Am I Just Lucky and Taking Too much risk?

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invest2bfree
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Am I Just Lucky and Taking Too much risk?

Post by invest2bfree » Sun Jan 12, 2020 10:11 am

Please look through my situation and give me advice-
Male 45 years, single earner, kids 9,6,6. Not a secure job but make around 200k a year.

I just have a aversion to the stock market and does not have stomach for the stock market.
I was in cash for 2 years between 2016 and 2018.
Starting Portfolio-
Regular Account: $1.4 Million cash ( Company I was In, Got Bought Out)
Retirement 401k: 900k (850k cash, 50k s&p index)

In 2018 slowly started buying ATT\VZ\COMCAST 30 year bonds @ 85cents to the dollar. They were yielding 5% was planning to hold them till they mature.By 2019 November find all the bonds trading 110cents on the dollar. I was not expecting this and I sold them all and made 30%.


Now after paying taxes
Regular Account: $1.9 Million cash
Retirement 401k: $1.15 M(1.1M cash, 50k s&p index)

Now purchased EMLC bonds trading at $33.40, they yield 6%. They are Emerging Market Local Currency bonds so only risk I take is currency.
Iam betting against the dollar but will make about $15K a month in interest payments.

MikeG62
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Re: Am I Just Lucky and Taking Too much risk?

Post by MikeG62 » Sun Jan 12, 2020 10:34 am

invest2bfree wrote:
Sun Jan 12, 2020 10:11 am
Please look through my situation and give me advice-

...Now purchased EMLC bonds trading at $33.40, they yield 6%. They are Emerging Market Local Currency bonds so only risk I take is currency.
Iam betting against the dollar but will make about $15K a month in interest payments.
Not true. You take credit risk as well.

Note that only 46% of the bond held in this ETF are investment grade. 20% are non-investment grade (junk) and 34% are not rated at all. So more than half of the bonds are non-investment grade. There is a reason the yield is north of 5% currently.

If you expect $15K per month in interest, then by my math it appears you have 100% of your financial assets in this ETF. You are the opposite of being diversified. Are you taking too much risk, I would say so.
Last edited by MikeG62 on Sun Jan 12, 2020 10:39 am, edited 1 time in total.
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Nowizard
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Re: Am I Just Lucky and Taking Too much risk?

Post by Nowizard » Sun Jan 12, 2020 10:35 am

You have answered part of your question by posing it. Yes, you are taking more risk than required. If "luck" is defined as something positive that occurs that defies common prediction or expectation, then you are also lucky. That means nothing more than few would predict you being able to sustain the type of occurrences previously experienced. Your assets are substantial, but we do not know your expenses, long-term plans, felt need for additional assets, etc. I don't know about the bond investments or the amount but assume they are riskier than most would recommend due to the yield. All of that being said, there are many of us who have continued to learn about finances as we continue to invest and circumstances change. Looking back at our investing history, I felt I was making good decisions early on but now realize they were very risky and would not have been predicted to turn out the way they did. In other words "lucky." This eventually resulted in changes toward more conventional investing and the current expectation that investment returns will be based on statistical data rather than intuition or luck. Your approach going forward will interact heavily with your personality, in my opinion. Best of "luck!" :happy

Tim

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invest2bfree
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Re: Am I Just Lucky and Taking Too much risk?

Post by invest2bfree » Sun Jan 12, 2020 10:42 am

Not true. You take credit risk as well.

Note that only 46% of the bond held in this ETF are investment grade. 20% are non-investment grade (junk) and 34% are not rated at all. So more than half of the bonds are non-investment grade. There is a reason the yield is north of 5% currently.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Yes you are right about the rating but these are Government bonds issued by these sovereigns in their local currency.

Mexico and Brazil issuing bonds in PESO and REAL, I don't how they can have credit risk since these governments can print money.

LoveTheBogle
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Re: Am I Just Lucky and Taking Too much risk?

Post by LoveTheBogle » Sun Jan 12, 2020 10:45 am

invest2bfree wrote:
Sun Jan 12, 2020 10:42 am
Not true. You take credit risk as well.

Note that only 46% of the bond held in this ETF are investment grade. 20% are non-investment grade (junk) and 34% are not rated at all. So more than half of the bonds are non-investment grade. There is a reason the yield is north of 5% currently.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Yes you are right about the rating but these are Government bonds issued by these sovereigns in their local currency.

Mexico and Brazil issuing bonds in PESO and REAL, I don't how they can have credit risk since these governments can print money.
Governments, including the US have credit risk. US may be near zero but it is not zero. Mexico and Brazil and way greater than 0.

Leemiller
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Re: Am I Just Lucky and Taking Too much risk?

Post by Leemiller » Sun Jan 12, 2020 11:29 am

Many countries have defaulted on their sovereign debt. Of course you are getting a higher rate for the credit risk. Why do you think those bonds pay so much higher than a US backed bond fund? Credit risk. Your portfolio is risky, including inflation risk for your cash. I think you need professional advice, since you’ve talked yourself into this allocation.

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RickBoglehead
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Re: Am I Just Lucky and Taking Too much risk?

Post by RickBoglehead » Sun Jan 12, 2020 11:31 am

You should buy bond funds, not bonds. You are taking large risk.
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Re: Am I Just Lucky and Taking Too much risk?

Post by Luckywon » Sun Jan 12, 2020 11:36 am

invest2bfree wrote:
Sun Jan 12, 2020 10:11 am

In 2018 slowly started buying ATT\VZ\COMCAST 30 year bonds @ 85cents to the dollar. They were yielding 5% was planning to hold them till they mature.By 2019 November find all the bonds trading 110cents on the dollar. I was not expecting this and I sold them all and made 30%.
Meh. If you just put your money in VTI in 2019 you would also have made 30%.

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Re: Am I Just Lucky and Taking Too much risk?

Post by KyleAAA » Sun Jan 12, 2020 11:44 am

You are taking on far more risk than if you just invested in stocks.

Goal33
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Re: Am I Just Lucky and Taking Too much risk?

Post by Goal33 » Sun Jan 12, 2020 11:53 am

Seems like you are taking a lot of risk and just depending on luck, yes. What for?
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HomeStretch
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Re: Am I Just Lucky and Taking Too much risk?

Post by HomeStretch » Sun Jan 12, 2020 11:56 am

You don’t say how much you investing in these bonds. Are you putting your whole $3 million you marked as “cash” into these bonds? Seems risky. Consider a diversified bond fund or stock fund instead.

IMO the bigger risk is keeping almost all your portfolio in cash. Consider 20-30% in a low-cost diversified stock fund to help your portfolio keep up with inflation.

Wanderingwheelz
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Re: Am I Just Lucky and Taking Too much risk?

Post by Wanderingwheelz » Sun Jan 12, 2020 11:59 am

Luckywon wrote:
Sun Jan 12, 2020 11:36 am
invest2bfree wrote:
Sun Jan 12, 2020 10:11 am

In 2018 slowly started buying ATT\VZ\COMCAST 30 year bonds @ 85cents to the dollar. They were yielding 5% was planning to hold them till they mature.By 2019 November find all the bonds trading 110cents on the dollar. I was not expecting this and I sold them all and made 30%.
Meh. If you just put your money in VTI in 2019 you would also have made 30%.
That was my thinking exactly. Why take such a complicated path to achieving similar risk adjusted returns? Some people don’t believe in KISS, but in my experience it’s the default until proven otherwise.

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Re: Am I Just Lucky and Taking Too much risk?

Post by Grt2bOutdoors » Sun Jan 12, 2020 12:01 pm

invest2bfree wrote:
Sun Jan 12, 2020 10:42 am
Not true. You take credit risk as well.

Note that only 46% of the bond held in this ETF are investment grade. 20% are non-investment grade (junk) and 34% are not rated at all. So more than half of the bonds are non-investment grade. There is a reason the yield is north of 5% currently.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Yes you are right about the rating but these are Government bonds issued by these sovereigns in their local currency.

Mexico and Brazil issuing bonds in PESO and REAL, I don't how they can have credit risk since these governments can print money.
Look to Argentina as an example of what can happen with Emerging Market Sovereign bonds. There is a difference between developed countries and emerging markets countries. A developed country usually has respect for international rule of law, emerging markets will tell you to ..........when things get difficult at home and they are unable to make payments. Argentina is well-known for this and yet greedy people continue to speculate that they have changed their ways. I had a relative lose a significant amount of their assets in "government bonds" - they were yielding 9% when his home countries bonds were yielding 4%, the chap that sold him these bonds told him they were safe because they were issued by the "government", I told him to get out of them as soon as possible even if he had to take a 25% haircut. Problem was, everyone was running for the exit at the same time, the value of those government bonds traded down to 30 cents on the dollar, then the government outright defaulted. That is what could happen to you, fear of contagion spreads fast in emerging markets. It took my relative years to get payment, he lost 75% of his investment. After that, he wanted nothing to do with government bonds. The chap who sold him the bonds, lost all of his family's money (also invested in these bonds), lost his job and mind.

You may want to read up on Brazil some more: https://www2.deloitte.com/us/en/insight ... tlook.html

You may want to read up on Mexico some more: https://www2.deloitte.com/us/en/insight ... tlook.html

There are other sources of information as well.

If you must speculate, do it with money you CAN afford to lose. I'd invest with no more than 2% of my total assets in any one single country emerging market bond. That's it! Lots easier to recoup from a 2% loss than a 50 or 75% loss of total assets, not including opportunity costs.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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whodidntante
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Re: Am I Just Lucky and Taking Too much risk?

Post by whodidntante » Sun Jan 12, 2020 12:02 pm

Luckywon wrote:
Sun Jan 12, 2020 11:36 am
invest2bfree wrote:
Sun Jan 12, 2020 10:11 am

In 2018 slowly started buying ATT\VZ\COMCAST 30 year bonds @ 85cents to the dollar. They were yielding 5% was planning to hold them till they mature.By 2019 November find all the bonds trading 110cents on the dollar. I was not expecting this and I sold them all and made 30%.
Meh. If you just put your money in VTI in 2019 you would also have made 30%.
Move the starting period back one month and recalculate. ;)

GrowthSeeker
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Re: Am I Just Lucky and Taking Too much risk?

Post by GrowthSeeker » Sun Jan 12, 2020 12:06 pm

Luckywon wrote:
Sun Jan 12, 2020 11:36 am
invest2bfree wrote:
Sun Jan 12, 2020 10:11 am

In 2018 slowly started buying ATT\VZ\COMCAST 30 year bonds @ 85cents to the dollar. They were yielding 5% was planning to hold them till they mature.By 2019 November find all the bonds trading 110cents on the dollar. I was not expecting this and I sold them all and made 30%.
Meh. If you just put your money in VTI in 2019 you would also have made 30%.
In fact, here is a comparison of VTI (blue) and EMLC (red) at Portfolio Visualizer over the past several years. Scroll down, look at the graph. Click some of the tabs, such as Annual Return and Drawdowns.

Going all-in with type of investment is more like gambling than investing.
What is curious is that you say you have an aversion to the stock market, and yet you're investing in something more risky than the stock market, and probably with a lower reward, but of course no one knows the future.
Just because you're paranoid doesn't mean they're NOT out to get you.

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whodidntante
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Re: Am I Just Lucky and Taking Too much risk?

Post by whodidntante » Sun Jan 12, 2020 12:08 pm

invest2bfree wrote:
Sun Jan 12, 2020 10:11 am
Please look through my situation and give me advice-
Male 45 years, single earner, kids 9,6,6. Not a secure job but make around 200k a year.

I just have a aversion to the stock market and does not have stomach for the stock market.
I was in cash for 2 years between 2016 and 2018.
Starting Portfolio-
Regular Account: $1.4 Million cash ( Company I was In, Got Bought Out)
Retirement 401k: 900k (850k cash, 50k s&p index)

In 2018 slowly started buying ATT\VZ\COMCAST 30 year bonds @ 85cents to the dollar. They were yielding 5% was planning to hold them till they mature.By 2019 November find all the bonds trading 110cents on the dollar. I was not expecting this and I sold them all and made 30%.


Now after paying taxes
Regular Account: $1.9 Million cash
Retirement 401k: $1.15 M(1.1M cash, 50k s&p index)

Now purchased EMLC bonds trading at $33.40, they yield 6%. They are Emerging Market Local Currency bonds so only risk I take is currency.
Iam betting against the dollar but will make about $15K a month in interest payments.
You don't need to invest in equities if you are uncomfortable. Nor would I advise you too if you are uncomfortable since you would be prone to behavioral mistakes. It appears to me that you are doing just fine without them. However, EM local currency bonds have significant credit risk, political risk, and currency risk. They act more like stocks than bonds. It's not necessary for you to take my word for that. You can prove it to yourself. Go over to portfoliovisualizer.com and look at asset correlations. There is nothing wrong with owning EM local currency bonds, but I wouldn't make it the cornerstone of my portfolio. It's your money though, so do what you like.

randomguy
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Re: Am I Just Lucky and Taking Too much risk?

Post by randomguy » Sun Jan 12, 2020 12:37 pm

Leemiller wrote:
Sun Jan 12, 2020 11:29 am
Many countries have defaulted on their sovereign debt. Of course you are getting a higher rate for the credit risk. Why do you think those bonds pay so much higher than a US backed bond fund? Credit risk. Your portfolio is risky, including inflation risk for your cash. I think you need professional advice, since you’ve talked yourself into this allocation.
How many have defaulted on debts they can pay with local currency? I don't track it accurately but my impression is that most of the defaults are on USD denominated bonds that they can't pay off by inflating their currency.

Ignoring credit risk, these bonds always seem the like the picking up nickels in front of a bulldozer approach. Things go well and you make another 4% over US bonds. Things go poorly(i.e. inflation spikes to 15%) though and you lose 50%+. Normally things go well but that time they don't.....

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invest2bfree
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Re: Am I Just Lucky and Taking Too much risk?

Post by invest2bfree » Sun Jan 12, 2020 5:54 pm

Things go well and you make another 4% over US bonds. Things go poorly(i.e. inflation spikes to 15%) though and you lose 50%+.
>>>>>>>>>>>

Thanks for all the feedback.

Looks like EMLC is never a long term hold just can be help short term option.

Unfortunately there is no where else to hide, I dont have the stomach to buy Stock Market at all time high and the LT bonds with very low yield.

delamer
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Re: Am I Just Lucky and Taking Too much risk?

Post by delamer » Sun Jan 12, 2020 6:11 pm

invest2bfree wrote:
Sun Jan 12, 2020 5:54 pm
Things go well and you make another 4% over US bonds. Things go poorly(i.e. inflation spikes to 15%) though and you lose 50%+.
>>>>>>>>>>>

Thanks for all the feedback.

Looks like EMLC is never a long term hold just can be help short term option.

Unfortunately there is no where else to hide, I dont have the stomach to buy Stock Market at all time high and the LT bonds with very low yield.
You should read about what happened to Bob, who invested at all time highs: https://awealthofcommonsense.com/2014/0 ... ket-timer/

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dogagility
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Re: Am I Just Lucky and Taking Too much risk?

Post by dogagility » Sun Jan 12, 2020 6:23 pm

invest2bfree wrote:
Sun Jan 12, 2020 5:54 pm
Unfortunately there is no where else to hide, I dont have the stomach to buy Stock Market at all time high and the LT bonds with very low yield.
Then buy a mix of a total stock market index fund and a total bond market index fund. Determine the percentage of each (called your asset allocation).

https://www.bogleheads.org/wiki/Asset_allocation
"The stock market is a device for transferring money from the impatient to the patient" -- Warren Buffett

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dogagility
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Re: Am I Just Lucky and Taking Too much risk?

Post by dogagility » Sun Jan 12, 2020 6:24 pm

invest2bfree wrote:
Sun Jan 12, 2020 10:11 am
I just have a aversion to the stock market and does not have stomach for the stock market.
Why?
"The stock market is a device for transferring money from the impatient to the patient" -- Warren Buffett

Olemiss540
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Re: Am I Just Lucky and Taking Too much risk?

Post by Olemiss540 » Sun Jan 12, 2020 7:25 pm

I strongly suggest you stay around here for 4 or 5 months and read read read. I promise the patience will be worth it!
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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invest2bfree
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Re: Am I Just Lucky and Taking Too much risk?

Post by invest2bfree » Sun Jan 12, 2020 9:15 pm

I just have a aversion to the stock market and does not have stomach for the stock market.

Why?
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Japan peaked 38,000 in 1989 and after 30 years nikkie is still at 25,000.

If you had purchased s&P 500 at the top in year 2000, it took you 13 years to break even and twice you had 50% draw down.

People think Stock MArket can only go up but my take is it depends on when you buy.

At this age in my life I dont wish to repeat 2000 - 2013 fiasco again if it happens.

snailderby
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Re: Am I Just Lucky and Taking Too much risk?

Post by snailderby » Sun Jan 12, 2020 9:29 pm

You'll have to decide yourself how much risk you're willing to take, but something like a 20/80 split between stocks and intermediate-term treasuries would historically have been less volatile than investing in EMLC.
Last edited by snailderby on Mon Jan 13, 2020 10:33 am, edited 3 times in total.

stuper1
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Re: Am I Just Lucky and Taking Too much risk?

Post by stuper1 » Sun Jan 12, 2020 10:39 pm

Suggest you read through the portfoliocharts.com website. Maybe check out the Permanent Portfolio, which is discussed there, along with many other portfolio options. The PP has a very consistent record even during stock downturns. It does fall behind when stocks go on a multi-year tear, but it seems to pretty much catch up when stocks drop. There are also other good sleep-at-night portfolios discussed there.

marcopolo
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Re: Am I Just Lucky and Taking Too much risk?

Post by marcopolo » Sun Jan 12, 2020 10:54 pm

invest2bfree wrote:
Sun Jan 12, 2020 9:15 pm
I just have a aversion to the stock market and does not have stomach for the stock market.

Why?
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Japan peaked 38,000 in 1989 and after 30 years nikkie is still at 25,000.

If you had purchased s&P 500 at the top in year 2000, it took you 13 years to break even and twice you had 50% draw down.

People think Stock MArket can only go up but my take is it depends on when you buy.

At this age in my life I dont wish to repeat 2000 - 2013 fiasco again if it happens.
I am trying to understand your rationale here.

You are risk averse, and worried about losing money in the stock market like Japan, and US 2000-2013, I think that is somewhat understandable.
So, your solution is to put 100% of your investments into 3rd world sovereign debt? Do you think that is less risky?
Once in a while you get shown the light, in the strangest of places if you look at it right.

Financologist
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Re: Am I Just Lucky and Taking Too much risk?

Post by Financologist » Mon Jan 13, 2020 12:15 am

Yes, you got lucky and are taking too much risk. Your portfolio is no bueno based on your apparent intended conservatism.

If you don't want to invest all your $ in stocks at current levels, then don't. Instead, dollar cost average over a couple of years. This way, you'll have multiple entry prices (granted you may end up buying at prices that exceed today's).

Also, decide on an allocation that allows you to sleep. E.g., work toward a 45% stock allocation (i.e, total world) and mix in quality bond and REIT holdings like BND (30%) and VNQ(10%). If you want less volatility and some inflation protection, consider a sprinkling of TIPS, commodities and precious metals (perhaps 15% total).

Bottom line, diversify immediately.

And.. good luck

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watchnerd
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Re: Am I Just Lucky and Taking Too much risk?

Post by watchnerd » Mon Jan 13, 2020 12:47 am

invest2bfree wrote:
Sun Jan 12, 2020 10:11 am

Now purchased EMLC bonds trading at $33.40, they yield 6%. They are Emerging Market Local Currency bonds so only risk I take is currency.
Iam betting against the dollar but will make about $15K a month in interest payments.
If you're going to go all-in on EM Bonds like that --and that's highly concentrated risk, btw -- why not go with USD-denominated EM bonds, instead?

At least then you won't have currency risk.

Oh, but they're only yielding 4%.

Can you live with less yield?

And you need to diversify. You're one unforeseen credit or currency move from taking a big bath.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

DanFrancis
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Re: Am I Just Lucky and Taking Too much risk?

Post by DanFrancis » Mon Jan 13, 2020 1:40 am

You don't know what you don't know. Lots of people offered information for you to make better choices or at least to smooth off the edges. I personally don't get a rush from taking high risk, but I understand many people do. Instead, set aside some cash for the lottery and gambling and make more sustainable, longer term investments.

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watchnerd
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Re: Am I Just Lucky and Taking Too much risk?

Post by watchnerd » Mon Jan 13, 2020 1:51 am

stuper1 wrote:
Sun Jan 12, 2020 10:39 pm
Suggest you read through the portfoliocharts.com website. Maybe check out the Permanent Portfolio, which is discussed there, along with many other portfolio options. The PP has a very consistent record even during stock downturns. It does fall behind when stocks go on a multi-year tear, but it seems to pretty much catch up when stocks drop. There are also other good sleep-at-night portfolios discussed there.
I'm sorry, but I don't think recommending a portfolio with 25% gold is prudent.

And, no, it doesn't "catch up"....it loses *badly* to even a modest 60/40 balanced portfolio over the long haul. Which is to be expected when 50% of the assets (cash, gold) have no internal rate of return.

Link here:

https://www.portfoliovisualizer.com/bac ... tion5_2=25
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

ivk5
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Re: Am I Just Lucky and Taking Too much risk?

Post by ivk5 » Mon Jan 13, 2020 6:29 am

Didn’t see anyone point out that OP’s EM sovereign debt also has term risk, likely responsible for at least part of the 30% gain referenced (falling rates, at least for USD and probably USD-linked markets).

Agree that OP would benefit from better understanding of types/sources of risk.

aristotelian
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Re: Am I Just Lucky and Taking Too much risk?

Post by aristotelian » Mon Jan 13, 2020 7:34 am

Yes, you got lucky. Buying bonds was a contrarian move when interest rates were increasing. If you keep doing it, eventually you will get burned.

Seoulseeker
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Re: Am I Just Lucky and Taking Too much risk?

Post by Seoulseeker » Mon Jan 13, 2020 7:45 am

As you note the risk of outright default on local currency debt is low for a sovereign entity that can issue its own currency, however I think you are incorrectly discounting the possibility of suffering a currency loss. These countries also have the ability to devalue their currencies to improve trade prospects when their economies are weak. Both Brazil and Mexico have suffered severe currency erosion and actively devalued their currencies in recent times. I agree that you are unlikely to get back less than par for the interest and principal in local terms, but if the currency has been devalued vs the USD (inflated in their terms) then you may be getting only a 2-3% return in USD terms and getting only 30-50% of principal in USD terms. https://en.wikipedia.org/wiki/Mexican_peso_crisis

PolarInvest
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Re: Am I Just Lucky and Taking Too much risk?

Post by PolarInvest » Mon Jan 13, 2020 9:48 pm

If you really dislike stocks, high-yield bonds are an OK substitute that are basically "stocks-lite". Especially fallen angel bonds. USD-denominated emerging market bonds should also get somewhat equity-like returns.

If I were banned from owning stocks for some reason, I personally would be OK with a portfolio like 30% ANGL, 30% EMB, and 40% BND.

vipertom1970
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Re: Am I Just Lucky and Taking Too much risk?

Post by vipertom1970 » Mon Jan 13, 2020 10:58 pm

A+ rated or better Muni bonds plus insurance is a lot safer then what you got now. I own over 60 muni bonds in all 50 states, counties and cities.

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