Bonds suck

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GordonG
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Bonds suck

Post by GordonG » Mon Nov 14, 2016 10:25 am

OK, I know this is a bit of an overstatement, but I'm just not impressed. I bought into a bond fund about a year ago, and to be honest, it looks like I should've just kept my money in a high-yield savings account. Now with the election, it looks like bonds have taken a total dump. What is the current recommended strategy regarding bonds? Just ride it out?

dbr
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Re: Bonds suck

Post by dbr » Mon Nov 14, 2016 10:30 am

GordonG wrote:OK, I know this is a bit of an overstatement, but I'm just not impressed. I bought into a bond fund about a year ago, and to be honest, it looks like I should've just kept my money in a high-yield savings account. Now with the election, it looks like bonds have taken a total dump. What is the current recommended strategy regarding bonds? Just ride it out?
Investment in bonds is for the purpose of damping volatility in a portfolio of stocks and bonds considered over the long run. The point is the risk and return prospect for the portfolio as a whole.

For a long time now CDs and even some high-yield savings accounts are just as effective as appropriate investments in bonds. For purposes of portfolio construction CDs and savings ARE bonds.

The current recommended strategy in bonds is to hold the asset allocation according to your long run plan. If your plan is a short run plan, then investing in bonds might not have been as good a choice as CDs. In any case investments fluctuate in value and I would not take an attitude that it has anything to do with "riding it out." There will be lots of fluctutions in the future as well. Don't forget that fixed dollar investments are eroded by inflation so those investments are also not "safe."

Also, the greatest single danger to good investing is behavioral factors beginning with having too much of an emotional reaction to circumstances. I would be concerned with someone thinking that any particular investment "sucks."
Last edited by dbr on Mon Nov 14, 2016 10:33 am, edited 1 time in total.

Gill
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Re: Bonds suck

Post by Gill » Mon Nov 14, 2016 10:32 am

GordonG wrote:...I'm just not impressed.
You're not impressed? Did you expect to judge your investment on the performance over one year?
Gill

Grt2bOutdoors
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Re: Bonds suck

Post by Grt2bOutdoors » Mon Nov 14, 2016 10:33 am

The recommended strategy is the same as it was before. Develop an Investment Policy Statement, take risk based on your ability, need and willingness. Create, buy and hold a low-cost, diversified portfolio of assets, rebalance and tax loss harvest as required. Obviously, with a thread headline such as you posted, your risk tolerance is not as high as you thought. Perhaps you should revisit your IPS and understand what is was you were trying to accomplish when you originally purchased the bond fund? What has changed between then and now? Have your goals changed? If you aren't able to stomach a 5% loss, then you should not be investing, period. A decline of that size is to be expected, actually you should expect much more than that to occur periodically assuming you hold a balanced portfolio.
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CoAndy
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Re: Bonds suck

Post by CoAndy » Mon Nov 14, 2016 10:34 am

Which bond fund are you investing in? My bond fund (FIJEX) is up 5.72% YTD.

dbr
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Re: Bonds suck

Post by dbr » Mon Nov 14, 2016 10:42 am

The year to date total return of Vanguard total bond is about 5%. More to the point the growth of $10,000 for VBMFX is here: http://performance.morningstar.com/fund ... ture=en_US

The investor can decide if this is unsatisfactory behavior or not.

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HueyLD
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Re: Bonds suck

Post by HueyLD » Mon Nov 14, 2016 10:43 am

GordonG wrote:OK, I know this is a bit of an overstatement, but I'm just not impressed. I bought into a bond fund about a year ago, and to be honest, it looks like I should've just kept my money in a high-yield savings account. Now with the election, it looks like bonds have taken a total dump. What is the current recommended strategy regarding bonds? Just ride it out?
Stocks sucked a lot more in years 2000 and 2009.

You need to develop an IPS to minimize emotional reaction to the market.

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goingup
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Re: Bonds suck

Post by goingup » Mon Nov 14, 2016 10:48 am

Both stocks and bonds fluctuate in value. If fluctuation troubles you a high yield savings account would be a better fit. Or hold a balanced fund where you can't see what's happening to the individual components.

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Re: Bonds suck

Post by Valuethinker » Mon Nov 14, 2016 11:06 am

GordonG wrote:OK, I know this is a bit of an overstatement, but I'm just not impressed. I bought into a bond fund about a year ago, and to be honest, it looks like I should've just kept my money in a high-yield savings account. Now with the election, it looks like bonds have taken a total dump. What is the current recommended strategy regarding bonds? Just ride it out?
Your reinvestment of interest now buys bonds with a higher yield. This is a good thing, no?

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Re: Bonds suck

Post by fanmail » Mon Nov 14, 2016 11:07 am

dbr wrote:The year to date total return of Vanguard total bond is about 5%. More to the point the growth of $10,000 for VBMFX is here: http://performance.morningstar.com/fund ... ture=en_US

The investor can decide if this is unsatisfactory behavior or not.
That YTD is not current. Bonds have fallen sharply in the last week. Should be more like 3% now.

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Re: Bonds suck

Post by GordonG » Mon Nov 14, 2016 11:07 am

CoAndy wrote:Which bond fund are you investing in? My bond fund (FIJEX) is up 5.72% YTD.
AGG. YTD is 4.84%, but Fidelity is saying my total gain/loss is -2.27%. Looking back, I see I first bought on 3/8/16. They were higher than compared to 1/1/16, so I guess that explains it. This account isn't my main retirement account, more of just a "playing around" account. I'm sure this is probably just temporary, but it's annoying to see consistent losses lately. Guess that's the name of the game. I may just go back to a 100% S&P500 plan for this account.

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Re: Bonds suck

Post by Grt2bOutdoors » Mon Nov 14, 2016 11:11 am

GordonG wrote:
CoAndy wrote:Which bond fund are you investing in? My bond fund (FIJEX) is up 5.72% YTD.
AGG. YTD is 4.84%, but Fidelity is saying my total gain/loss is -2.27%. Looking back, I see I first bought on 3/8/16. They were higher than compared to 1/1/16, so I guess that explains it. This account isn't my main retirement account, more of just a "playing around" account. I'm sure this is probably just temporary, but it's annoying to see consistent losses lately. Guess that's the name of the game. I may just go back to a 100% S&P500 plan for this account.
If you're "playing around", then you ought to know that with risk comes the time when returns are less than "peachy". If you think a negative 2.27% return is bad, why don't you see how far the S&P 500 dropped from January 2, 2016 to the market low on February 9th. You may want to re-calibrate your thoughts on what is "bad" and what is "good".
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ogd
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Re: Bonds suck

Post by ogd » Mon Nov 14, 2016 11:44 am

GordonG wrote:Now with the election, it looks like bonds have taken a total dump. What is the current recommended strategy regarding bonds? Just ride it out?
Yes, absolutely, and enjoy the higher yield as a silver lining. It's hard to say yet how much higher because SEC yield is a 30-day average, but the 5 year Treasury yield went up some 0.25% after the election and some 0.46% in the last three months, so I'm estimating a bump of that much.
GordonG wrote:AGG. YTD is 4.84%, but Fidelity is saying my total gain/loss is -2.27%. Looking back, I see I first bought on 3/8/16.
I see the return since then as still a positive 1.7%. It must be that the bulk of your purchases were afterwards, e.g. the peaks in August-September.
GordonG wrote: I'm sure this is probably just temporary, but it's annoying to see consistent losses lately. Guess that's the name of the game. I may just go back to a 100% S&P500 plan for this account.
Look at it from the perspective of yield -- you're saying that you were okay with the fund at 1.85%-ish yield (moreover, when the S&P, your alternative, was a bit cheaper), but no longer okay at 2.25% -ish and you want to switch to the alternative which is now more expensive. This isn't a good way to invest. Behavior like this causes the average investor to underperform the very funds they invest in, significantly. Look it up -- it's called the behavioral gap and you're standing right next to it ready to take the first step.

Also, if you're this skittish more bonds is better. When stocks decline, it's far more brutal and it will feel like the world is collapsing around you, possibly at a time when your job is in jeopardy. You will find rationalizations for switching out and hurt your portfolio much worse, particularly if it seems like this worked a couple of times with small declines like those in bonds.

magneto
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Re: Bonds suck

Post by magneto » Mon Nov 14, 2016 11:55 am

Maybe shorter duration would feel more like home?
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LibertyLover
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Re: Bonds suck

Post by LibertyLover » Mon Nov 14, 2016 11:56 am

Bonds prices go up when interest rates go down and vice versa. The best time for bond performance is before a crash when the Fed lowers rates. The higher interest bond is worth more than bonds at the current rate. When rates go up, investors won't pay full price for a bond with a lower interest rate than the market.

Interest rates have nowhere to go but up this point. Predict future returns from there. Shorter term bonds are less volatile to interest rate fluctuations.

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SpringMan
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Re: Bonds suck

Post by SpringMan » Mon Nov 14, 2016 12:00 pm

One consolation I have is my traditional IRA was 100% bonds, so the tax man will share in my loss.
Best Wishes, SpringMan

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ogd
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Re: Bonds suck

Post by ogd » Mon Nov 14, 2016 12:00 pm

LibertyLover wrote:Interest rates have nowhere to go but up this point. Predict future returns from there.
This is true for interest rates (as in, Fed overnight), but absolutely not for bond yields (as in, longer terms), which is the relevant question. 5 year yields were almost 1% lower back in 2013. You are using those two interchangeably, and you shouldn't.

And we shouldn't be in the business of predicting things the market can vote on. If people thought yields will be higher soon, they would be higher now.

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Re: Bonds suck

Post by livesoft » Mon Nov 14, 2016 12:05 pm

I have seen a couple of performance numbers in this thread purported to be YTD, but they are actually NOT YTD. Instead they are to 10/31/2016.

Something happened in the past 2 weeks to cause all these bond fund threads in case anybody didn't notice. :)

Even the link to M* given by dbr says YTD for VBMFX is 3.19%, but dbr quoted the wrong number in this thread.
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Re: Bonds suck

Post by Index Fan » Mon Nov 14, 2016 12:14 pm

Bonds are doing their job, dampening stock market volatility in a portfolio and responding to interest rate moves, up or down.

Anyone looking at a 1-year return on an investment is not much of a Boglehead.
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Re: Bonds suck

Post by livesoft » Mon Nov 14, 2016 12:20 pm

GordonG wrote: What is the current recommended strategy regarding bonds? Just ride it out?
No, do not just ride it out. One is supposed to buy, hold, and rebalance. So stay the course means that one would probably have to rebalance into funds that have losses. One should be buying bond fund shares nowadays.
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Re: Bonds suck

Post by Call_Me_Op » Mon Nov 14, 2016 12:23 pm

GordonG wrote:OK, I know this is a bit of an overstatement, but I'm just not impressed. I bought into a bond fund about a year ago, and to be honest, it looks like I should've just kept my money in a high-yield savings account. Now with the election, it looks like bonds have taken a total dump. What is the current recommended strategy regarding bonds? Just ride it out?
You should know not to expect much return from bonds when purchased in a low interest-rate environment.
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randomguy
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Re: Bonds suck

Post by randomguy » Mon Nov 14, 2016 2:53 pm

livesoft wrote:
GordonG wrote: What is the current recommended strategy regarding bonds? Just ride it out?
No, do not just ride it out. One is supposed to buy, hold, and rebalance. So stay the course means that one would probably have to rebalance into funds that have losses. One should be buying bond fund shares nowadays.
Rebalancing on 2% changes is a lot more active than what I would do. This is noise. Ignore it.

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Re: Bonds suck

Post by ruralavalon » Mon Nov 14, 2016 4:06 pm

GordonG wrote:OK, I know this is a bit of an overstatement, but I'm just not impressed. I bought into a bond fund about a year ago, and to be honest, it looks like I should've just kept my money in a high-yield savings account. Now with the election, it looks like bonds have taken a total dump. What is the current recommended strategy regarding bonds? Just ride it out?
Yes that is an overstatement. What would impress you, and what bond fund are you using?

Return Year to date --
Vanguard Intermediate-term Bond Index Fund is up 4.24%
Vanguard Intermediate-term Investment Grade Bond Fund is up 4.81%

Return Last 12 months --
Vanguard Intermediate-term Bond Index Fund is up 4.49%
Vanguard Intermediate-term Investment Grade Bond Fund is up 5.09%

Stick with your plan, don't make changes based on a single year. Look at the long-term.
Last edited by ruralavalon on Mon Nov 14, 2016 4:43 pm, edited 1 time in total.
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ruralavalon
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Re: Bonds suck

Post by ruralavalon » Mon Nov 14, 2016 4:15 pm

GordonG wrote:
CoAndy wrote:Which bond fund are you investing in? My bond fund (FIJEX) is up 5.72% YTD.
AGG. YTD is 4.84%, but Fidelity is saying my total gain/loss is -2.27%. Looking back, I see I first bought on 3/8/16. They were higher than compared to 1/1/16, so I guess that explains it. This account isn't my main retirement account, more of just a "playing around" account. I'm sure this is probably just temporary, but it's annoying to see consistent losses lately. Guess that's the name of the game. I may just go back to a 100% S&P500 plan for this account.
Don't make a decision based on just 8 months of performance. It is "just temporary" as you said, and this cannot be called "consistent losses". Think long-term, and ignore short-term fluctuations, they mean almost nothing.
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livesoft
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Re: Bonds suck

Post by livesoft » Mon Nov 14, 2016 4:20 pm

randomguy wrote:
livesoft wrote:
GordonG wrote: What is the current recommended strategy regarding bonds? Just ride it out?
No, do not just ride it out. One is supposed to buy, hold, and rebalance. So stay the course means that one would probably have to rebalance into funds that have losses. One should be buying bond fund shares nowadays.
Rebalancing on 2% changes is a lot more active than what I would do. This is noise. Ignore it.
Accumulators sometimes buy the fund that has dropped with their contributions in order to rebalance on-the-fly. 2% changes in bond funds are not to be ignored. But VBTLX (total US bond) is actually down from its earlier highwater mark this past summer more than 3%.
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Re: Bonds suck

Post by jjface » Mon Nov 14, 2016 4:34 pm

GordonG wrote:
CoAndy wrote:Which bond fund are you investing in? My bond fund (FIJEX) is up 5.72% YTD.
AGG. YTD is 4.84%, but Fidelity is saying my total gain/loss is -2.27%. Looking back, I see I first bought on 3/8/16. They were higher than compared to 1/1/16, so I guess that explains it. This account isn't my main retirement account, more of just a "playing around" account. I'm sure this is probably just temporary, but it's annoying to see consistent losses lately. Guess that's the name of the game. I may just go back to a 100% S&P500 plan for this account.
No idea what is invovled in Fidelity's calculation but I would ignore it as it does not make sense. AGG was pretty flat from 3/8/16 but that doesn't include dividends. I believe total bond was up 1.5% over that period. Annualized that is over 2.2%. So not too bad. Maybe fidelity have it back to front and it should be +2.27%!

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Re: Bonds suck

Post by betablocker » Mon Nov 14, 2016 5:50 pm

Bonds are there for when your stock portfolio crashes. If you buy high yield or more corporate debt you are buying assets more correlated to corporate performance. They will tend to go down when equities go down. Stick with safe treasuries. Good news is your equities went up, right? This is the scenario in which bonds go down but one day you'll think a low single digit loss would be enviable. See 2008/9.

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Re: Bonds suck

Post by dbr » Mon Nov 14, 2016 7:00 pm

fanmail wrote:
dbr wrote:The year to date total return of Vanguard total bond is about 5%. More to the point the growth of $10,000 for VBMFX is here: http://performance.morningstar.com/fund ... ture=en_US

The investor can decide if this is unsatisfactory behavior or not.
That YTD is not current. Bonds have fallen sharply in the last week. Should be more like 3% now.
Yep, good reminder and that is correct, and the investor can still decide if it is unsatisfactory to hold bonds. If a person does not want this kind of fluctuation there are alternatives.

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Re: Bonds suck

Post by EyeYield » Mon Nov 14, 2016 8:27 pm

GordonG wrote:
CoAndy wrote:Which bond fund are you investing in? My bond fund (FIJEX) is up 5.72% YTD.
AGG. YTD is 4.84%, but Fidelity is saying my total gain/loss is -2.27%. Looking back, I see I first bought on 3/8/16. They were higher than compared to 1/1/16, so I guess that explains it. This account isn't my main retirement account, more of just a "playing around" account. I'm sure this is probably just temporary, but it's annoying to see consistent losses lately. Guess that's the name of the game. I may just go back to a 100% S&P500 plan for this account.
On 3/8/16 AGG closed at 109.62

After hours on 11/14/16 (17:24) AGG is trading at 111.78

Don't blink. This could be just the result of one outlier trade, but it will make you feel better - at least temporarily.
http://www.nasdaq.com/symbol/agg/after-hours

Eight months is too short a time to worry about stock and bond prices.

Stay the course with your IPS.
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Re: Bonds suck

Post by tennisplyr » Tue Nov 15, 2016 8:26 am

Did anyone the long view, oh yeah, that's it.
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RAchip
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Re: Bonds suck

Post by RAchip » Tue Nov 15, 2016 8:44 am

Interest rates will start to really ramp up sooner or later. Bonds will be crushed. Investing in bonds with interest rates at or near unprecedented lows seems foolish to me.

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Re: Bonds suck

Post by ruralavalon » Tue Nov 15, 2016 12:49 pm

RAchip wrote:Interest rates will start to really ramp up sooner or later. Bonds will be crushed. Investing in bonds with interest rates at or near unprecedented lows seems foolish to me.
"Really ramp up" is far from certain, it may be a slow increase. Likewise "crushed" seems unlikely.

You do get a better interest rate return, which in the long-term is good. I am investing for the long-term.
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Re: Bonds suck

Post by Artisan » Tue Nov 15, 2016 1:47 pm

The fact that the 9 "month" period you were invested in the fund didn't yield better returns means little.

If it fact you expected it to do much better then it did, to me that sounds more like speculation then investing.

Mr. Bogle says he looks at returns in "decade long periods".

Stay the course.

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Re: Bonds suck

Post by nisiprius » Tue Nov 15, 2016 1:52 pm

RAchip wrote:Interest rates will start to really ramp up sooner or later. Bonds will be crushed. Investing in bonds with interest rates at or near unprecedented lows seems foolish to me.
1) "Crushed," you say. How much is that in dollars? What does it mean for bonds to be "crushed?" When bonds get "crushed," what exactly will happen--not to long-term Treasuries, but to the Vanguard Total Bond Market Index Fund?

2) Do you mean "crushed" like an egg or "crushed" like a pillow? If a pillow, how long does it take to puff up again when you stop crushing it?

3) What do you think of this posting in this forum:
Interest rates can only go up, why go intermediate in bonds?
I see the total bond fund and intermediate treasuries recommended a lot on here. I know people don't like to market time but interest rates are currently zero and whether rates rise in 2010 or 2011 or 2015, eventually they will rise and intermediate term bonds will get hit.

So isn't it wise to go short in this environment where rates can only go up?
That was posted on July 19th, 2009. Since then, the blue line is what actually happened to my Total Bond, and orange is what would have happened if I'd switched to Vanguard Short-Term Bond Index Fund.

The arrow shows the date of publication in the Wall Street Journal of an article by Jeremy Schwartz and Jeremy Siegel, entitled "The Great American Bond Bubble," warning of what would happen if the yield on the 10-year Treasury rose, and it actually did rise within the range they warned about.

Source

Image

If someone thinks they can improve on the performance of the blue line by small amounts of judicious market timing on really bad days, I won't argue, but generally speaking I feel perfectly happy to have stubbornly stayed the course in intermediate and ignored seven years of advice to shorten up duration. At this point I could take a pretty good knock and still be ahead of where I'd been if I'd shortened up.
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Re: Bonds suck

Post by Morik » Tue Nov 15, 2016 5:27 pm

The story I tell myself is this: no one knows what bonds are actually going to do in the short term.
Sure you can say "sometime over the next few decades rates are almost certainly going to go up".
I don't think anyone can accurately say "you must go to short bonds right now bond rates are rising IMMINENTLY!"

By the time anyone can actually tell that rates are rising imminently, the market will have already taken that data into account.

In other words: I have seen no evidence that anyone can reliably predict what will happen in the bond market over the short or medium term.
I stick to my IPS: Keep bond fund duration <= time horizon, keep bond credit worthiness high, grab all the yield I can get within those guidelines. For time horizons that aren't super short, that generally means intermediate or long term bonds.

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Re: Bonds suck

Post by dollarsaver » Tue Nov 15, 2016 5:50 pm

Valuethinker wrote:
GordonG wrote:OK, I know this is a bit of an overstatement, but I'm just not impressed. I bought into a bond fund about a year ago, and to be honest, it looks like I should've just kept my money in a high-yield savings account. Now with the election, it looks like bonds have taken a total dump. What is the current recommended strategy regarding bonds? Just ride it out?
Your reinvestment of interest now buys bonds with a higher yield. This is a good thing, no?
Just added 55k to TBM yesterday for rebalancing. Great price and served the purpose. Simply understand the purpose of bonds (CD's, MM, etc) in an overall portfolio. Plenty to read on this.

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Re: Bonds suck

Post by GordonG » Fri Nov 18, 2016 11:03 am

Thanks for the tips, all. I guess I was just disappointed lately because I've seen losses due to the bonds when that money would've been growing (albeit, slowly) had I put it in a high-yield savings account. This isn't my retirement account; it's just sort of a medium-term place to stash money. It will be interesting to see how things change in the coming years due to the country's new leadership.

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Re: Bonds suck

Post by ruralavalon » Fri Nov 18, 2016 11:19 am

Morik wrote:The story I tell myself is this: no one knows what bonds are actually going to do in the short term.
Sure you can say "sometime over the next few decades rates are almost certainly going to go up".
I don't think anyone can accurately say "you must go to short bonds right now bond rates are rising IMMINENTLY!"

By the time anyone can actually tell that rates are rising imminently, the market will have already taken that data into account.

In other words: I have seen no evidence that anyone can reliably predict what will happen in the bond market over the short or medium term.
I stick to my IPS: Keep bond fund duration <= time horizon, keep bond credit worthiness high, grab all the yield I can get within those guidelines. For time horizons that aren't super short, that generally means intermediate or long term bonds.
People have been predicting an imminent increase in interest rates, and a corresponding drop in bond values, since early 2009.
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Re: Bonds suck

Post by michaeljc70 » Fri Nov 18, 2016 11:27 am

Valuethinker wrote:
GordonG wrote:OK, I know this is a bit of an overstatement, but I'm just not impressed. I bought into a bond fund about a year ago, and to be honest, it looks like I should've just kept my money in a high-yield savings account. Now with the election, it looks like bonds have taken a total dump. What is the current recommended strategy regarding bonds? Just ride it out?
Your reinvestment of interest now buys bonds with a higher yield. This is a good thing, no?
I hear this a fair amount. I think it is not a great argument. So if a stock has a 3% yield and drops 20%, it is great because I get to reinvest at a lower price? With yields so low on bonds, if you have $500k in bonds and get to invest the dividends of $10k to get a higher rate that is pretty small.

As others said, the important thing is to stick to your plan and ignore returns over the short term.

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Re: Bonds suck

Post by Quark » Fri Nov 18, 2016 11:59 am

michaeljc70 wrote:
Valuethinker wrote:
GordonG wrote:OK, I know this is a bit of an overstatement, but I'm just not impressed. I bought into a bond fund about a year ago, and to be honest, it looks like I should've just kept my money in a high-yield savings account. Now with the election, it looks like bonds have taken a total dump. What is the current recommended strategy regarding bonds? Just ride it out?
Your reinvestment of interest now buys bonds with a higher yield. This is a good thing, no?
I hear this a fair amount. I think it is not a great argument. So if a stock has a 3% yield and drops 20%, it is great because I get to reinvest at a lower price? With yields so low on bonds, if you have $500k in bonds and get to invest the dividends of $10k to get a higher rate that is pretty small.

As others said, the important thing is to stick to your plan and ignore returns over the short term.
There's a major difference between stocks and bonds. Bonds come with a guaranteed coupon, stock do not. It's quite possible for conditions, such as a bad economy, to cause a company's earning power to decrease, leading to both lower prices and lower dividends. Bonds (at least, treasuries) have guaranteed coupons, so in a bad economy they'll keep paying their stated interest rates.

If you're accumulating, then lower stock prices are a good thing if they result in higher yields.

http://www.efficientfrontier.com/ef/999/duration.htm is a nice take on this general principle.

knowsnothing
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Joined: Sat Feb 14, 2015 10:12 am

Re: Bonds suck

Post by knowsnothing » Fri Nov 18, 2016 12:05 pm

A while ago I basically decided I would stop looking at my different investment classes. The less I look at them the less they tend to "suck" :beer

dbr
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Re: Bonds suck

Post by dbr » Fri Nov 18, 2016 12:16 pm

Quark wrote: If you're accumulating, then lower stock prices are a good thing if they result in higher yields.
No, if you are accumulating then lower stock prices are a good thing if the average long term return is not affected and a lower price means a favorable sequence of returns while one is accumulating. If a lower stock price is a harbinger of a lower average long term return it is not good at all.

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grap0013
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Re: Bonds suck

Post by grap0013 » Fri Nov 18, 2016 12:24 pm

GordonG wrote:Thanks for the tips, all. I guess I was just disappointed lately because I've seen losses due to the bonds when that money would've been growing (albeit, slowly) had I put it in a high-yield savings account. This isn't my retirement account; it's just sort of a medium-term place to stash money. It will be interesting to see how things change in the coming years due to the country's new leadership.
A 2.5% drop does not sound like much but when treasury yields are only 1.3% it can take some time to get back even.

OP, that's why one should never be 100% in anything if your needs are short to medium term.

Had you done a 30:70 stock:bond mix of my favorite funds from 11/6/16 thru yesterday 11/17/16:

15% VSIAX
7.5% SFILX
7.5% SFENX
70% VFIUX

You'd be down only -0.6% vs. the 100% bond fund of VFIUX down -2.6%. Stocks reduced the bond drawdown.
There are no guarantees, only probabilities.

LateStarter1975
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Re: Bonds suck

Post by LateStarter1975 » Fri Nov 18, 2016 12:27 pm

knowsnothing wrote:A while ago I basically decided I would stop looking at my different investment classes. The less I look at them the less they tend to "suck" :beer
This!
Debt is dangerous...simple is beautiful

Levett
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Location: upper Midwest

Re: Bonds suck

Post by Levett » Fri Nov 18, 2016 12:30 pm


Quark
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Re: Bonds suck

Post by Quark » Fri Nov 18, 2016 1:46 pm

dbr wrote:
Quark wrote: If you're accumulating, then lower stock prices are a good thing if they result in higher yields.
No, if you are accumulating then lower stock prices are a good thing if the average long term return is not affected and a lower price means a favorable sequence of returns while one is accumulating. If a lower stock price is a harbinger of a lower average long term return it is not good at all.
I agree with you (other than the 'no').

All things being equal, a higher yield from a lower price is good. If the price is lower because long-term earnings prospects are damaged, then it's a bad thing. The later is why the all too common refrain - accumulators should pray for a crash - is misguided. I probably should have been more explicit.

See the Bill Bernstein article.

wilson08
Posts: 362
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Re: Bonds suck

Post by wilson08 » Fri Nov 18, 2016 2:21 pm

After I started investing in 1992 I wondered between
the booming stock market years of 1995-2000 why would
anyone invest in bonds they are worthless (At the time
I had never experienced a bear market). In 2001-2002 and
2008 reality came crashing in I loved bonds, those
times could come again. It pays to cover all your bases.

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