Investor YOLOs Into Bond Market, Turns $26,500 Into $1,000,000

Today’s story comes from Classics: An Investor’s Anthology, by Charles Ellis. This is a collection of articles from the likes of T. Rowe Price, Jesse Livermore, and Warren Buffett.

One story from the book is written by an investor who purchased $26,500 worth of tax-free, zero coupon municipal bonds.

This was 1983, and the bonds didn’t mature until January 1st, 2014.

Because they didn’t mature for another 31 years, the investor was able to buy $1,000 bonds for $26.25 each. That’s a $973.75 guaranteed profit (sans inflation).

The investor then loaded up on $1,000 bonds, and waited.

For $26,500 (including broker commissions), the investor was able to buy $1 million of future returns. And, because these were municipal bonds, legally pay no taxes on that profit.

But What About Inflation?

A quick trip over to https://www.in2013dollars.com/ shows this:

$26,500 in 1983 is equivalent in purchasing power to about $62,986.99 in 2014, an increase of $36,486.99 over 31 years. The dollar had an average inflation rate of 2.83% per year between…