Best corporate long-term bond fund

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international001
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Best corporate long-term bond fund

Post by international001 » Thu Sep 20, 2018 9:11 am

Before anybody asks, I want something with high volatility because I'm going to spend it in EUR most likely, anyway
And Long term government bonds may make your portfolio way too volatile if you overload in them.

VWESX or VLTCX ?

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vineviz
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Re: Best corporate long-term bond fund

Post by vineviz » Thu Sep 20, 2018 9:29 am

Better bet: Vanguard Long-Term Treasury Index Fund Admiral Shares (VLGSX)
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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jeffyscott
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Re: Best corporate long-term bond fund

Post by jeffyscott » Thu Sep 20, 2018 11:34 am

VWESX may be more diversified, the index fund has 70% in one category, industrial. VWETX/VWESX has about 45% in that category.
press on, regardless - John C. Bogle

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randomizer
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Re: Best corporate long-term bond fund

Post by randomizer » Thu Sep 20, 2018 11:37 am

international001 wrote:
Thu Sep 20, 2018 9:11 am
Before anybody asks, I want something with high volatility because I'm going to spend it in EUR most likely, anyway
And Long term government bonds may make your portfolio way too volatile if you overload in them.
Can you explain this a bit? What does EUR have to do with volatility? And I didn't quite get what you mean by wanting something with "high volatility" in the one hand but feeling something is "too volatile" on the other.
87.5:12.5, EM tilt — HODL the course!

venkman
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Re: Best corporate long-term bond fund

Post by venkman » Thu Sep 20, 2018 9:56 pm

For long-term corporate bonds, I'd go with the higher credit quality and active management of VWESX.

stlutz
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Re: Best corporate long-term bond fund

Post by stlutz » Thu Sep 20, 2018 11:04 pm

VWESX is an actively-managed fund that benchmarks itself against an index of A or better rated bonds.

VLTCX is an index fund that tracks and index of BBB or better bonds. So, it takes on more credit risk.

Note that VLTCX has a 1% purchase fee. If you go that route, it might be worth considering the ETF option (VCLT) instead.

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welderwannabe
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Re: Best corporate long-term bond fund

Post by welderwannabe » Fri Sep 21, 2018 2:55 am

Agree with the above posters for both VWESX and VLTCX.

However, OP should really research this first. I certainly wouldn't want a portfolio of long term corps. Today's Netflix is tomorrow's Enron.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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dratkinson
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Re: Best corporate long-term bond fund

Post by dratkinson » Fri Sep 21, 2018 6:41 am

Are you retiring in Europe? I ask because recall uncle sugar (US) will take a large bite out of your return if invest in US-domiciled investments from overseas. In this case, believe most recommend not using US-domiciled investments.

See wiki: https://www.bogleheads.org/wiki/Outline ... _domiciles
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

international001
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Re: Best corporate long-term bond fund

Post by international001 » Fri Sep 21, 2018 6:19 pm

randomizer wrote:
Thu Sep 20, 2018 11:37 am
international001 wrote:
Thu Sep 20, 2018 9:11 am
Before anybody asks, I want something with high volatility because I'm going to spend it in EUR most likely, anyway
And Long term government bonds may make your portfolio way too volatile if you overload in them.
Can you explain this a bit? What does EUR have to do with volatility? And I didn't quite get what you mean by wanting something with "high volatility" in the one hand but feeling something is "too volatile" on the other.
Currency volatility USD/EUR is around 8%. It doesn't make sense to get an investment with less volatility than that. I would have to get some hedge (future contracts, options), but I don't want to overcomplicate it. It's the same concept of buying international bonds: always buy them hedged. For stocks it does not matter

international001
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Re: Best corporate long-term bond fund

Post by international001 » Fri Sep 21, 2018 6:21 pm

vineviz wrote:
Thu Sep 20, 2018 9:29 am
Better bet: Vanguard Long-Term Treasury Index Fund Admiral Shares (VLGSX)
I have those. But having too many may backfire. You just have to look at historical efficient frontiers. They offer less return for the same volatility (vs corporate), what it's ok if you own a high % of stocks. But if your portfolio is more conservative, the high volatility of those long term treasury is not worth it.

international001
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Re: Best corporate long-term bond fund

Post by international001 » Fri Sep 21, 2018 6:27 pm

dratkinson wrote:
Fri Sep 21, 2018 6:41 am
Are you retiring in Europe? I ask because recall uncle sugar (US) will take a large bite out of your return if invest in US-domiciled investments from overseas. In this case, believe most recommend not using US-domiciled investments.

See wiki: https://www.bogleheads.org/wiki/Outline ... _domiciles
Sorry.. can you explain, or point me to the exact point of the wiki?

I thought as long as you are US citizen you just have to pay according to US taxes to US. Non US citizens cannot invest in EU based funds (FATCA)

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dratkinson
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Re: Best corporate long-term bond fund

Post by dratkinson » Sat Sep 22, 2018 3:22 pm

international001 wrote:
Fri Sep 21, 2018 6:27 pm
dratkinson wrote:
Fri Sep 21, 2018 6:41 am
Are you retiring in Europe? I ask because recall uncle sugar (US) will take a large bite out of your return if invest in US-domiciled investments from overseas. In this case, believe most recommend not using US-domiciled investments.

See wiki: https://www.bogleheads.org/wiki/Outline ... _domiciles
Sorry.. can you explain, or point me to the exact point of the wiki?

I thought as long as you are US citizen you just have to pay according to US taxes to US. Non US citizens cannot invest in EU based funds (FATCA)
international001 wrote:
Thu Sep 20, 2018 9:11 am
...I'm going to spend it in EUR most likely,...
Your OP (original post, original poster) does not make your situation clear.
--Will you be a US citizen in Europe for a visit?
--Will you be retiring to Europe?
--Will you keep your US citizenship if you retire to Europe?
--Will you surrender your US citizenship if you retire to Europe?

Believe the answer to your question depends upon your situation*.

* I'm not claiming to know the answer to your question, only that those who do will need to know your situation before they can answer.



From my above wiki link, the first topic discussed provides some information. Its first and last links to additional information seem to bound the issues.
Tax issues.
--Non-US investor's guide to navigating US tax traps: https://www.bogleheads.org/wiki/Non-US_ ... _tax_traps
--Taxation as a US person living abroad: https://www.bogleheads.org/wiki/Taxatio ... ing_abroad



What is your situation that you will be "...going to spend it in EUR most likely"?
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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vineviz
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Re: Best corporate long-term bond fund

Post by vineviz » Sat Sep 22, 2018 5:31 pm

international001 wrote:
Fri Sep 21, 2018 6:21 pm
vineviz wrote:
Thu Sep 20, 2018 9:29 am
Better bet: Vanguard Long-Term Treasury Index Fund Admiral Shares (VLGSX)
I have those. But having too many may backfire. You just have to look at historical efficient frontiers. They offer less return for the same volatility (vs corporate), what it's ok if you own a high % of stocks. But if your portfolio is more conservative, the high volatility of those long term treasury is not worth it.
Assuming that what you ultimately care about is the total portfolio, you can construct a portfolio that has a higher return/volatility ratio using treasuries than you can with corporates.

That means building a less risky portfolio for the same return.

Whether a portfolio is “conservative” is a function of its overall volatility, not the percentage allocation to bonds.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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vineviz
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Re: Best corporate long-term bond fund

Post by vineviz » Sat Sep 22, 2018 7:34 pm

international001 wrote:
Fri Sep 21, 2018 6:21 pm
vineviz wrote:
Thu Sep 20, 2018 9:29 am
Better bet: Vanguard Long-Term Treasury Index Fund Admiral Shares (VLGSX)
I have those. But having too many may backfire. You just have to look at historical efficient frontiers. They offer less return for the same volatility (vs corporate), what it's ok if you own a high % of stocks. But if your portfolio is more conservative, the high volatility of those long term treasury is not worth it.
By way of example, imagine so-called "conservative" portfolio that is 30% Vanguard Total Stock Market Index Fund (VTSMX) and 70% Vanguard Long-Term Investment-Grade Fund (VWESX). Over the past 25 years such a portfolio would have had an annualized standard deviation of monthly returns of 7.67%.

Because treasuries are so much more effective as diversifiers (corporate bonds behave as a blend of treasuries and equities, but as a whole are somewhat less efficient), you could have built a portfolio that was 40% Vanguard Total Stock Market Index Fund (VTSMX) and 60% Vanguard Long-Term Treasury (VUSTX).

https://www.portfoliovisualizer.com/bac ... tion3_2=60

Even though this portfolio holds more stocks, it had a lower annualized standard deviation of monthly returns of just 7.41% and considerably better performance in periods of market turmoil. As such I'd argue that it actually is MORE conservative.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

fennewaldaj
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Re: Best corporate long-term bond fund

Post by fennewaldaj » Sat Sep 22, 2018 10:40 pm

vineviz wrote:
Sat Sep 22, 2018 7:34 pm
international001 wrote:
Fri Sep 21, 2018 6:21 pm
vineviz wrote:
Thu Sep 20, 2018 9:29 am
Better bet: Vanguard Long-Term Treasury Index Fund Admiral Shares (VLGSX)
I have those. But having too many may backfire. You just have to look at historical efficient frontiers. They offer less return for the same volatility (vs corporate), what it's ok if you own a high % of stocks. But if your portfolio is more conservative, the high volatility of those long term treasury is not worth it.
By way of example, imagine so-called "conservative" portfolio that is 30% Vanguard Total Stock Market Index Fund (VTSMX) and 70% Vanguard Long-Term Investment-Grade Fund (VWESX). Over the past 25 years such a portfolio would have had an annualized standard deviation of monthly returns of 7.67%.

Because treasuries are so much more effective as diversifiers (corporate bonds behave as a blend of treasuries and equities, but as a whole are somewhat less efficient), you could have built a portfolio that was 40% Vanguard Total Stock Market Index Fund (VTSMX) and 60% Vanguard Long-Term Treasury (VUSTX).

https://www.portfoliovisualizer.com/bac ... tion3_2=60

Even though this portfolio holds more stocks, it had a lower annualized standard deviation of monthly returns of just 7.41% and considerably better performance in periods of market turmoil. As such I'd argue that it actually is MORE conservative.
Isn't it conceivable that we enter a period where corporate bonds do pretty well (not many downgrades and defaults) but stocks do mediocre? That is the companies have the money to pay there debts but are not doing well enough that stocks do great. I get that looking at the past coporates look uneeded but the future might not look exactly like the past so why not hold them if returns look about the same in a back test.

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vineviz
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Re: Best corporate long-term bond fund

Post by vineviz » Sat Sep 22, 2018 11:11 pm

fennewaldaj wrote:
Sat Sep 22, 2018 10:40 pm

Isn't it conceivable that we enter a period where corporate bonds do pretty well (not many downgrades and defaults) but stocks do mediocre?
Conceivable? Sure.

Likely? No.

In years when stocks have lost money, corporate bonds have underperformed treasuries by an average of about 200 bps.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

garlandwhizzer
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Re: Best corporate long-term bond fund

Post by garlandwhizzer » Sun Sep 23, 2018 12:38 pm

vinevix wrote:

By way of example, imagine so-called "conservative" portfolio that is 30% Vanguard Total Stock Market Index Fund (VTSMX) and 70% Vanguard Long-Term Investment-Grade Fund (VWESX). Over the past 25 years such a portfolio would have had an annualized standard deviation of monthly returns of 7.67%.
Backtesting over 25 years is often misleading as to what the future will be and this is an excellent example of that. Most of the last 25 years has been a bond bull market in which ever decreasing interest rates juiced principal value of long term bonds, the longer the term, the greater the principal appreciation. Now that has reversed. Vanguard's Long Term Investment Grade Bond Fund has lost 6.11% YTD due to rising rates/inflation impact on principal value. If we add inflation over the last 9 months to that it amounts to a loss in real terms of more than 8% in 9 months. IMO anyone who bases their bond allocation on the past 25 years of bond market action as a reliable guide to the future is asking for trouble. Backtesting is predictive of the future if the backtesting period in question is exactly like the one that unfolds in the future. In this case the future seems very unlikely to be like the past.

Garland Whizzer

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vineviz
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Re: Best corporate long-term bond fund

Post by vineviz » Sun Sep 23, 2018 12:59 pm

garlandwhizzer wrote:
Sun Sep 23, 2018 12:38 pm
vinevix wrote:

By way of example, imagine so-called "conservative" portfolio that is 30% Vanguard Total Stock Market Index Fund (VTSMX) and 70% Vanguard Long-Term Investment-Grade Fund (VWESX). Over the past 25 years such a portfolio would have had an annualized standard deviation of monthly returns of 7.67%.
Backtesting over 25 years is often misleading as to what the future will be and this is an excellent example of that.
I think you misunderstood me. I was not making an argument about future returns of bonds at all.

I was just illustrating that corporate bonds are less efficient portfolio diversifiers than sovereign bonds.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

garlandwhizzer
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Re: Best corporate long-term bond fund

Post by garlandwhizzer » Sun Sep 23, 2018 1:46 pm

vineviz wrote:
I think you misunderstood me. I was not making an argument about future returns of bonds at all.

I was just illustrating that corporate bonds are less efficient portfolio diversifiers than sovereign bonds.
Totally agree with your conclusion.

Garland Whizzer

international001
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Re: Best corporate long-term bond fund

Post by international001 » Mon Sep 24, 2018 4:03 am

vineviz wrote:
Sat Sep 22, 2018 7:34 pm

https://www.portfoliovisualizer.com/bac ... tion3_2=60

Even though this portfolio holds more stocks, it had a lower annualized standard deviation of monthly returns of just 7.41% and considerably better performance in periods of market turmoil. As such I'd argue that it actually is MORE conservative.
I already did this exercise and arrived t sort of the same conclusion. Long term goverment bonds are a best diversifiers in general. But if you choose selective periods of time, once you have enough bonds (let's assume > 40%), in some cases goverment bonds are a worse diversifier. I guess goverment games with interest rates messes up things. The lower return/higher volatility of government bonds weights in and affects the overall portolio

This is why I want to add a few corporate long term bonds into the portfolio. To optimize for more time periods.

international001
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Re: Best corporate long-term bond fund

Post by international001 » Mon Sep 24, 2018 4:12 am

vineviz wrote:
Sat Sep 22, 2018 7:34 pm


By way of example, imagine so-called "conservative" portfolio that is 30% Vanguard Total Stock Market Index Fund (VTSMX) and 70% Vanguard Long-Term Investment-Grade Fund (VWESX). Over the past 25 years such a portfolio would have had an annualized standard deviation of monthly returns of 7.67%.

Because treasuries are so much more effective as diversifiers (corporate bonds behave as a blend of treasuries and equities, but as a whole are somewhat less efficient), you could have built a portfolio that was 40% Vanguard Total Stock Market Index Fund (VTSMX) and 60% Vanguard Long-Term Treasury (VUSTX).

https://www.portfoliovisualizer.com/bac ... tion3_2=60

Even though this portfolio holds more stocks, it had a lower annualized standard deviation of monthly returns of just 7.41% and considerably better performance in periods of market turmoil. As such I'd argue that it actually is MORE conservative.
So if USD/EUR conversion has a stdev of 7 % (seems actually a bit higher historically), you are advocating for mising stocks (stdev 15%) and total bond funds (stdev 4%). Because the mix will have a total stdev 7.4%, you'll be fine when converting to EUR

Haven't done the math, but I'd think the total bond conversion is a waste. So you could have a more aggressive type of bonds and get a better total return (after EUR conversion) w/o increasing much volatility of returns in EUR

international001
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Re: Best corporate long-term bond fund

Post by international001 » Mon Sep 24, 2018 4:21 am

dratkinson wrote:
Sat Sep 22, 2018 3:22 pm

Your OP (original post, original poster) does not make your situation clear.
--Will you be a US citizen in Europe for a visit?
--Will you be retiring to Europe?
--Will you keep your US citizenship if you retire to Europe?
--Will you surrender your US citizenship if you retire to Europe?

Believe the answer to your question depends upon your situation*.

* I'm not claiming to know the answer to your question, only that those who do will need to know your situation before they can answer.



From my above wiki link, the first topic discussed provides some information. Its first and last links to additional information seem to bound the issues.
Tax issues.
--Non-US investor's guide to navigating US tax traps: https://www.bogleheads.org/wiki/Non-US_ ... _tax_traps
--Taxation as a US person living abroad: https://www.bogleheads.org/wiki/Taxatio ... ing_abroad



What is your situation that you will be "...going to spend it in EUR most likely"?

Double citizen, most likely retiring in Europe, but not 100% sure what the future will bring
Thanks for the links. I was slightly familiar with them but I'll take a closer look.

But what did you mean exactly by taxation when 'invest in US-domiciled investments from overseas'. US is supposed to take whatever says in the federal return, it doesn't matter where you live, right?

Valuethinker
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Re: Best corporate long-term bond fund

Post by Valuethinker » Mon Sep 24, 2018 5:55 am

international001 wrote:
Mon Sep 24, 2018 4:21 am
dratkinson wrote:
Sat Sep 22, 2018 3:22 pm

Your OP (original post, original poster) does not make your situation clear.
--Will you be a US citizen in Europe for a visit?
--Will you be retiring to Europe?
--Will you keep your US citizenship if you retire to Europe?
--Will you surrender your US citizenship if you retire to Europe?

Believe the answer to your question depends upon your situation*.

* I'm not claiming to know the answer to your question, only that those who do will need to know your situation before they can answer.



From my above wiki link, the first topic discussed provides some information. Its first and last links to additional information seem to bound the issues.
Tax issues.
--Non-US investor's guide to navigating US tax traps: https://www.bogleheads.org/wiki/Non-US_ ... _tax_traps
--Taxation as a US person living abroad: https://www.bogleheads.org/wiki/Taxatio ... ing_abroad



What is your situation that you will be "...going to spend it in EUR most likely"?

Double citizen, most likely retiring in Europe, but not 100% sure what the future will bring
Thanks for the links. I was slightly familiar with them but I'll take a closer look.

But what did you mean exactly by taxation when 'invest in US-domiciled investments from overseas'. US is supposed to take whatever says in the federal return, it doesn't matter where you live, right?
A US citizen retiring in Europe is in hell (unless they see their way through to relinquishing American citizenship).

PFIC rules basically mean they must invest in US domiciled funds. FATCA means that just not reporting is not a viable strategy.

MiFID II & PRIIPS in Europe mean basically brokers cannot sell you US funds as they lack KiiDs. If you don't know these acronyms I suspect you soon will.

Best solution is to keep your US account by hook or by crook (the technical term may well be "lying" as to your address). Because within the EU no one will sell you US ETFs or Funds.

Given US funds I doubt you can really hedge EUR/ USD exchange rate. You'll have to wear that risk.

international001
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Re: Best corporate long-term bond fund

Post by international001 » Mon Sep 24, 2018 6:53 am

That's my understanding. But this doesn't mean having to pay extra to IRS

I have assumed that I have to wear the risk (unless I start doing more complicated things like futures/options). That's why I want to have only high volatility bonds in my portfolio. And I prefer long-term corporate than high yield because the later are more correlated with stocks.

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vineviz
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Re: Best corporate long-term bond fund

Post by vineviz » Mon Sep 24, 2018 6:58 am

international001 wrote:
Mon Sep 24, 2018 4:03 am
vineviz wrote:
Sat Sep 22, 2018 7:34 pm

https://www.portfoliovisualizer.com/bac ... tion3_2=60

Even though this portfolio holds more stocks, it had a lower annualized standard deviation of monthly returns of just 7.41% and considerably better performance in periods of market turmoil. As such I'd argue that it actually is MORE conservative.
I already did this exercise and arrived t sort of the same conclusion. Long term goverment bonds are a best diversifiers in general. But if you choose selective periods of time, once you have enough bonds (let's assume > 40%), in some cases goverment bonds are a worse diversifier. I guess goverment games with interest rates messes up things. The lower return/higher volatility of government bonds weights in and affects the overall portolio

This is why I want to add a few corporate long term bonds into the portfolio. To optimize for more time periods.
I don’t think your conclusion is correct, but adding corporate bonds is effectively just raising your equity allocation. Just do that explicitly and you’ll likely be better off.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

international001
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Re: Best corporate long-term bond fund

Post by international001 » Mon Sep 24, 2018 7:12 am

Well.. even if correlation between stocks and long-term was 1 (portfolio visualizer tells me it's 0.16 , while -0.09 for long term gov bonds; since 1987), I'm still using bonds to decrease return/volatility to the level of my liking (let's say 12%)

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vineviz
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Re: Best corporate long-term bond fund

Post by vineviz » Mon Sep 24, 2018 7:15 am

international001 wrote:
Mon Sep 24, 2018 7:12 am
Well.. even if correlation between stocks and long-term was 1 (portfolio visualizer tells me it's 0.16 , while -0.09 for long term gov bonds; since 1987), I'm still using bonds to decrease return/volatility to the level of my liking (let's say 12%)
I think you’re still misunderstanding the point, but I can’t think of any way to explain it more clearly. Sorry.

Good luck.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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