NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

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MFInvestor
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NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

Post by MFInvestor » Sun Oct 29, 2017 11:59 am

"Why Bonds Aren’t Boring Right Now"

New York Times October 29, 2017

https://www.nytimes.com/2017/10/27/busi ... .html?_r=0

Excerpts from the article:
Prudent people should temper their expectations. That’s the advice of a man with a formidable track record, John Bogle, who founded Vanguard. “Current bond yields are an excellent predictor of returns for the next 10 years,” he reminded me in a phone conversation. Based on current yields, he estimated, a portfolio containing a mix of government and corporate bonds is likely to generate an annualized return of only about 3 percent.

That’s not much. But it’s not far behind his expectation for stocks. After the titanic rally, which has produced tremendous profits, he said, stocks have outrun fundamental values through “speculation” and are, therefore, likely to produce annualized stock returns of only 4 percent over the next decade, he said.

“Compared with stocks,” he said, “bonds are a good value, better than they have been in years.”

It still makes sense to hold stocks and bonds in a diversified portfolio, he said, and his estimates are only that, estimates. Think it through for yourself, he said, and draw your own conclusions. Just be realistic about them.

“Invest for the long run but don’t expect too much,” Mr. Bogle said. “If you do that, you won’t be disappointed.”

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TheTimeLord
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Re: NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

Post by TheTimeLord » Sun Oct 29, 2017 1:03 pm

“Compared with stocks,” he said, “bonds are a good value, better than they have been in years.”
Not a statement I would agree with, or frankly understand given where we are in the interest rate cycle and the prospects for global growth. I just don't see using the words bonds and good value in the same sentence but he's the expert.
Last edited by TheTimeLord on Sun Oct 29, 2017 1:31 pm, edited 1 time in total.
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arcticpineapplecorp.
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Re: NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

Post by arcticpineapplecorp. » Sun Oct 29, 2017 1:15 pm

I see what he means. We're taking much greater risk with stocks for only incremental gains over bonds (1% difference stocks over bonds). Interesting way of thinking about it. Sorta similar to the way Buffett and others look at it--when the spread between what riskless assets are paying and what stocks are likely to earn is close, riskless assets make a lot of sense (Buffett would compare the rates of treasuries though as the riskless assets to stocks. Here Jack is advocating total bond market, which is not riskless like treasuries). Buffett even advocated bonds or riskless asstes back in the days when bonds were paying 5% and stocks were earning 8%. But it's similar now in that the expected spread between bonds and stocks is small. People forget that and focus just on the low returns, not thinking about the fact that the extra return of stocks (above the riskless rate) might not be worth the extra risk. Interesting. Thanks for sharing.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

Post by am » Sun Oct 29, 2017 1:18 pm

arcticpineapplecorp. wrote:
Sun Oct 29, 2017 1:15 pm
I see what he means. We're taking much greater risk with stocks for only incremental gains over bonds (1% difference stocks over bonds). Interesting way of thinking about it. Sorta similar to the way Buffett and others look at it--when the spread between what riskless assets are paying and what stocks are likely to earn is close, riskless assets make a lot of sense (Buffett would compare the rates of treasuries though as the riskless assets to stocks. Here Jack is advocating total bond market, which is not riskless like treasuries). Buffett even advocated bonds or riskless asstes back in the days when bonds were paying 5% and stocks were earning 8%. But it's similar now in that the expected spread between bonds and stocks is small. People forget that and focus just on the low returns, not thinking about the fact that the extra return of stocks (above the riskless rate) might not be worth the extra risk. Interesting. Thanks for sharing.
But unlike bonds where yield predicts future returns, even with high valuations, we only have a reasonable range of expected returns for stocks. Plus interest rates are real low, making stock valuations not as bad, and expected returns potentially higher.

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Re: NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

Post by sambb » Sun Oct 29, 2017 1:28 pm

unfortunate that Bogle is prediciting future stock and bond prices/growth. how does he know?

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arcticpineapplecorp.
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Re: NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

Post by arcticpineapplecorp. » Sun Oct 29, 2017 2:03 pm

am wrote:
Sun Oct 29, 2017 1:18 pm
arcticpineapplecorp. wrote:
Sun Oct 29, 2017 1:15 pm
I see what he means. We're taking much greater risk with stocks for only incremental gains over bonds (1% difference stocks over bonds). Interesting way of thinking about it. Sorta similar to the way Buffett and others look at it--when the spread between what riskless assets are paying and what stocks are likely to earn is close, riskless assets make a lot of sense (Buffett would compare the rates of treasuries though as the riskless assets to stocks. Here Jack is advocating total bond market, which is not riskless like treasuries). Buffett even advocated bonds or riskless asstes back in the days when bonds were paying 5% and stocks were earning 8%. But it's similar now in that the expected spread between bonds and stocks is small. People forget that and focus just on the low returns, not thinking about the fact that the extra return of stocks (above the riskless rate) might not be worth the extra risk. Interesting. Thanks for sharing.
But unlike bonds where yield predicts future returns, even with high valuations, we only have a reasonable range of expected returns for stocks. Plus interest rates are real low, making stock valuations not as bad, and expected returns potentially higher.
true. true. which is why stocks "should" outperform bonds, because investors want to be rewarded for the risk they take. And certainly there is more risk with stocks than bonds. Only time will tell.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

Stormbringer
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Re: NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

Post by Stormbringer » Sun Oct 29, 2017 4:35 pm

sambb wrote:
Sun Oct 29, 2017 1:28 pm
unfortunate that Bogle is prediciting future stock and bond prices/growth. how does he know?
In the video I watched yesterday he made it clear that he was setting expectations, and that it was not a forecast. In other words, given where the markets are now, you shouldn't expect more than that (but it could happen).
"Compound interest is the most powerful force in the universe." - Albert Einstein

Stormbringer
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Re: NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

Post by Stormbringer » Sun Oct 29, 2017 4:39 pm

TheTimeLord wrote:
Sun Oct 29, 2017 1:03 pm
“Compared with stocks,” he said, “bonds are a good value, better than they have been in years.”
Not a statement I would agree with, or frankly understand given where we are in the interest rate cycle and the prospects for global growth. I just don't see using the words bonds and good value in the same sentence but he's the expert.
Then again, another expert -- Buffett, says bonds are terrible. I wish those two would sit down and work out their differences over lunch.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Re: NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

Post by Levett » Sun Oct 29, 2017 4:50 pm

Bogle's best reminder:

"Prudent people should temper their expectations."

Always the best advice--for those who place a high value on being prudent.

Lev

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TheTimeLord
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Re: NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

Post by TheTimeLord » Sun Oct 29, 2017 5:10 pm

Stormbringer wrote:
Sun Oct 29, 2017 4:39 pm
TheTimeLord wrote:
Sun Oct 29, 2017 1:03 pm
“Compared with stocks,” he said, “bonds are a good value, better than they have been in years.”
Not a statement I would agree with, or frankly understand given where we are in the interest rate cycle and the prospects for global growth. I just don't see using the words bonds and good value in the same sentence but he's the expert.
Then again, another expert -- Buffett, says bonds are terrible. I wish those two would sit down and work out their differences over lunch.
Bogle would never bid enough to win the lunch Buffet auctions off each year.
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greg24
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Re: NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

Post by greg24 » Sun Oct 29, 2017 5:38 pm

http://www.multpl.com/shiller-pe/

urrent Shiller PE Ratio: 31.49 +0.25 (0.81%)
4:08 pm EDT, Fri Oct 27
Mean: 16.80
Median: 16.14
Min: 4.78 (Dec 1920)
Max: 44.19 (Dec 1999)

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David Scubadiver
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Re: NYTs- "Why Bonds aren't Boring Right Now"- Bogle commentary

Post by David Scubadiver » Sun Oct 29, 2017 7:52 pm

Seems like an excellent reason to consider being more heavily invested in international stocks. It is funny to me that someone can suggest to set expectations at 3% based on fundamentals, but not suggest looking outside of the US for higher returns where those fundamentals may be so much better.

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