Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
MossySF
Posts: 2299
Joined: Thu Apr 19, 2007 9:51 pm
Contact:

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by MossySF » Fri Jun 08, 2018 8:11 pm

The answer is to make your situtation look like Buffett's.

Reduce your expenses by 80% so your current portfolio shoots up in asset:expense ratio. That will let you survive any temporary 40% stock drawdowns.

WanderingDoc
Posts: 1100
Joined: Sat Aug 05, 2017 8:21 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by WanderingDoc » Fri Jun 08, 2018 8:31 pm

I'm not sure why either. I've been trying to understand for nearly a year on this forum.

The minds on this forum are very bright, much smarter than me. I have learned a ton in a short time. But people on here will insist to invest in inferior assets by nearly every single metric except liquidity. The sentiment is to invest in index funds, work full time for 30 years, and hopefully by then you can withdraw 4% and have enough for a mediocre to average retirement. Hopefully.

Those of us who actually took the time to learn the real estate game, have achieve enough passive income from real estate (in 5-7 years or much less) to cover our living expenses. No one is saying you HAVE to retire at 35, but having the option sure is sweet. That is called freedom. If you don't wake up every single morning, and going to do your job is the thing you most have a burning desire to do, you are a slave.

After having a lot of conversations, its clear to me that going to their work-a-day job isn't the best and only thing they could imagine doing that day, every day. If it isn't, you can do something about it. Investment vehicles exist that give you options and freedom. There is no nobility in being a cog in a machine if that isn't your passion.

visualguy wrote:
Fri Jun 08, 2018 8:09 pm
WanderingDoc wrote:
Fri Jun 08, 2018 7:47 pm
Real estate. Banks give you the money to buy the property (trying asking a bank to write you a $400K check to buy $500K of Apple or Amazon stock), tenants provide the money to build your equity, and you legally don't pay any taxes on your income. Things just cannot get sweeter than U.S. real estate :)
+1

Not sure why it's controversial here...
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

visualguy
Posts: 737
Joined: Thu Jan 30, 2014 1:32 am

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by visualguy » Fri Jun 08, 2018 11:16 pm

WanderingDoc wrote:
Fri Jun 08, 2018 8:31 pm
I'm not sure why either. I've been trying to understand for nearly a year on this forum.

The minds on this forum are very bright, much smarter than me. I have learned a ton in a short time. But people on here will insist to invest in inferior assets by nearly every single metric except liquidity. The sentiment is to invest in index funds, work full time for 30 years, and hopefully by then you can withdraw 4% and have enough for a mediocre to average retirement. Hopefully.

Those of us who actually took the time to learn the real estate game, have achieve enough passive income from real estate (in 5-7 years or much less) to cover our living expenses. No one is saying you HAVE to retire at 35, but having the option sure is sweet. That is called freedom. If you don't wake up every single morning, and going to do your job is the thing you most have a burning desire to do, you are a slave.

After having a lot of conversations, its clear to me that going to their work-a-day job isn't the best and only thing they could imagine doing that day, every day. If it isn't, you can do something about it. Investment vehicles exist that give you options and freedom. There is no nobility in being a cog in a machine if that isn't your passion.
I'm somewhere in between. I don't mind having stock market index fund investments even though I've done better on my real estate. I definitely don't want to put everything in the stock market for many reasons. Also, I really don't believe in keeping large amounts of money in bonds, CDs, etc. That's just dead money from my perspective, and should go to real estate if it's post-tax money that you don't want to put in the stock market.

If I had to pick just one type of investment, I would personally pick real estate, but there's no reason to pick just one.

My sister-in-law used to be a Boglehead, but then got sick of it, liquidated all her taxable accounts and gradually bought rental real estate in another state. She built a portfolio that will cover her expenses when she retires from her job as a software engineer. I'm not that extreme...

Many on this forum own rental properties in addition to their "Boglehead" portfolio - I see it often when people ask for feedback on their situation. I think that's a great combination.

WanderingDoc
Posts: 1100
Joined: Sat Aug 05, 2017 8:21 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by WanderingDoc » Sat Jun 09, 2018 12:24 am

visualguy wrote:
Fri Jun 08, 2018 11:16 pm
WanderingDoc wrote:
Fri Jun 08, 2018 8:31 pm
I'm not sure why either. I've been trying to understand for nearly a year on this forum.

The minds on this forum are very bright, much smarter than me. I have learned a ton in a short time. But people on here will insist to invest in inferior assets by nearly every single metric except liquidity. The sentiment is to invest in index funds, work full time for 30 years, and hopefully by then you can withdraw 4% and have enough for a mediocre to average retirement. Hopefully.

Those of us who actually took the time to learn the real estate game, have achieve enough passive income from real estate (in 5-7 years or much less) to cover our living expenses. No one is saying you HAVE to retire at 35, but having the option sure is sweet. That is called freedom. If you don't wake up every single morning, and going to do your job is the thing you most have a burning desire to do, you are a slave.

After having a lot of conversations, its clear to me that going to their work-a-day job isn't the best and only thing they could imagine doing that day, every day. If it isn't, you can do something about it. Investment vehicles exist that give you options and freedom. There is no nobility in being a cog in a machine if that isn't your passion.
I'm somewhere in between. I don't mind having stock market index fund investments even though I've done better on my real estate. I definitely don't want to put everything in the stock market for many reasons. Also, I really don't believe in keeping large amounts of money in bonds, CDs, etc. That's just dead money from my perspective, and should go to real estate if it's post-tax money that you don't want to put in the stock market.

If I had to pick just one type of investment, I would personally pick real estate, but there's no reason to pick just one.

My sister-in-law used to be a Boglehead, but then got sick of it, liquidated all her taxable accounts and gradually bought rental real estate in another state. She built a portfolio that will cover her expenses when she retires from her job as a software engineer. I'm not that extreme...

Many on this forum own rental properties in addition to their "Boglehead" portfolio - I see it often when people ask for feedback on their situation. I think that's a great combination.
Well said. I enjoy the roughly 70/20/10 real estate/equities/cash. Hoping to maintain it for a long time :)
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

AlphaLess
Posts: 714
Joined: Fri Sep 29, 2017 11:38 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by AlphaLess » Sat Jun 09, 2018 2:55 am

permport wrote:
Fri May 18, 2018 10:45 pm
Cash / short term fixed income.

It's not really that bonds are bad, it's more that he doesn't like the risk/return characteristics of the intermediate and longer term issues.

Just shorten the duration of the bond portion of your portfolio if you are really concerned, but abandoning fixed income entirely isn't probably something we should do. Berkshire itself keeps billions in short term treasuries.
One criticism I have of Buffet is that he hoards cash.
Keeping that cash uninvested is basically a foregone opportunity.
Simply: it is a drag on performance.

CantPassAgain
Posts: 577
Joined: Fri Mar 15, 2013 8:49 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by CantPassAgain » Sat Jun 09, 2018 8:32 am

WanderingDoc wrote:
Fri Jun 08, 2018 8:31 pm
I'm not sure why either. I've been trying to understand for nearly a year on this forum.

The minds on this forum are very bright, much smarter than me. I have learned a ton in a short time. But people on here will insist to invest in inferior assets by nearly every single metric except liquidity. The sentiment is to invest in index funds, work full time for 30 years, and hopefully by then you can withdraw 4% and have enough for a mediocre to average retirement. Hopefully.

Those of us who actually took the time to learn the real estate game, have achieve enough passive income from real estate (in 5-7 years or much less) to cover our living expenses. No one is saying you HAVE to retire at 35, but having the option sure is sweet. That is called freedom. If you don't wake up every single morning, and going to do your job is the thing you most have a burning desire to do, you are a slave.

After having a lot of conversations, its clear to me that going to their work-a-day job isn't the best and only thing they could imagine doing that day, every day. If it isn't, you can do something about it. Investment vehicles exist that give you options and freedom. There is no nobility in being a cog in a machine if that isn't your passion.

visualguy wrote:
Fri Jun 08, 2018 8:09 pm
WanderingDoc wrote:
Fri Jun 08, 2018 7:47 pm
Real estate. Banks give you the money to buy the property (trying asking a bank to write you a $400K check to buy $500K of Apple or Amazon stock), tenants provide the money to build your equity, and you legally don't pay any taxes on your income. Things just cannot get sweeter than U.S. real estate :)
+1

Not sure why it's controversial here...
I am not sure why you and some others don't get this place. It is called "Bogelheads." Investing advice inspired by Jack Bogle. Passive investing. The people who this advice most well serves are folks who want to get a handle on their finances and get a fair shake from the investment markets, then focus on their lives and careers. Folks who don't want to become part time investment analysts.

No one says don't start a real estate (or any other) business. This is America, if that's what someone wants to do great! But this place wasn't created to focus on that. There are plenty of places on the internet to discuss anything you want.

Theoretical
Posts: 1422
Joined: Tue Aug 19, 2014 10:09 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by Theoretical » Sat Jun 09, 2018 9:09 am

AlphaLess wrote:
Sat Jun 09, 2018 2:55 am
permport wrote:
Fri May 18, 2018 10:45 pm
Cash / short term fixed income.

It's not really that bonds are bad, it's more that he doesn't like the risk/return characteristics of the intermediate and longer term issues.

Just shorten the duration of the bond portion of your portfolio if you are really concerned, but abandoning fixed income entirely isn't probably something we should do. Berkshire itself keeps billions in short term treasuries.
One criticism I have of Buffet is that he hoards cash.
Keeping that cash uninvested is basically a foregone opportunity.
Simply: it is a drag on performance.
Not the way he uses it. The way he was positioned in 2008 more than made up for any cash drag. It means the returns are bursty rather than smooth, but being the provider of liquidity at the table as a vulture is a huge deal. The strategy may or may not work over a particular time period, but it's a time-tested reality.

columbia
Posts: 900
Joined: Tue Aug 27, 2013 5:30 am

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by columbia » Sat Jun 09, 2018 9:32 am

CantPassAgain wrote:
Sat Jun 09, 2018 8:32 am
WanderingDoc wrote:
Fri Jun 08, 2018 8:31 pm
I'm not sure why either. I've been trying to understand for nearly a year on this forum.

The minds on this forum are very bright, much smarter than me. I have learned a ton in a short time. But people on here will insist to invest in inferior assets by nearly every single metric except liquidity. The sentiment is to invest in index funds, work full time for 30 years, and hopefully by then you can withdraw 4% and have enough for a mediocre to average retirement. Hopefully.

Those of us who actually took the time to learn the real estate game, have achieve enough passive income from real estate (in 5-7 years or much less) to cover our living expenses. No one is saying you HAVE to retire at 35, but having the option sure is sweet. That is called freedom. If you don't wake up every single morning, and going to do your job is the thing you most have a burning desire to do, you are a slave.

After having a lot of conversations, its clear to me that going to their work-a-day job isn't the best and only thing they could imagine doing that day, every day. If it isn't, you can do something about it. Investment vehicles exist that give you options and freedom. There is no nobility in being a cog in a machine if that isn't your passion.

visualguy wrote:
Fri Jun 08, 2018 8:09 pm
WanderingDoc wrote:
Fri Jun 08, 2018 7:47 pm
Real estate. Banks give you the money to buy the property (trying asking a bank to write you a $400K check to buy $500K of Apple or Amazon stock), tenants provide the money to build your equity, and you legally don't pay any taxes on your income. Things just cannot get sweeter than U.S. real estate :)
+1

Not sure why it's controversial here...
I am not sure why you and some others don't get this place. It is called "Bogelheads." Investing advice inspired by Jack Bogle. Passive investing. The people who this advice most well serves are folks who want to get a handle on their finances and get a fair shake from the investment markets, then focus on their lives and careers. Folks who don't want to become part time investment analysts.

No one says don't start a real estate (or any other) business. This is America, if that's what someone wants to do great! But this place wasn't created to focus on that. There are plenty of places on the internet to discuss anything you want.

I consider owning real estate (specifically rental properties) a business activity and not a form of investing. Ie No different from buying a stake in brother in law’s pizza parlor or whatever. That might be profitable,but it’s outside of your long term asset allocation.

WanderingDoc
Posts: 1100
Joined: Sat Aug 05, 2017 8:21 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by WanderingDoc » Sat Jun 09, 2018 11:19 am

columbia wrote:
Sat Jun 09, 2018 9:32 am
CantPassAgain wrote:
Sat Jun 09, 2018 8:32 am
WanderingDoc wrote:
Fri Jun 08, 2018 8:31 pm
I'm not sure why either. I've been trying to understand for nearly a year on this forum.

The minds on this forum are very bright, much smarter than me. I have learned a ton in a short time. But people on here will insist to invest in inferior assets by nearly every single metric except liquidity. The sentiment is to invest in index funds, work full time for 30 years, and hopefully by then you can withdraw 4% and have enough for a mediocre to average retirement. Hopefully.

Those of us who actually took the time to learn the real estate game, have achieve enough passive income from real estate (in 5-7 years or much less) to cover our living expenses. No one is saying you HAVE to retire at 35, but having the option sure is sweet. That is called freedom. If you don't wake up every single morning, and going to do your job is the thing you most have a burning desire to do, you are a slave.

After having a lot of conversations, its clear to me that going to their work-a-day job isn't the best and only thing they could imagine doing that day, every day. If it isn't, you can do something about it. Investment vehicles exist that give you options and freedom. There is no nobility in being a cog in a machine if that isn't your passion.

visualguy wrote:
Fri Jun 08, 2018 8:09 pm
WanderingDoc wrote:
Fri Jun 08, 2018 7:47 pm
Real estate. Banks give you the money to buy the property (trying asking a bank to write you a $400K check to buy $500K of Apple or Amazon stock), tenants provide the money to build your equity, and you legally don't pay any taxes on your income. Things just cannot get sweeter than U.S. real estate :)
+1

Not sure why it's controversial here...
I am not sure why you and some others don't get this place. It is called "Bogelheads." Investing advice inspired by Jack Bogle. Passive investing. The people who this advice most well serves are folks who want to get a handle on their finances and get a fair shake from the investment markets, then focus on their lives and careers. Folks who don't want to become part time investment analysts.

No one says don't start a real estate (or any other) business. This is America, if that's what someone wants to do great! But this place wasn't created to focus on that. There are plenty of places on the internet to discuss anything you want.

I consider owning real estate (specifically rental properties) a business activity and not a form of investing. Ie No different from buying a stake in brother in law’s pizza parlor or whatever. That might be profitable,but it’s outside of your long term asset allocation.
After doing this for a while, I consider it BOTH a business and investing. More toward the investing side in my case. I actually spend more time even on this forum per month than my entire real estate venture.. so in actuality real estate for me is currently more passive than indexing! :P
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

frugalecon
Posts: 292
Joined: Fri Dec 05, 2014 12:39 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by frugalecon » Sat Jun 09, 2018 11:27 am

columbia wrote:
Sat Jun 09, 2018 9:32 am
CantPassAgain wrote:
Sat Jun 09, 2018 8:32 am
WanderingDoc wrote:
Fri Jun 08, 2018 8:31 pm
I'm not sure why either. I've been trying to understand for nearly a year on this forum.

The minds on this forum are very bright, much smarter than me. I have learned a ton in a short time. But people on here will insist to invest in inferior assets by nearly every single metric except liquidity. The sentiment is to invest in index funds, work full time for 30 years, and hopefully by then you can withdraw 4% and have enough for a mediocre to average retirement. Hopefully.

Those of us who actually took the time to learn the real estate game, have achieve enough passive income from real estate (in 5-7 years or much less) to cover our living expenses. No one is saying you HAVE to retire at 35, but having the option sure is sweet. That is called freedom. If you don't wake up every single morning, and going to do your job is the thing you most have a burning desire to do, you are a slave.

After having a lot of conversations, its clear to me that going to their work-a-day job isn't the best and only thing they could imagine doing that day, every day. If it isn't, you can do something about it. Investment vehicles exist that give you options and freedom. There is no nobility in being a cog in a machine if that isn't your passion.

visualguy wrote:
Fri Jun 08, 2018 8:09 pm
WanderingDoc wrote:
Fri Jun 08, 2018 7:47 pm
Real estate. Banks give you the money to buy the property (trying asking a bank to write you a $400K check to buy $500K of Apple or Amazon stock), tenants provide the money to build your equity, and you legally don't pay any taxes on your income. Things just cannot get sweeter than U.S. real estate :)
+1

Not sure why it's controversial here...
I am not sure why you and some others don't get this place. It is called "Bogelheads." Investing advice inspired by Jack Bogle. Passive investing. The people who this advice most well serves are folks who want to get a handle on their finances and get a fair shake from the investment markets, then focus on their lives and careers. Folks who don't want to become part time investment analysts.

No one says don't start a real estate (or any other) business. This is America, if that's what someone wants to do great! But this place wasn't created to focus on that. There are plenty of places on the internet to discuss anything you want.

I consider owning real estate (specifically rental properties) a business activity and not a form of investing. Ie No different from buying a stake in brother in law’s pizza parlor or whatever. That might be profitable,but it’s outside of your long term asset allocation.
For the people who like to have a real estate side hustle (or maybe not-so-side hustle), I wonder what their exit strategy is like.i am pretty confident that an index fund portfolio is easier to deal with in old age than a pile of real estate, but perhaps I am mistaken. I have watched my FIL slowly losing grasp on the ability to manage his holdings, which are now deteriorating and generating no real income.

CnC
Posts: 537
Joined: Thu May 11, 2017 12:41 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by CnC » Sat Jun 09, 2018 11:31 am

Why buy bonds when CD's are beating or at least very near bnd returns? I just can not understand why locking in such a low yield is a good idea?


If interested rates go up you lose even more.

AlphaLess
Posts: 714
Joined: Fri Sep 29, 2017 11:38 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by AlphaLess » Sat Jun 09, 2018 3:22 pm

Theoretical wrote:
Sat Jun 09, 2018 9:09 am
AlphaLess wrote:
Sat Jun 09, 2018 2:55 am
permport wrote:
Fri May 18, 2018 10:45 pm
Cash / short term fixed income.

It's not really that bonds are bad, it's more that he doesn't like the risk/return characteristics of the intermediate and longer term issues.

Just shorten the duration of the bond portion of your portfolio if you are really concerned, but abandoning fixed income entirely isn't probably something we should do. Berkshire itself keeps billions in short term treasuries.
One criticism I have of Buffet is that he hoards cash.
Keeping that cash uninvested is basically a foregone opportunity.
Simply: it is a drag on performance.
Not the way he uses it. The way he was positioned in 2008 more than made up for any cash drag. It means the returns are bursty rather than smooth, but being the provider of liquidity at the table as a vulture is a huge deal. The strategy may or may not work over a particular time period, but it's a time-tested reality.
What you have described is market timing.

User avatar
fortfun
Posts: 980
Joined: Tue Apr 19, 2016 7:31 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by fortfun » Sat Jun 09, 2018 3:48 pm

CnC wrote:
Sat Jun 09, 2018 11:31 am
Why buy bonds when CD's are beating or at least very near bnd returns? I just can not understand why locking in such a low yield is a good idea?


If interested rates go up you lose even more.
I guess because CDs are not available in most 401k, 403b, etc. Correct?

AlphaLess
Posts: 714
Joined: Fri Sep 29, 2017 11:38 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by AlphaLess » Sat Jun 09, 2018 4:11 pm

CnC wrote:
Sat Jun 09, 2018 11:31 am
Why buy bonds when CD's are beating or at least very near bnd returns? I just can not understand why locking in such a low yield is a good idea?


If interested rates go up you lose even more.
I am not advocating for either or against bonds or CDs. However, the argument goes like this:
- in times of economic distress, when stocks go down, bonds will *likely* go up in price (down in yield),
- CDs won't have that property.

Now, the fact that CDs are beating bond returns, and that you *think* that bonds will go down is simply an artifact of current economic conditions. And the fact that you think that bonds will go down in price is market timing.

md&pharmacist
Posts: 262
Joined: Fri Mar 23, 2018 7:05 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by md&pharmacist » Sat Jun 09, 2018 4:48 pm

visualguy wrote:
Fri Jun 08, 2018 8:09 pm
WanderingDoc wrote:
Fri Jun 08, 2018 7:47 pm
Real estate. Banks give you the money to buy the property (trying asking a bank to write you a $400K check to buy $500K of Apple or Amazon stock), tenants provide the money to build your equity, and you legally don't pay any taxes on your income. Things just cannot get sweeter than U.S. real estate :)
+1

Not sure why it's controversial here...
A lot of people here are extremely closed minded and have no understanding beyond letting big firms provide them market indexed returns and sleeper bonds. I've already tried discussing real estate investment, investment in one's own business, etc. This is definitely not the real estate guru, business owner, nimble entrepreneur, risk taking ambitious crowd. There are some here, but they are not the vocal ones.

I have a few million $ in commercial real estate investments and it's integral to my diversification strategy.

md&pharmacist
Posts: 262
Joined: Fri Mar 23, 2018 7:05 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by md&pharmacist » Sat Jun 09, 2018 5:13 pm

CantPassAgain wrote:
Sat Jun 09, 2018 8:32 am
WanderingDoc wrote:
Fri Jun 08, 2018 8:31 pm
I'm not sure why either. I've been trying to understand for nearly a year on this forum.

The minds on this forum are very bright, much smarter than me. I have learned a ton in a short time. But people on here will insist to invest in inferior assets by nearly every single metric except liquidity. The sentiment is to invest in index funds, work full time for 30 years, and hopefully by then you can withdraw 4% and have enough for a mediocre to average retirement. Hopefully.

Those of us who actually took the time to learn the real estate game, have achieve enough passive income from real estate (in 5-7 years or much less) to cover our living expenses. No one is saying you HAVE to retire at 35, but having the option sure is sweet. That is called freedom. If you don't wake up every single morning, and going to do your job is the thing you most have a burning desire to do, you are a slave.

After having a lot of conversations, its clear to me that going to their work-a-day job isn't the best and only thing they could imagine doing that day, every day. If it isn't, you can do something about it. Investment vehicles exist that give you options and freedom. There is no nobility in being a cog in a machine if that isn't your passion.

visualguy wrote:
Fri Jun 08, 2018 8:09 pm
WanderingDoc wrote:
Fri Jun 08, 2018 7:47 pm
Real estate. Banks give you the money to buy the property (trying asking a bank to write you a $400K check to buy $500K of Apple or Amazon stock), tenants provide the money to build your equity, and you legally don't pay any taxes on your income. Things just cannot get sweeter than U.S. real estate :)
+1

Not sure why it's controversial here...
I am not sure why you and some others don't get this place. It is called "Bogelheads." Investing advice inspired by Jack Bogle. Passive investing. The people who this advice most well serves are folks who want to get a handle on their finances and get a fair shake from the investment markets, then focus on their lives and careers. Folks who don't want to become part time investment analysts.

No one says don't start a real estate (or any other) business. This is America, if that's what someone wants to do great! But this place wasn't created to focus on that. There are plenty of places on the internet to discuss anything you want.
Because not all Bogleheads lack ambition beyond index investing and bonds. Bogleheads want well rounded advice, not all want the same exact thing you do. LOOK AT OP'S QUESTION. The question was asked because not everyone is content with mediocre returns or fears anything requiring any effort. We want control of our own destiny, not just hoping our employer will provide us with enough in our working years so that we don't go hungry in retirement. Until you open your mind to all options you cannot choose the best one for you.

User avatar
whodidntante
Posts: 4047
Joined: Thu Jan 21, 2016 11:11 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by whodidntante » Sat Jun 09, 2018 5:16 pm

Dave Ramsey also says no to bonds, because he is a critical thinker who looks at actual data, and bonds are volatile, or something like that.

WanderingDoc
Posts: 1100
Joined: Sat Aug 05, 2017 8:21 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by WanderingDoc » Sat Jun 09, 2018 5:21 pm

md&pharmacist wrote:
Sat Jun 09, 2018 5:13 pm
CantPassAgain wrote:
Sat Jun 09, 2018 8:32 am
WanderingDoc wrote:
Fri Jun 08, 2018 8:31 pm
I'm not sure why either. I've been trying to understand for nearly a year on this forum.

The minds on this forum are very bright, much smarter than me. I have learned a ton in a short time. But people on here will insist to invest in inferior assets by nearly every single metric except liquidity. The sentiment is to invest in index funds, work full time for 30 years, and hopefully by then you can withdraw 4% and have enough for a mediocre to average retirement. Hopefully.

Those of us who actually took the time to learn the real estate game, have achieve enough passive income from real estate (in 5-7 years or much less) to cover our living expenses. No one is saying you HAVE to retire at 35, but having the option sure is sweet. That is called freedom. If you don't wake up every single morning, and going to do your job is the thing you most have a burning desire to do, you are a slave.

After having a lot of conversations, its clear to me that going to their work-a-day job isn't the best and only thing they could imagine doing that day, every day. If it isn't, you can do something about it. Investment vehicles exist that give you options and freedom. There is no nobility in being a cog in a machine if that isn't your passion.

visualguy wrote:
Fri Jun 08, 2018 8:09 pm
WanderingDoc wrote:
Fri Jun 08, 2018 7:47 pm
Real estate. Banks give you the money to buy the property (trying asking a bank to write you a $400K check to buy $500K of Apple or Amazon stock), tenants provide the money to build your equity, and you legally don't pay any taxes on your income. Things just cannot get sweeter than U.S. real estate :)
+1

Not sure why it's controversial here...
I am not sure why you and some others don't get this place. It is called "Bogelheads." Investing advice inspired by Jack Bogle. Passive investing. The people who this advice most well serves are folks who want to get a handle on their finances and get a fair shake from the investment markets, then focus on their lives and careers. Folks who don't want to become part time investment analysts.

No one says don't start a real estate (or any other) business. This is America, if that's what someone wants to do great! But this place wasn't created to focus on that. There are plenty of places on the internet to discuss anything you want.
Because not all Bogleheads lack ambition beyond index investing and bonds. Bogleheads want well rounded advice, not all want the same exact thing you do. LOOK AT OP'S QUESTION. The question was asked because not everyone is content with mediocre returns or fears anything requiring any effort. We want control of our own destiny, not just hoping our employer will provide us with enough in our working years so that we don't go hungry in retirement. Until you open your mind to all options you cannot choose the best one for you.
Eloquently said. Couldn't agree more. Control - on leverage, terms, purchase and exit, tax incentives, durable income, inflation hedging, and diversification - all features of real estate - should be considered and embraced by investors. Don't listen to the skeptics and naysayers.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

User avatar
welderwannabe
Posts: 777
Joined: Fri Jun 16, 2017 8:32 am

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by welderwannabe » Sat Jun 09, 2018 5:37 pm

CnC wrote:
Sat Jun 09, 2018 11:31 am
Why buy bonds when CD's are beating or at least very near bnd returns? I just can not understand why locking in such a low yield is a good idea?
If interested rates go up you lose even more.
How is a brokered CD any different than buying a Treasury bill or note except for the fact that a Treasury is more liquid and will probably trade for a smaller spread?

Unless you are talking about direct CDs at a bank, to me a CD bought at a brokerage is nothing more than a bond insured by the Fed Govt. Sounds just like a Treasury to me.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.


Jim Beaux
Posts: 37
Joined: Sun Jul 23, 2017 4:29 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by Jim Beaux » Sat Jun 09, 2018 8:16 pm

He doesn't say, in so many words, "do not invest in international stocks." He says
Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. And the dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.
Does he think putting a portion of your stock allocation into international is "betting against America?" I don't know. AFAIK he hasn't said.
I dont believe so. The world is getting smaller. The 10 largest holdings (8.40% of total net assets) in Vanguard Total International Stock Index are companies often assumed to be American. Its almost a case of 'All Roads Lead To Rome'

1 Royal Dutch Shell plc
2 Tencent Holdings Ltd.
3 Samsung Electronics Co. Ltd.
4 Nestle SA
5 HSBC Holdings plc
6 Taiwan Semiconductor Manufacturing Co. Ltd.
7 Toyota Motor Corp.
8 Novartis AG
9 Roche Holding AG
10 Unilever

User avatar
whodidntante
Posts: 4047
Joined: Thu Jan 21, 2016 11:11 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by whodidntante » Sat Jun 09, 2018 9:36 pm

welderwannabe wrote:
Sat Jun 09, 2018 5:37 pm
CnC wrote:
Sat Jun 09, 2018 11:31 am
Why buy bonds when CD's are beating or at least very near bnd returns? I just can not understand why locking in such a low yield is a good idea?
If interested rates go up you lose even more.
How is a brokered CD any different than buying a Treasury bill or note except for the fact that a Treasury is more liquid and will probably trade for a smaller spread?

Unless you are talking about direct CDs at a bank, to me a CD bought at a brokerage is nothing more than a bond insured by the Fed Govt. Sounds just like a Treasury to me.
I think you would see the difference if you sold a treasury and a brokered CD prior to maturity.

tibbitts
Posts: 8006
Joined: Tue Feb 27, 2007 6:50 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by tibbitts » Sat Jun 09, 2018 10:31 pm

visualguy wrote:
Fri Jun 08, 2018 8:05 pm
tibbitts wrote:
Fri Jun 08, 2018 7:34 pm
You sound like the person who picks one or two individual stocks and gets a good return, and declares stock picking is a good low-effort activity that doesn't take much effort to get right. Of course some people do that and feel that way. But you live in an extremely atypical world where "most" of your colleagues own one or multiple rental properties.
It has just about zero in common with owning an individual stock.
It's more similar than different.

Theoretical
Posts: 1422
Joined: Tue Aug 19, 2014 10:09 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by Theoretical » Sat Jun 09, 2018 11:19 pm

tibbitts wrote:
Sat Jun 09, 2018 10:31 pm
visualguy wrote:
Fri Jun 08, 2018 8:05 pm
tibbitts wrote:
Fri Jun 08, 2018 7:34 pm
You sound like the person who picks one or two individual stocks and gets a good return, and declares stock picking is a good low-effort activity that doesn't take much effort to get right. Of course some people do that and feel that way. But you live in an extremely atypical world where "most" of your colleagues own one or multiple rental properties.
It has just about zero in common with owning an individual stock.
It's more similar than different.
However, whereas a small-fry retail stock picker has at most a minor proxy vote and a visit to the corporate annual meeting, and has basically no say in the management of the particular firm, a direct real estate investor HAS to be active in his/her purchase decisions, management decisions (including hiring a manager), the amount of leverage, the types of tenants obtained, etc... But even more than that is that the real estate investor HAS to be active is that the real estate investor has the ability to make those meaningful decisions. It's not a truly passive investment, but it sure can generate a lot of passive, tax-shielded income.

Theoretical
Posts: 1422
Joined: Tue Aug 19, 2014 10:09 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by Theoretical » Sat Jun 09, 2018 11:30 pm

welderwannabe wrote:
Sat Jun 09, 2018 5:37 pm
CnC wrote:
Sat Jun 09, 2018 11:31 am
Why buy bonds when CD's are beating or at least very near bnd returns? I just can not understand why locking in such a low yield is a good idea?
If interested rates go up you lose even more.
How is a brokered CD any different than buying a Treasury bill or note except for the fact that a Treasury is more liquid and will probably trade for a smaller spread?

Unless you are talking about direct CDs at a bank, to me a CD bought at a brokerage is nothing more than a bond insured by the Fed Govt. Sounds just like a Treasury to me.
You can pretty easily get a solid 15-20 bps premium in the secondary market for odd maturities and small lots. I've bought about 40K of brokered CDs of various maturities in the last year and a half and have pretty consistently managed to get good deals by waiting for 8 bonds here, 2 there, and 3 there. As long as you buy at a discount, your investment is fully FDIC insured. The trick is to sort by yield and look for the highest bonds that have the earliest maturity - you'll typically see a bunch of the farthest out ones and then a few outliers 6-9 months earlier that are carrying the same yield for a single lot of 3 bonds. Lest 20bps not seem like much, it is essentially a bit less than a regular interest rate hike higher, and the CD will also be of shorter duration. I've done this with maturities from 1 year to 5.5 years.

The two catches are that you want to have a high yield savings account or an ultra-conservative short fund like Fidelity's Conservative Income (FCONX) to hold the bits and chunks of interest and two that your holdings, while more liquid than a bank CD, are still going to get a haircut if you have to sell early. It's one of the few areas where we retail investors have a sizable advantage over institutional investors.

Theoretical
Posts: 1422
Joined: Tue Aug 19, 2014 10:09 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by Theoretical » Sat Jun 09, 2018 11:46 pm

AlphaLess wrote:
Sat Jun 09, 2018 3:22 pm
Theoretical wrote:
Sat Jun 09, 2018 9:09 am
AlphaLess wrote:
Sat Jun 09, 2018 2:55 am
permport wrote:
Fri May 18, 2018 10:45 pm
Cash / short term fixed income.

It's not really that bonds are bad, it's more that he doesn't like the risk/return characteristics of the intermediate and longer term issues.

Just shorten the duration of the bond portion of your portfolio if you are really concerned, but abandoning fixed income entirely isn't probably something we should do. Berkshire itself keeps billions in short term treasuries.
One criticism I have of Buffet is that he hoards cash.
Keeping that cash uninvested is basically a foregone opportunity.
Simply: it is a drag on performance.
Not the way he uses it. The way he was positioned in 2008 more than made up for any cash drag. It means the returns are bursty rather than smooth, but being the provider of liquidity at the table as a vulture is a huge deal. The strategy may or may not work over a particular time period, but it's a time-tested reality.
What you have described is market timing.
I would distinguish it in this way:

Passive Investing - invest regardless of the market situation
Market Timing Investing - speculation about price movements without management control/direction
Business Management - market timing investing AND management control/direction

Buffett's is all #3. It's active, but it's active where the owner controls some of the company's destiny instead of being wholly dependent on the underlying stock or management team. Furthermore, unlike a mutual fund that just seeks the returns, Berkshire is actually owning and running the company or making major corporate decisions. I could not imagine a Vanguard corporate bond fund competently running a company that went into receivership with its own resources. That's the difference.

fujiters
Posts: 112
Joined: Tue Mar 06, 2018 2:17 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by fujiters » Sun Jun 10, 2018 2:38 am

frugalecon wrote:
Sat Jun 09, 2018 11:27 am
For the people who like to have a real estate side hustle (or maybe not-so-side hustle), I wonder what their exit strategy is like.i am pretty confident that an index fund portfolio is easier to deal with in old age than a pile of real estate, but perhaps I am mistaken. I have watched my FIL slowly losing grasp on the ability to manage his holdings, which are now deteriorating and generating no real income.
I think the exit strategy is find a real estate agent (or FSBO them if you're capable) and sell off the assets. But managing taxes in this situation isn't trivial and inheritance seems easier for stocks/bonds.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

Call_Me_Op
Posts: 7029
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by Call_Me_Op » Sun Jun 10, 2018 6:48 am

MnD wrote:
Fri Jun 08, 2018 6:16 pm
Call_Me_Op wrote:
Fri Jun 08, 2018 6:47 am
MnD wrote:
Sun May 20, 2018 2:13 pm
Call_Me_Op wrote:
Sun May 20, 2018 7:16 am
Perhaps it would help if you do not consider bonds an investment, but instead, protection against catastrophic loss. If you really want to invest all of your money in vehicles having high expected return, you need to accept the possibility of catastrophic loss.
I think of catastrophic loss like broad equity indices declining 80% and never recovering in my lifetime. In that situation I don't think you count on bonds for protection given that this protection requires issuers to meet their interest and maturity obligations along with the absence of currency debasement.
That has never happened before, so why would you consider that a realistic possibility? Quantum theory holds-out a minute possibility that I will vanish tomorrow, but I am not incorporating that possibility into my investment policy statement.
It may not have happened in the US but it has happened in other countries. And furthermore I was just pointing out that I don't consider any stock market declines I've invested through such as 1987, 1990, 2000-02, and 2008-09 to be "catastrophic loss". If hypothetically the US were to experience a catastrophic loss in stock prices I wouldn't be so certain that bonds would be a safe harbor, nor in other market scenarios. For the 1966 retiree attempting live on 4% real from their portfolio, the only thing having a higher bond allocation did for them was to ensure that they went broke a few years sooner versus 100% equity. The adage that stocks are risky and bonds are safe certainly satisfies the availability heuristic for virtually all US investors alive today, but it doesn't always hold up.
Note that you are essentially hypothesizing the end of capitalism as we know it. That is too far-out for me to consider as a realistic possibility.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
welderwannabe
Posts: 777
Joined: Fri Jun 16, 2017 8:32 am

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by welderwannabe » Sun Jun 10, 2018 7:48 am

whodidntante wrote:
Sat Jun 09, 2018 9:36 pm
I think you would see the difference if you sold a treasury and a brokered CD prior to maturity.
Again, aside from the yield spread difference they are similar. Someone can't crap all over bonds and simultaneously recommend brokered CDs. They are more similar than different.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

CantPassAgain
Posts: 577
Joined: Fri Mar 15, 2013 8:49 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by CantPassAgain » Sun Jun 10, 2018 11:37 am

md&pharmacist wrote:
Sat Jun 09, 2018 5:13 pm
CantPassAgain wrote:
Sat Jun 09, 2018 8:32 am
WanderingDoc wrote:
Fri Jun 08, 2018 8:31 pm
I'm not sure why either. I've been trying to understand for nearly a year on this forum.

The minds on this forum are very bright, much smarter than me. I have learned a ton in a short time. But people on here will insist to invest in inferior assets by nearly every single metric except liquidity. The sentiment is to invest in index funds, work full time for 30 years, and hopefully by then you can withdraw 4% and have enough for a mediocre to average retirement. Hopefully.

Those of us who actually took the time to learn the real estate game, have achieve enough passive income from real estate (in 5-7 years or much less) to cover our living expenses. No one is saying you HAVE to retire at 35, but having the option sure is sweet. That is called freedom. If you don't wake up every single morning, and going to do your job is the thing you most have a burning desire to do, you are a slave.

After having a lot of conversations, its clear to me that going to their work-a-day job isn't the best and only thing they could imagine doing that day, every day. If it isn't, you can do something about it. Investment vehicles exist that give you options and freedom. There is no nobility in being a cog in a machine if that isn't your passion.

visualguy wrote:
Fri Jun 08, 2018 8:09 pm
WanderingDoc wrote:
Fri Jun 08, 2018 7:47 pm
Real estate. Banks give you the money to buy the property (trying asking a bank to write you a $400K check to buy $500K of Apple or Amazon stock), tenants provide the money to build your equity, and you legally don't pay any taxes on your income. Things just cannot get sweeter than U.S. real estate :)
+1

Not sure why it's controversial here...
I am not sure why you and some others don't get this place. It is called "Bogelheads." Investing advice inspired by Jack Bogle. Passive investing. The people who this advice most well serves are folks who want to get a handle on their finances and get a fair shake from the investment markets, then focus on their lives and careers. Folks who don't want to become part time investment analysts.

No one says don't start a real estate (or any other) business. This is America, if that's what someone wants to do great! But this place wasn't created to focus on that. There are plenty of places on the internet to discuss anything you want.
Because not all Bogleheads lack ambition beyond index investing and bonds. Bogleheads want well rounded advice, not all want the same exact thing you do. LOOK AT OP'S QUESTION. The question was asked because not everyone is content with mediocre returns or fears anything requiring any effort. We want control of our own destiny, not just hoping our employer will provide us with enough in our working years so that we don't go hungry in retirement. Until you open your mind to all options you cannot choose the best one for you.
Thanks, but I wasn't responding to the OPs question. I was responding to WanderingDoc whose sole reason for posting in this forum is to pimp real estate like an infomercial.

As far as I can tell, every single one of your posts has been diametrically opposed to everything this forum was created to promote. Have you read the Boglehead principles? Do you even know the history of this forum and why it is here? You obviously think Bogelhead principles are synonymous with mediocrity so, why exactly are you here? It doesn't seem like an accident that you just stumbled across the forum looking for investment advice. Boglehead principles obviously have nothing to offer you so what is it you are hoping to gain from this community?

AlphaLess
Posts: 714
Joined: Fri Sep 29, 2017 11:38 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by AlphaLess » Sun Jun 10, 2018 12:46 pm

Theoretical wrote:
Sat Jun 09, 2018 11:46 pm
I would distinguish it in this way:

Passive Investing - invest regardless of the market situation
Market Timing Investing - speculation about price movements without management control/direction
Business Management - market timing investing AND management control/direction

Buffett's is all #3. It's active, but it's active where the owner controls some of the company's destiny instead of being wholly dependent on the underlying stock or management team. Furthermore, unlike a mutual fund that just seeks the returns, Berkshire is actually owning and running the company or making major corporate decisions. I could not imagine a Vanguard corporate bond fund competently running a company that went into receivership with its own resources. That's the difference.
I can see myself agreeing with that framework.

And some of Buffet's decisions that were more purely #2 went horribly.

bluerafters
Posts: 82
Joined: Mon Sep 18, 2017 7:14 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by bluerafters » Sun Jun 10, 2018 4:01 pm

stemikger wrote:
Sat May 19, 2018 10:04 am
I love Buffett, but I don't have the stomach for 90% stocks. I will stick with 60/40 and hopefully it gets me there.
I'm there myself at 60/40 but doesn't the idle 40% gnaw at your soul? It's taken every once of my will to not 75/25 and live with the consequences. At 41, and fundamentally optimistic, I'm trying to cultivate a 20 year mentality but I can't help think of hypothetical missed returns because I parked as a hedge...

User avatar
CyclingDuo
Posts: 1727
Joined: Fri Jan 06, 2017 9:07 am

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by CyclingDuo » Sun Jun 10, 2018 4:27 pm

md&pharmacist wrote:
Fri Jun 08, 2018 9:13 am
Hammered in the dot com bust and in 2008. I lost nothing in either. And you're telling me not to exit on the next beating? Market timing has worked out extremely well for those who know how to do it objectively - most people probably do it on emotion and not information. If my timing is wrong I have a strategy for that too, I buy back into better performing funds so it becomes a win win.
You have an amazing business with elite cash flow, more money than the majority of us here at BH will ever see in our lifetime due to our income levels being lower through career choices, and you have the capital to invest in higher priced commercial real estate at a level most of us will never be able to invest in at the same level/amount which provides you with an additional stream of cash flow to boot. You are clearly in the fatFIRE realm, where the majority who participate on these boards will either never achieve FIRE, will make it into the realm of FIRE, or will fall somewhere between the two.

A successful investor is not judged on the size of the pot they have accumulated. :mrgreen:

In terms of "beatings", there was a nice correction/bear market in 1987. There was the bear market of 1990. Corrections in 1997, 1998, 1999. Bear market of 2000-2002. Correction in 2003. Correction in 2004. Bear market of 2007-2009. Correction in 2010. Correction/bear market in 2011. Correction in 2012. Correction in 2013. Two corrections in 2014. Correction/bear market of mid-2015 to mid-2016. Current correction of 2018. There will be many more as we move forward and live through the remainder of our lives.

That's a lot of beatings and timing to get right on both ends of the equation. :P

We are in the camp of staying the course even though our asset allocation has migrated to a different ratio in our mid to late 50's than it was in our 20's, 30's and 40's as we follow the glide path towards retirement.

We did participate in our version of timing along the way by selling shares to pay for tuition for our children with no regard for whether the market was up or down at the time. The reason we sold was to cover the tuition bills as they were due each semester. This was planned selling from the day we opened the accounts and started contributing to them 18-24 years earlier. Call it the tuition driven decumulation years for the accounts that were set aside for college educations. Or if we had a major purchase we wanted to make along the way (buy a car for cash) from our own taxable account.

We are wrapping up our accumulation years for retirement over the next 5-10 years and will enter the decumulation years in the same manner as how we handled the college tuition bills - selling shares as needed to cover costs that are not covered by our other streams of income at the time (pension, dividends, Social Security, royalties). Plenty of discussion has been had on these forums as to whether investors should use a market timing strategy between now and retirement compared to just putt-putting along by continuing with their bi-weekly and monthly contributions to all retirement plans and savings vehicles.

If you can time the market's "beatings" every time, great for you. More power to you and all the best over the next few decades with your timing strategy.

One nice thing about index fund investing and the BH philosophy of investing by just staying the course in one's proper asset allocation reminds me a bit like driving the speed limit. You never have to worry about getting a speeding ticket because you are always driving the speed limit in the first place. :beer

If one is contributing every single bi-weekly or monthly pay period in their workplace retirement plans, they are buying through the thick and the thin as they stay the course. Beatings are a part of staying the course - whether it is in the form of a garden variety correction, or a bear market. Rebalancing is indeed a form of market timing which is part of the BH philosophy, but that is different than an all in, or all out strategy. It's always easy in retrospect to say one could have timed the financial crisis perfectly and not had to wait 6-7 years for the portfolio to climb higher than it was to start with, but getting it right in terms of when to sell, paying the capital gains, timing it right when to get back in, and repeating this on a regular basis when corrections and bear markets occur is akin to hitting a 99 mile an hour fast ball. You can take a few swings and hacks at it and you might make contact one or two times, but the rest will be major whiffs.

http://nymag.com/vindicated/2016/11/how ... -time.html

An index fund exists merely to share in the market’s profits (or losses) by essentially buying all the stocks or bonds in a given index on a weighted basis. Buy it and forget it and you’ll make money in the long run. Competitors had every reason to bad-mouth such an entity, because it represented a huge threat to their fat management fees. He recalls: “Ned Johnson at Fidelity said, ‘Our investors want above average returns. Who would settle for average?’ They didn’t. They got less.”

Investors, it seems, still want to believe in magic.



Jack Bogle on crashes, asset allocation, market timing, and staying the course:

Here's one from 2013 where bonds yielded close to today and rates were rising...

https://www.cnbc.com/video/2013/08/20/i ... bogle.html

And various other views, comments, time periods since....

https://www.cnbc.com/2016/01/20/investi ... ourse.html

https://youtu.be/k6ra5POdsYg

http://www.businessinsider.com/jack-bog ... als-2017-4

http://www.morningstar.com/videos/77279 ... ght-c.html
"Everywhere is within walking distance if you have the time." ~ Steven Wright

User avatar
stemikger
Posts: 4902
Joined: Thu Apr 08, 2010 5:02 am

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by stemikger » Sun Jun 10, 2018 5:24 pm

bluerafters wrote:
Sun Jun 10, 2018 4:01 pm
stemikger wrote:
Sat May 19, 2018 10:04 am
I love Buffett, but I don't have the stomach for 90% stocks. I will stick with 60/40 and hopefully it gets me there.
I'm there myself at 60/40 but doesn't the idle 40% gnaw at your soul? It's taken every once of my will to not 75/25 and live with the consequences. At 41, and fundamentally optimistic, I'm trying to cultivate a 20 year mentality but I can't help think of hypothetical missed returns because I parked as a hedge...
Yes it does. John Bogle calls this the investor's dilemma. Jack is 50/50 and half the time he wonders why he has so much in stocks and the other half the time he wonders why he has so little.

Everytime, I want to change my allocation to go heavier in stocks, I think of my regret when the market takes a really big hit and I lose almost half my value. Some people can sleep well at night with that scenario, but I am not one of them. It's probably the hardest decision us know-nothing investors have to make.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

Random Walker
Posts: 3068
Joined: Fri Feb 23, 2007 8:21 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by Random Walker » Sun Jun 10, 2018 5:43 pm

stemikger wrote:
Sun Jun 10, 2018 5:24 pm
bluerafters wrote:
Sun Jun 10, 2018 4:01 pm
stemikger wrote:
Sat May 19, 2018 10:04 am
I love Buffett, but I don't have the stomach for 90% stocks. I will stick with 60/40 and hopefully it gets me there.
I'm there myself at 60/40 but doesn't the idle 40% gnaw at your soul? It's taken every once of my will to not 75/25 and live with the consequences. At 41, and fundamentally optimistic, I'm trying to cultivate a 20 year mentality but I can't help think of hypothetical missed returns because I parked as a hedge...
Yes it does. John Bogle calls this the investor's dilemma. Jack is 50/50 and half the time he wonders why he has so much in stocks and the other half the time he wonders why he has so little.

Everytime, I want to change my allocation to go heavier in stocks, I think of my regret when the market takes a really big hit and I lose almost half my value. Some people can sleep well at night with that scenario, but I am not one of them. It's probably the hardest decision us know-nothing investors have to make.
I think one way to potentially deal with this dilemma is to find an AA one can stick with throughout the early and mid earnings years, 60/40, 70/30, or whatever. Then when the size of the bond component is large enough, say big enough to support 10-15 years conservative spending, the investor can then just add to equities through the remainder of their accumulation period. Once a pretty substantial retirement floor is in place, the rest can be invested in riskier assets. I have always liked looking at my investments as a whole from top down. But the William Bernstein approach of a separate safe liability matching portfolio and risk portfolio makes sense. If one is a bit adventurous, don’t need the safe LMP to have 30 years worth of assets, can perhaps shorten it to 10-15, assuming the investor believes equity markets will bounce upwards over 15-20 years.

Dave

WanderingDoc
Posts: 1100
Joined: Sat Aug 05, 2017 8:21 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by WanderingDoc » Sun Jun 10, 2018 6:36 pm

Random Walker wrote:
Sun Jun 10, 2018 5:43 pm
stemikger wrote:
Sun Jun 10, 2018 5:24 pm
bluerafters wrote:
Sun Jun 10, 2018 4:01 pm
stemikger wrote:
Sat May 19, 2018 10:04 am
I love Buffett, but I don't have the stomach for 90% stocks. I will stick with 60/40 and hopefully it gets me there.
I'm there myself at 60/40 but doesn't the idle 40% gnaw at your soul? It's taken every once of my will to not 75/25 and live with the consequences. At 41, and fundamentally optimistic, I'm trying to cultivate a 20 year mentality but I can't help think of hypothetical missed returns because I parked as a hedge...
Yes it does. John Bogle calls this the investor's dilemma. Jack is 50/50 and half the time he wonders why he has so much in stocks and the other half the time he wonders why he has so little.

Everytime, I want to change my allocation to go heavier in stocks, I think of my regret when the market takes a really big hit and I lose almost half my value. Some people can sleep well at night with that scenario, but I am not one of them. It's probably the hardest decision us know-nothing investors have to make.
I think one way to potentially deal with this dilemma is to find an AA one can stick with throughout the early and mid earnings years, 60/40, 70/30, or whatever. Then when the size of the bond component is large enough, say big enough to support 10-15 years conservative spending, the investor can then just add to equities through the remainder of their accumulation period. Once a pretty substantial retirement floor is in place, the rest can be invested in riskier assets. I have always liked looking at my investments as a whole from top down. But the William Bernstein approach of a separate safe liability matching portfolio and risk portfolio makes sense. If one is a bit adventurous, don’t need the safe LMP to have 30 years worth of assets, can perhaps shorten it to 10-15, assuming the investor believes equity markets will bounce upwards over 15-20 years.

Dave
Do you think rental income or cash can function in a similar fashion to bonds in your example above? My rentals are returning 15-20% annualized and cover my living expenses. So in theory it should support conservative spending in perpetuity. Would that be a reasonable case to just add money into equities?
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by dbr » Sun Jun 10, 2018 6:52 pm

WanderingDoc wrote:
Sun Jun 10, 2018 6:36 pm

Do you think rental income or cash can function in a similar fashion to bonds in your example above? My rentals are returning 15-20% annualized and cover my living expenses. So in theory it should support conservative spending in perpetuity. Would that be a reasonable case to just add money into equities?
For purposes of this sort of discussion cash is bonds, so don't worry if that is what you want to do.

By similar discussion income streams are most definitely not bonds, especially when produced by running a business such as rental real estate.

What you can and should do, however, is take account of all your assets, your income, your situation, and your objectives and consider how much risk to take with investments according to your need, ability, and willingness to take risk. If you don't have much need for return you don't have to take risk. If you have a high ability to take risk you can either trump that with the maxim to take no more risk than needed or you can reconsider your opportunities. It could be that having plenty of income justifies taking little risk with equities. Having a real estate business may justify keeping more conservative assets as a reserve. And so on.

JustinR
Posts: 694
Joined: Tue Apr 27, 2010 11:43 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by JustinR » Sun Jun 10, 2018 6:52 pm

Are taxable CDs better than bonds in my 401k?

WanderingDoc
Posts: 1100
Joined: Sat Aug 05, 2017 8:21 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by WanderingDoc » Sun Jun 10, 2018 7:34 pm

dbr wrote:
Sun Jun 10, 2018 6:52 pm
WanderingDoc wrote:
Sun Jun 10, 2018 6:36 pm

Do you think rental income or cash can function in a similar fashion to bonds in your example above? My rentals are returning 15-20% annualized and cover my living expenses. So in theory it should support conservative spending in perpetuity. Would that be a reasonable case to just add money into equities?
For purposes of this sort of discussion cash is bonds, so don't worry if that is what you want to do.

By similar discussion income streams are most definitely not bonds, especially when produced by running a business such as rental real estate.

What you can and should do, however, is take account of all your assets, your income, your situation, and your objectives and consider how much risk to take with investments according to your need, ability, and willingness to take risk. If you don't have much need for return you don't have to take risk. If you have a high ability to take risk you can either trump that with the maxim to take no more risk than needed or you can reconsider your opportunities. It could be that having plenty of income justifies taking little risk with equities. Having a real estate business may justify keeping more conservative assets as a reserve. And so on.
Makes sense. Thank you.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

Random Walker
Posts: 3068
Joined: Fri Feb 23, 2007 8:21 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by Random Walker » Sun Jun 10, 2018 9:17 pm

Wandering doc,
I don’t know anything about real estate. You’re doing it, so likely nobody more expert on your specific situation than you. I can certainly appreciate the apparent bond like character of that income that’s coming in. I agree with dbr that only you can assess the rental income’s effect on the remainder of your AA. My naive inclination might be to perhaps go a little heavier on the equities and lighter on bonds in that circumstance. It’s all about ability, willingness, need to take risk plus the dependability of the rental income and the liquidity of the rental properties.

Dave

User avatar
stemikger
Posts: 4902
Joined: Thu Apr 08, 2010 5:02 am

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by stemikger » Mon Jun 11, 2018 5:42 am

Random Walker wrote:
Sun Jun 10, 2018 5:43 pm
stemikger wrote:
Sun Jun 10, 2018 5:24 pm
bluerafters wrote:
Sun Jun 10, 2018 4:01 pm
stemikger wrote:
Sat May 19, 2018 10:04 am
I love Buffett, but I don't have the stomach for 90% stocks. I will stick with 60/40 and hopefully it gets me there.
I'm there myself at 60/40 but doesn't the idle 40% gnaw at your soul? It's taken every once of my will to not 75/25 and live with the consequences. At 41, and fundamentally optimistic, I'm trying to cultivate a 20 year mentality but I can't help think of hypothetical missed returns because I parked as a hedge...
Yes it does. John Bogle calls this the investor's dilemma. Jack is 50/50 and half the time he wonders why he has so much in stocks and the other half the time he wonders why he has so little.

Everytime, I want to change my allocation to go heavier in stocks, I think of my regret when the market takes a really big hit and I lose almost half my value. Some people can sleep well at night with that scenario, but I am not one of them. It's probably the hardest decision us know-nothing investors have to make.
I think one way to potentially deal with this dilemma is to find an AA one can stick with throughout the early and mid earnings years, 60/40, 70/30, or whatever. Then when the size of the bond component is large enough, say big enough to support 10-15 years conservative spending, the investor can then just add to equities through the remainder of their accumulation period. Once a pretty substantial retirement floor is in place, the rest can be invested in riskier assets. I have always liked looking at my investments as a whole from top down. But the William Bernstein approach of a separate safe liability matching portfolio and risk portfolio makes sense. If one is a bit adventurous, don’t need the safe LMP to have 30 years worth of assets, can perhaps shorten it to 10-15, assuming the investor believes equity markets will bounce upwards over 15-20 years.

Dave
Hi Dave,

I did think about this at one point, but in a downturn losing half the value of equities will still be a psychological impact that would cause me to lose sleep especially as I get closer to retirement. For simplicity sake, I rather just leave it as a 60/40 AA for life. Another important reason is that my wife is not savvy when it comes to investing, so my plan is to put it all in the balanced index fund so all she has to do is take withdrawals. Even two funds might be too much for her.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

Call_Me_Op
Posts: 7029
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by Call_Me_Op » Mon Jun 11, 2018 7:34 am

AlphaLess wrote:
Sat Jun 09, 2018 2:55 am
One criticism I have of Buffet is that he hoards cash.
Keeping that cash uninvested is basically a foregone opportunity.
Simply: it is a drag on performance.
Seems to have worked-out OK for him.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
linenfort
Posts: 2100
Joined: Sat Sep 22, 2007 9:22 am
Location: #96151D

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by linenfort » Sun Jul 08, 2018 2:14 pm

bondsr4me wrote:
Sun May 20, 2018 8:48 pm
Quickfoot wrote:
Sun May 20, 2018 6:48 pm

Precisely, bonds are a horrendous investment which is why they shouldn't be bought as an investment at all. Bonds should be bought to decrease portfolio volatility caused by equities to the point the overall portfolio achieves the desired goal without exceeding the portfolio owner's ability or willingness to assume risk. I perceive the statement the same as what wise people say about housing, "a house is not an investment, it it is a place to live, if you are lucky the house value will slightly beat inflation and after selling costs and maintenance you MIGHT break even."

The message isn't "don't buy bonds" it is "don't view the bonds you buy as an investment, while they may tame volatility they also lesson the returns of your actual investments, equities."
+1

I agree with the above.
Your explanatory posts notwithstanding, it gives me pause to read this from someone whose handle is “bondsr4me.” :wink:
bogleheads, don't knock state lotteries. They helped defund the mafia.

User avatar
WestUniversity
Posts: 140
Joined: Sat Oct 07, 2017 7:27 am

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by WestUniversity » Sun Jul 08, 2018 3:50 pm

rjb112 wrote:
Fri May 18, 2018 10:21 pm
During this year's annual Berkshire Hathaway meeting, Buffett said:

"Bonds are a terrible investment at anywhere near current yields.” He continued, “The only time bonds were interesting was in the early to mid-1980’s"

So what should we invest in besides stocks?
There was an extremely successful Wall Street financier and trader many years ago named Bernard Baruch. When someone asked him what the secret of his investing success was he responded, “I buy my straw hats in the winter”. In other words it’s winter now, but summer is coming.

Anything that is out of favor now could potentially be a buy opportunity...

rjb112
Posts: 91
Joined: Sun Jan 05, 2014 6:27 am

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by rjb112 » Sun Jul 08, 2018 4:01 pm

"There was an extremely successful Wall Street financier and trader many years ago named Bernard Baruch. When someone asked him what the secret of his investing success was he responded, “I buy my straw hats in the winter”. In other words it’s winter now, but summer is coming.

Anything that is out of favor now could potentially be a buy opportunity..."
++++++++++++++++++++++++++++++++++++

OK, but to think this way about bonds......that they are a buying opportunity because they are out of favor.......you would have to believe that interest rates will go down substantially, and for a fairly long time. That doesn't seem to be the outlook for interest rates going forward.

international001
Posts: 439
Joined: Thu Feb 15, 2018 7:31 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by international001 » Sun Jul 08, 2018 5:49 pm

siamond wrote:
Sat May 19, 2018 1:26 pm

US REITs were quite correlated in the past with small and mid size value stocks (SCV/MCV), while returning less premium. I see little reason for Int'l REITs to behave otherwise, although the indices are defined a bit differently. Comparing the diversification properties of REITs with SCV/MCV, one can notice a lot of overlap, and also that REITs were less effective. You can read more details here. Took me forever to get the point, and to consolidate the REIT position in my AA with my SCV/MCV tilt. Dumb of me. I've learned my lesson now.

EDIT: clarified after re-reading my own blog post! :wink:
This article is crap.. author calls using SCV a diversifier because it offers higher returns. This just increases CAGR and volatility. A diversifier increases the risk-adjusted return (for instance, sharpe ratio). Bonds typically achieve this because by being uncorrelated to stocks

User avatar
willthrill81
Posts: 5755
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by willthrill81 » Sun Jul 08, 2018 5:52 pm

international001 wrote:
Sun Jul 08, 2018 5:49 pm
siamond wrote:
Sat May 19, 2018 1:26 pm

US REITs were quite correlated in the past with small and mid size value stocks (SCV/MCV), while returning less premium. I see little reason for Int'l REITs to behave otherwise, although the indices are defined a bit differently. Comparing the diversification properties of REITs with SCV/MCV, one can notice a lot of overlap, and also that REITs were less effective. You can read more details here. Took me forever to get the point, and to consolidate the REIT position in my AA with my SCV/MCV tilt. Dumb of me. I've learned my lesson now.

EDIT: clarified after re-reading my own blog post! :wink:
This article is crap.. author calls using SCV a diversifier because it offers higher returns. This just increases CAGR and volatility. A diversifier increases the risk-adjusted return (for instance, sharpe ratio). Bonds typically achieve this because by being uncorrelated to stocks
The goal of diversification is not just to increase risk-adjusted returns. SCV's returns are not 100% correlated that of the TSM; this means that it can offer some diversification. Whether that added diversification is adequate for investors' purposes is up to them.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

david1082b
Posts: 371
Joined: Fri Jun 09, 2017 12:35 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by david1082b » Sun Jul 08, 2018 6:29 pm

international001 wrote:
Sun Jul 08, 2018 5:49 pm
siamond wrote:
Sat May 19, 2018 1:26 pm

US REITs were quite correlated in the past with small and mid size value stocks (SCV/MCV), while returning less premium. I see little reason for Int'l REITs to behave otherwise, although the indices are defined a bit differently. Comparing the diversification properties of REITs with SCV/MCV, one can notice a lot of overlap, and also that REITs were less effective. You can read more details here. Took me forever to get the point, and to consolidate the REIT position in my AA with my SCV/MCV tilt. Dumb of me. I've learned my lesson now.

EDIT: clarified after re-reading my own blog post! :wink:
This article is crap.. author calls using SCV a diversifier because it offers higher returns. This just increases CAGR and volatility. A diversifier increases the risk-adjusted return (for instance, sharpe ratio). Bonds typically achieve this because by being uncorrelated to stocks
Apparently, small-cap value did actually help increase the sharpe ratio of a stock portfolio in the last twenty years while also increasing the standard deviation, e.g. this comparison of 100% US market with 50% small-cap value and 50% US market https://www.portfoliovisualizer.com/bac ... Value3=100

This holds true if you start in 1972 too. The takeaway is that small-cap value has historically had a better sharpe ratio than the total US market as well as a higher standard deviation. The extra historical returns for small-value seemed to be big enough to increase risk-adjusted returns despite the extra deviations. 100% US market versus 100% small-value starting in 1972: https://www.portfoliovisualizer.com/bac ... Value2=100

international001
Posts: 439
Joined: Thu Feb 15, 2018 7:31 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by international001 » Mon Jul 09, 2018 5:25 am

YEs, marginally. I aggree But this is very different that the ;total return' article looks at

Dasnyc
Posts: 59
Joined: Wed Oct 16, 2013 6:51 pm

Re: Buffett says Bonds are a terrible investment now. What should we invest in besides stocks?

Post by Dasnyc » Mon Jul 09, 2018 6:05 am

sschullo wrote:
Sat May 19, 2018 11:37 am
I invest 70% of my portfolio in bonds, not because of returns, but because of balance. Buffett doesn't have to worry about balancing his portfolio (are you kidding?!). He is in a different universe. And what he says is great for him, and he is correct for him.
As a mere mortal and a nobody, I have a balanced portfolio because if I put too much equity risk in my portfolio as a 70-year old, I could be in deep trouble--losing 50% of my equity position would be very damaging for the rest of my short life. I had already lost 70% during the 2000 tech crash with a 95% equity exposure, and I will never want to make that mistake again. As a 55-year-old at the time, I was extremely lucky to have just enough time to recover and that I had real estate investments.

Steve
I suspect that there are a good number of us that remember 2000, and the losses, and the fear of watching our stock heavy portfolios massively shrinking day by day. As a result, my portfolio is also heavily tilted towards bonds. Like you, I don’t have the luxury of time to wait out an extended downturn. In the words of those much more knowledgeable than me, I ‘have enough’ and am no longer ‘playing the game’ with my money.

Post Reply