Why Buying a Bond is Like Signing a Contract: How “Contract Theory” is Integral to Investing

Contracts are an integral part of life. Many of our daily interactions include either a verbal or written contract. What contract is implied when you buy/sell investments? Oliver Hart, Nobel Prize winner and Economics Professor at Harvard University, explains “contract theory.” He defines what a contract is and how people enter into agreements. Listen to their discussion of bond contracts and other investment agreements that require a contract. Why do people frequently sign contracts that they may not fully understand? They also dive into the legal enforcement of contracts and the problems a contract can cause for both parties. Is your current bank or brokerage firm providing the services you need? Doug shares the story of a client who set up a U.S. investment account through his Israeli bank. He points out the folly of this decision (from an American tax point of view) and where the bank might have gone astray wrong with its financial planning models. To learn more about how to plan a bond ladder, watch this short video, Learn How to Make a Bond Ladder. If you’re not sure your current brokerage firm is giving you the service you need, watch U.S. Brokerage Accounts for Non-U.S. Residents. To follow Professor Oliver Hart visit his website. If you’re not already receiving updates on new episodes, sign up now, and as a special bonus, receive Doug’s free ebook The Retirement Planning Book. Note, Doug is an investment advisor and does not give tax or pension advice.