation.
But the shorter duration has, you know, typically less risk associated with it, higher quality. So, you know, having junk bonds in your portfolio might be the same type of risk of stocks. So, we have to be nimble to say what types of bonds need to be in our portfolio, given the current risk that exists in the marketplace and in our current state of risk.
I’ll talk about that a minute. But it’s also relative to what Jay Powell might do if he lowers rates and that’s anticipated to happen later this year. But so, we look at the rate environment and the risk environment. But I think it’s staying nimble in our bond portfolio making modifications not necessarily to time the market but making adjustments and at least taking inventory, do you have too much junk?
Do I have too much long-term stuff in it? The second thing I want to make sure that you do is just stay on top of it. And I really want you to live life. I don’t want you to carry the burden of your investment portfolio. We carry that for you so you can do the things that you enjoy doing and that you’re good at.
And that’s what an advisor does. A good advisor takes that burden off you. But I’d like for you to stay on top of it just a tiny bit. And let me talk about auctions for a second. I’m not talking about, like, cattle auctions or the fast, you know, fast talking auctioneers. Those are fun.
I’m talking about the bond auctions. In June of 2025, the government, what the government does is auction off bonds, and people buy them, institutions, sovereign nations. And you and I, like I said, they’re in our portfolios. So, what happens if the government has too much debt and they’re going to collapse? Do you think anybody at these auctions would buy the government bonds?
Of course not. And they do hundreds of auctions each year. So, here’s what I’m trying to tell you. Whenever they do an auction. And if nobody’s buying those bonds, we’ve got some problems in our country because everyone collectively sovereign nations, you and I, institutions are saying we don’t trust America. So, what happened in June of 2025? They had an auction.
They had an auction. And did people buy the bonds? Heck yeah. They bought a ton of them. That is very important. Blood pressure, gauge, because everyone was still saying we trust the United States. So, despite what you’re seeing on TV, the auctions tell us that people are not giving up on the United States. And the other thing to know is that the collective wisdom of the markets will demand a certain interest rate, let’s say they say, well, we’ll buy the bonds, but we want 4.84% over the next 30 years.
If they start getting really nervous collectively about the United States ability to pay back those bonds, they, being the collective everyone, is going to say, I’m going to need a lot more than 4.84% to take on that risk. So, my point in that is that if you stay on top of this, what’s going on and you see the auctions and the auctions are demanding a higher interest rate, then we’re starting to see some stress that blood pressure is going up in the United States.
We’re not seeing that right now. And we’ve seen this in other countries, Greece in 2022, you know, what they had to offer the consumer to invest in bonds? They had to offer them like 30% because nobody wanted to touch Greece bonds. It’s just a great blood pressure medicine for the stock, for the collective market. And I know, look, the United States, for every dollar they spend, for every $5 in revenue, they spend a dollar towards just paying interest.
It’s a trainwreck. And it does weaken confidence. But you can measure that blood pressure by the auctions. So, I’m just saying that that we’re the United States, we’re the cleanest shirt a dirty load of laundry. But there’s quantitative and objective ways to measure the health of the country. And the auctions are one way to do it.
I doubt you’ll watch it. I doubt I watch it, all 100 of them. But if you hear about them, at least you’ll know a little bit more. Okay, third, I need to land this plane because I’m running out of time. But lots to talk about in a short period of time. But the third one is this I do have conviction that you need to stay in professional management.
The bond market is complex. It’s massive. There’re all kinds of bonds, high quality junk, international municipals, it’s like the mega Chinese buffet of investing. It’s huge. And so, I like professional management. I’ve flown out to see professional managers on the East Coast and West Coast. I think Pimco being kind of the big stud in the business.
They have 265 portfolio managers in 23 offices around the country. I’m not advocating you be at Pimco. It’s just one of the asset managers we use. But they just do a ton of credit research making sure that companies are solvent. They’re going to pay back stress testing. They might be fallen angels or rising stars.
It’s just insane. The amount of research and the amount of intelligence that exists in the bond market. And I juxtapose that with us as consumers. And I saw a report the other day about how consumers and investors retail, we call retail investors, you and I, independent of institutional professional managers, how we buy bonds, and it was an interesting chart because it showed that there is a material disparity in returns because retail investors, when they’re in the bond market, they chase returns.
So, what they do is they look at their statement and go, man, that bond that I should have owned, did better the last six months. And then they switch. And so, what’s happening for retail investors that don’t use professional managers is they totally fumble it. And the evidence is clear. Just don’t try to chase these bond returns.
It’s an impossible task. And I think professional managers may be a cost associated with using them, but I do have conviction that they’re much better at navigating these hundreds of auctions. That exist in the United States in the corporate market and sovereign market. You know, I heard a lady and she’s at Charles Schwab.
I was on a conference call. Her name’s Kathy Jones, and she said this. She says bonds will continue to do their job, but there will be dislocations. So, my point is don’t do it alone. When those dislocations happen, it’s good to have professional management. Okay, last thing. I just want you and me and all of us to stay calm.
There’re ways to objectively determine if there’s problems in the marketplace. And there’s a lot of headline risk when it comes to the markets. Continue to stay calm. The bond market will have stress. There will be, you know, some fragilities there. Rates are moving. Of course, government mismanagement is real. I just don’t see a reason to panic.
I think we proceed with caution with bonds. We’re trying not to overextend ourselves. Make sure that, you know, your advisor has you in the appropriate portfolio for your risk. There’re two elements of bonds to consider. And this is a little bit of an exit ramp. But let me just make sure you hear this. They use secular trends, which is a long-term approach to bonds and then cyclical.
So, you might hear that, in the short term, we’re very much thinking about the secular trends, holding bonds long term. So again, going back to the original premise, a bond is a loan. And the idea behind is that the company or that country is going to pay you back in 10 years. And it’s my conviction that these companies and countries, if done right, will pay you back in 10 years.
In the interim, the bond market can, you know, go up and down, but that contract still exists between you and the company. If you have a long-term horizon with bonds, I don’t have concerns. I just have concerns about the short term. And sometimes sitting down with a client says, hey, because of this situation, we didn’t get the diversification.
We just have to navigate through those conversations because they’ll happen, and we can’t chase returns. I think my first point staying nimble is just reevaluating with your advisor the construction of your portfolio but not chasing returns. Just continue to stay calm, get the right team around you, the right strategy and of course the right mindset. Okay. So, let’s wrap up.
So that’s a kind of a helicopter overview of bonds, how they work and how it impacts your investment experience. Number one stay nimble adjust when needed. Two, stay on top of it. Just know that there’s sophisticated, yet complex markets that have objective ways to determining if things are collapsing or not. So just be aware of that.
Those auctions. Three, stay in professional management. I don’t believe that bonds are do it yourself project. Not anymore for sure. And then last, stay calm. It’s complex. But it’s only chaos if you don’t have a plan. So, I hope all that helps. There’s a lot of noise out there. I still believe that bonds play a key role.
I believe that going forward, it is important for us to be cautious. And I would also say I still have more conviction, owning good companies. So, if you were to say, would you like stocks or bonds more? You know, I’m an owning company kind of guy. I think that’s the best way to accumulate wealth long term.
But regardless, diversification is still important, and bonds do play a role. So, thank you very much for tuning in today. I hope it was helpful. And remember, you think different when you think long term. Have a great day.
Resources:
https://www.ceicdata.com/en/indicator/greece/long-term-interest-rate
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