Investments with risk in between bonds and equities

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Jimmy21
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Investments with risk in between bonds and equities

Post by Jimmy21 » Fri Apr 05, 2019 12:41 pm

Sorry if this is a newb question. Im somewhat new to this. I have my money split in to basically two groups. Money that I could potentially want soonish. I have it in an ally bank account (2.2%) and 1 year cds (2.7%) and other money that i dont want to touch for years. Vanguard roth iras with target retirement funds and a vanguard brokerage account with an equities index.

Is there anything with risk/return in between these? Something that might average 5% but have risk in between bonds and equities? Is the only option funds that are a mix of bonds and equities?

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Wiggums
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Re: Investments with risk in between bonds and equities

Post by Wiggums » Fri Apr 05, 2019 12:43 pm

What is your AA?

What funds do you have now?

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nisiprius
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Re: Investments with risk in between bonds and equities

Post by nisiprius » Fri Apr 05, 2019 12:49 pm

There is nothing wrong with getting risk in between bonds and equities by using a mixture of bonds and equities. In fact, the burden of proof is on those who assert that the "in-between" asset classes have any advantages at over simply adjusting the mixture of bonds and equities.

So-called "high yield" (i.e. not investment-grade) bonds have characteristics that are in between, but closer to bonds.

Preferred stock has a characteristic that is in between, but closer to stocks. There are other issues due to it now being a specialized instrument, i.e. most companies don't issue it, and those that do have special reasons.

Some people argue that some categories of stock have a somewhat bond-like character--notably dividend stocks and REITs--but I believe the effect is too subtle and unreliable to matter much.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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jhfenton
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Re: Investments with risk in between bonds and equities

Post by jhfenton » Fri Apr 05, 2019 1:20 pm

Jimmy21 wrote:
Fri Apr 05, 2019 12:41 pm
Sorry if this is a newb question. Im somewhat new to this. I have my money split in to basically two groups. Money that I could potentially want soonish. I have it in an ally bank account (2.2%) and 1 year cds (2.7%) and other money that i dont want to touch for years. Vanguard roth iras with target retirement funds and a vanguard brokerage account with an equities index.

Is there anything with risk/return in between these? Something that might average 5% but have risk in between bonds and equities? Is the only option funds that are a mix of bonds and equities?
The only "alternative" investment that I own is the Vanguard Emerging Markets Bond Admiral Shares (VEGBX).

Code: Select all

Name				Ticker	VEGBX	VEMAX	VBTLX	VTABX	VTSAX	VTIAX	Ann Return	Ann Std Dev
Vg EM Bond Adm			VEGBX	-	0.39	0.24	0.18	0.22	0.37	6.26%		6.50%
Vg EM Stock Idx Adm		VEMAX	0.39	-	-0.22	-0.15	0.76	0.91	1.00%		16.16%
Vg Tot Bond Mkt Idx Adm		VBTLX	0.24	-0.22	-	0.61	-0.31	-0.28	1.89%		3.19%
Vg Tot Intl Bd Idx Adm		VTABX	0.18	-0.15	0.61	-	-0.18	-0.21	4.21%		2.10%
Vg Tot Stock Mkt Idx Adm	VTSAX	0.22	0.76	-0.31	-0.18	-	0.85	8.83%		15.64%
Vg Tot Intl Stock Idx Adm	VTIAX	0.37	0.91	-0.28	-0.21	0.85	-	-0.75%		13.79%
Vg High-Yield Corp Adm		VWEAX	0.44	0.37	0.13	-0.02	0.39	0.43	4.00%		5.56%
It's only 16 months old, but it appears to be only loosely correlated with everything. It held up well during the EM stock sell off last year, dropping a few percent while EM tanked. It definitely has more risk than U.S. or developed market government or corporate bonds, but it also offers a greater return.

On the flip side, you could make the case that it's correlation numbers look a lot like a high-yield fund. (But it's not particularly well-correlated to that either.)

If I wanted to add a high-yield fund, I'd opt for one of the fallen angel bond funds (FALN or ANGL) that try to take advantage the investment grade cliff. That seems to be a genuinely-exploitable anomaly.

Edited to add: My table data is from portfoliovisualizer.com for the period from 12/6/17 to date.
Last edited by jhfenton on Fri Apr 05, 2019 1:46 pm, edited 1 time in total.

rasta
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Re: Investments with risk in between bonds and equities

Post by rasta » Fri Apr 05, 2019 1:43 pm

high yield

VWEHX at Vanguard

some brokers have SHYG and USHY etfs which are commission free.

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Phineas J. Whoopee
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Re: Investments with risk in between bonds and equities

Post by Phineas J. Whoopee » Fri Apr 05, 2019 1:55 pm

I concur with nisiprius. Think of it as the risk of your portfolio as a whole, rather than one single fund.

To get a portfolio with risk between bonds and equities buy some of each, in any proportion you like, preferably using low-cost index funds.

If that's a do-it-yourself step further than you want to go you could consider Vanguard's LifeStrategy funds, or their Target Retirement funds, both of which include bonds and stocks. You make a decision about which proportions you want, and whether you want the proportions to become more conservative over time, and let Vanguard get their hands dirty mixing them for you.

Vanguard and others provide some guidance on what to choose. You can also read our wiki article Asset allocation.

PJW

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Jimmy21
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Re: Investments with risk in between bonds and equities

Post by Jimmy21 » Fri Apr 05, 2019 2:19 pm

Wiggums wrote:
Fri Apr 05, 2019 12:43 pm
What is your AA?

What funds do you have now?
I dont have a simple answer for the AA. Short answer, im just getting started and have yet to allocate most of my money.


Long answer: Im 35 and married with 2 kids. I thought i was too broke to invest for way too long. Saved up, bought a house. Moved (turned house to rental), saved up and spend every dime i had on another house. I was never too worried about it because i have a retirement fund through work with $10 per hour going in, but i have no choice of what its invested in. This last year, i have worked massive overtime and finanally decided to take this seriously with the extra. I finally started a Roth for my wife and i. I will be maxing both out.

180k in retirement annuity from work. No choice where its invested.
25k in emergency fund (2.2% savings)
Both Roths are in VFFVX
3k in VBINX taxable account (i might as well have picked that fund off a dart board, should i move it)


Im getting all my spare money together now, but i dont think I'll have much left after i max out the roths. It should put them about 23k

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jhfenton
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Re: Investments with risk in between bonds and equities

Post by jhfenton » Fri Apr 05, 2019 2:20 pm

Phineas J. Whoopee wrote:
Fri Apr 05, 2019 1:55 pm
I concur with nisiprius. Think of it as the risk of your portfolio as a whole, rather than one single fund.

To get a portfolio with risk between bonds and equities buy some of each, in any proportion you like, preferably using low-cost index funds.
That is certainly all that one needs. To add anything beyond that, I want some evidence that there is a source of return not reflected in the standard asset classes.

In the case of emerging market bonds, they are bonds, and they are international bonds, so they not really a separate asset class. I just use them instead of developed market international bonds because they seem likely to provide more diversification. (They are also largely from a different mix of countries than most emerging market equities funds.)

As I mentioned, I don't consider high yield bonds broadly to be compelling. But I do find the case for fallen angels to be compelling, and I will probably invest some money there when I have room. The investment grade cliff doesn't seem likely to go away anytime soon, and there is solid evidence that the anomaly is exploitable.

Beyond that, you're into alternatives that I either don't find compelling at all or, frequently, don't find compelling at the price they are available to me.

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Jimmy21
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Re: Investments with risk in between bonds and equities

Post by Jimmy21 » Fri Apr 05, 2019 2:24 pm

FYI, this thread was to make sure i understood everything, not actually looking at options for money i have right now.

dbr
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Re: Investments with risk in between bonds and equities

Post by dbr » Fri Apr 05, 2019 2:26 pm

You realize that target retirement funds are funds of funds that hold stock funds and bond funds? You are already invested in what you are asking about. The allocation to each depends on what "Retirement Year" label you choose.

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Jimmy21
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Re: Investments with risk in between bonds and equities

Post by Jimmy21 » Fri Apr 05, 2019 2:35 pm

dbr wrote:
Fri Apr 05, 2019 2:26 pm
You realize that target retirement funds are funds of funds that hold stock funds and bond funds? You are already invested in what you are asking about. The allocation to each depends on what "Retirement Year" label you choose.
Yes. Well aware. Fund im in is 90% stocks and 10% bonds

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Re: Investments with risk in between bonds and equities

Post by dbr » Fri Apr 05, 2019 3:07 pm

To provide a more general answer to understanding investments in this context it might be Larry Swedroe's book on alternative investments would be helpful: https://www.amazon.com/Only-Guide-Alter ... oks&sr=1-5 This might sort out what could be meant other than a blend of stocks and bonds. I don't think an obvious recommendation comes to mind for this thread. As a general answer people who want some return and not in stocks and bonds probably choose directly owning rental real estate. Whether the risk in those investments is between that of stocks and that of bonds is debatable.

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