Are Bonds still worth buying right now?

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Topic Author
Mode32
Posts: 113
Joined: Mon Mar 02, 2020 1:24 pm

Are Bonds still worth buying right now?

Post by Mode32 » Wed Mar 11, 2020 3:24 pm

Bogleheads,

I am requesting some basic understanding of bonds as I have a very elementary idea of how they work and it's utility in retirement. This is all in the context of me trying to help my mom with her old employer 401K (which she no longer contributes to) as she will be retiring within the next 2-4 years. Of note, she works part-time now and does not have a 401K she is actively contributing to.

Emergency funds: 1.5 years (by the time she retires, she aims to have at least 2-2.5 years saved)

Debt: None

Age: 69

Current 401K Asset allocation: 57% stocks (State Street S&P500 Index Fund, ER .013%)/ 43% (TRP Stable Value Fund, ER .25%)

Available "Bond" funds with ER's in old 401K Plan:
TRP STABLE VALUE 0.25%
JPM HIGH YIELD R6 (JHYUX) 0.62%
SS US BOND INDEX K .04%
VANG INFL PROT INST (VIPIX) .07%

Questions:
1.Should I advise my mom to buy Bonds (see above for funds available in her 401K Plan) right now given the current market environment (high volatility & interest rate drop? I have read that you are supposed to have about 40-50% allocations to bonds while in retirement, by her Fixed Income allocation is currently all T. Rowe Price (TRP) Stabe Value Fund.

2.I don't really have the working understanding of bonds to reason whether it is appropriate to sell the TRP Stable Value and buy Bonds right now. Any clarity and insights to better make this decision would be greatly appreciated. Of note, it was definitely nice to have had the TRP Stable Value maintain value even as the equity portion of her portfolio dropped in value this week.

As always, thank you for your time and insights.

EHEngineer
Posts: 949
Joined: Sat Feb 28, 2015 4:35 pm

Re: Are Bonds still worth buying right now?

Post by EHEngineer » Wed Mar 11, 2020 4:00 pm

I wouldn't make any changes. Your question is implicitly a request for predictions on future interest rates. Nobody knows what they will be. "Don't do something. Just stand there."

You shouldn't think in terms of account asset allocations ie "401k asset allocation." You should think about overall asset allocation. https://www.bogleheads.org/wiki/Asset_a ... e_accounts

Consider reading this book about bonds: https://www.amazon.com/Only-Guide-Winni ... 0312353634
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

prairieman
Posts: 256
Joined: Thu Mar 01, 2018 3:17 pm

Re: Are Bonds still worth buying right now?

Post by prairieman » Wed Mar 11, 2020 4:44 pm

I admit to selling some bonds (actually bond funds) recently and going to cash and stocks. My view is that interest rates dropped to a point where holding cash seems less risky than bonds. While I’ll miss the dividends, I already did so well with the bond funds as interest rates declined that zero percent looks fine for now. I can always buy back in again if interest rates rise. If they do, I can avoid the losses that occur in bonds either when interest rates rise or when defaults occur as happens during recessions and depressions.

negwtg
Posts: 8
Joined: Tue Mar 10, 2020 5:24 pm

Re: Are Bonds still worth buying right now?

Post by negwtg » Wed Mar 11, 2020 5:12 pm

In my humble opinion, I would not put money in bonds right now. You might want to do some bargain buying in the stock market, or if you are afraid of the market, I would put money in money market accounts, you can get as much yield from them as regular bonds right now.

Topic Author
Mode32
Posts: 113
Joined: Mon Mar 02, 2020 1:24 pm

Re: Are Bonds still worth buying right now?

Post by Mode32 » Wed Mar 11, 2020 5:55 pm

prairieman wrote:
Wed Mar 11, 2020 4:44 pm
I admit to selling some bonds (actually bond funds) recently and going to cash and stocks. My view is that interest rates dropped to a point where holding cash seems less risky than bonds. While I’ll miss the dividends, I already did so well with the bond funds as interest rates declined that zero percent looks fine for now. I can always buy back in again if interest rates rise. If they do, I can avoid the losses that occur in bonds either when interest rates rise or when defaults occur as happens during recessions and depressions.
So the reason you sold your bonds was due to lower dividends as interest rates dropped? And as rates/yields drop, bond prices rise...so you sold at higher price? Does that mean right now bonds are priced higher with generally lower yields?

Are these individual bonds, or part of a bond index fund? Why wouldn’t you stick to your original bond allocation bec wouldn’t you still get more income (in form of interest) than cash (ie, money market or stable value fund)? (I’m feeling dizzy thinking about all the bond questions circling in my head 🥴 )

mpott65
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Joined: Fri Feb 07, 2020 9:49 pm

Re: Are Bonds still worth buying right now?

Post by mpott65 » Wed Mar 11, 2020 6:29 pm

I have this question too. I have some cash in a maturing CD as part of the non-stock portion of my portfolio that I can either roll into another CD at 2% or put in a bond fund.

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watchnerd
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Re: Are Bonds still worth buying right now?

Post by watchnerd » Wed Mar 11, 2020 7:40 pm

Mode32 wrote:
Wed Mar 11, 2020 5:55 pm


Are these individual bonds, or part of a bond index fund? Why wouldn’t you stick to your original bond allocation bec wouldn’t you still get more income (in form of interest) than cash (ie, money market or stable value fund)? (I’m feeling dizzy thinking about all the bond questions circling in my head 🥴 )
Mathematically, at any given moment, these should be equivalent in a liquid bond market (and assuming no spread loss).

They might change tomorrow, but at any one moment, the two are equal.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

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