Bonds beat S&P500 over last 20 years?

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OSUperu
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Bonds beat S&P500 over last 20 years?

Post by OSUperu » Wed May 15, 2019 2:08 pm

Messing around with morningstar's chart history looking at bond funds for my tIRA lump, and just for fun I usually add the S&P just to see the contrast/neg-correlation. And I oddly saw this:

Image

Light blue is S&P and the others are various bond funds. Thesis statement is that if you put in $$$ in late Dec 1999 (and not contributed and just stayed put), today you'd have been beaten by long term bond funds and on par with inter term. I've read about "Bob the worst market timer" and yes he doesn't LOSE money over the long time period, but if he added in late Dec 1999 as a 'set and forget', he would have been beaten by or been equal to 100% bond holders even after 20yrs of the "compounding effect". Likely most people continue to contribute and rebalance of course, which would changes things greatly, but it never occurred to me as novice investor that even over a long time period; bonds can beat equities.

In my case I am lump summing a large amount into a tIRA (ESOP funds), are beyond tIRA income limits, and so only rebalancing is my option -which seems to be a dangerous game for a novice as well. And surprise, I'm not going in 100% equities or 100% bonds! :D

On a separate subject: Are there wiki's/advice on how to correctly reblance, i.e. the 'when' 'why' 'how much'?

MotoTrojan
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Re: Bonds beat S&P500 over last 20 years?

Post by MotoTrojan » Wed May 15, 2019 2:15 pm

OSUperu wrote:
Wed May 15, 2019 2:08 pm
Messing around with morningstar's chart history looking at bond funds for my tIRA lump, and just for fun I usually add the S&P just to see the contrast/neg-correlation. And I oddly saw this:

Image

Light blue is S&P and the others are various bond funds. Thesis statement is that if you put in $$$ in late Dec 1999 (and not contributed and just stayed put), today you'd have been beaten by long term bond funds and on par with inter term. I've read about "Bob the worst market timer" and yes he doesn't LOSE money over the long time period, but if he added in late Dec 1999 as a 'set and forget', he would have been beaten by or been equal to 100% bond holders even after 20yrs of the "compounding effect". Likely most people continue to contribute and rebalance of course, which would changes things greatly, but it never occurred to me as novice investor that even over a long time period; bonds can beat equities.

In my case I am lump summing a large amount into a tIRA (ESOP funds), are beyond tIRA income limits, and so only rebalancing is my option -which seems to be a dangerous game for a novice as well. And surprise, I'm not going in 100% equities or 100% bonds! :D

On a separate subject: Are there wiki's/advice on how to correctly reblance, i.e. the 'when' 'why' 'how much'?
VUSTX didn't look quite as hot during the 1950-1970 range.

Rebalancing maintains risk, it does not increase expected return. In fact, expected return increases with no rebalancing as your equity is expected to grow more than bonds and increase your allocation to equities.

As to how to rebalance, it is really a personal preference. Many people use rebalancing bands; a common one is 5/25 which would be rebalancing if an asset moves more than 5% absolute or 25% relative. So if you are 50/50 you rebalance if anything hits 45 or 55, but say you were 50/45/5, you would rebalance if the 5% asset moved more than 1.25% in either direction.

Others simply rebalance annually or perhaps quarterly.

Really no right or wrong, I would just stay consistent. Also I would invest everything today and be done with it, but that is just me.

What is your target allocation and fund choices?

SovereignInvestor
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Re: Bonds beat S&P500 over last 20 years?

Post by SovereignInvestor » Wed May 15, 2019 2:25 pm

The S&P was at near 25x forward earnings in 1999 and corporate bonds offered yields around 7-8%. Not surprising bonds outperformed.

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Re: Bonds beat S&P500 over last 20 years?

Post by Nate79 » Wed May 15, 2019 2:25 pm

Sure, you chose a period of time with 2 major crashes in the stock market and a period of time of about 13 years of no return and has only gone above the peaks since ~2012. But if you had chosen 10 year or 25 year stocks were the clear winner. So the lesson is yes, you can choose certain periods of time where bonds beat stocks.

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Re: Bonds beat S&P500 over last 20 years?

Post by nisiprius » Wed May 15, 2019 2:36 pm

The main thing is to understand just how variable the performance of investments really is--investments in general, but stocks in particular--and not to be doctrinaire about what stocks and bonds "do." Robert Arnott compiled an interesting chart:

Image

One point that is interesting here is that many analyses based on long-term data begin at 1871. This can be justified in several ways. The main reason why so many analysis begin at 1871 is that it is the starting point of the data in the Cowles Commission's Common-Stock Indexes, 1871-1937. Another justification is that the quality of the data before 1871 is probably quite poor. However, it is also true that it just happens to omit a 68-year period in which bonds beat stocks.

In the first four editions of Stocks for the Long Run, Jeremy Siegel included a statement like this (this is from the fourth edition, published in 2007)
never in any of the past 175 years would a buyer of newly-issued 30-year bonds have outperformed an investor in a diversified portfolio of common stocks held over the same period.
In the 5th edition, to his great credit, he wrote:
In the first four editions of Stocks for the Long Run, I noted that the last 30-year period when the return on long-term bonds beat stocks ended in 1861, at the onset of the Civil War. That is no longer true. Because of the large drop in government bond yields over the past decade, the 11.03 percent annual returns on long-term government bonds surpassed the 10.98 percent on stocks for the 30-year period from January 1, 1982, through the end of 2011.
The amazing thing is that even after 2009, even after the "lost decade," people continued to say in print that there had never been a thirty year period when stocks failed to beat bonds--just mindlessly repeating what people had been saying before 2008, and not even noticing that such a period had just recently occurred.
Last edited by nisiprius on Wed May 15, 2019 2:41 pm, edited 3 times in total.
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OSUperu
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Re: Bonds beat S&P500 over last 20 years?

Post by OSUperu » Wed May 15, 2019 2:39 pm

MotoTrojan wrote:
Wed May 15, 2019 2:15 pm

VUSTX didn't look quite as hot during the 1950-1970 range.

Rebalancing maintains risk, it does not increase expected return. In fact, expected return increases with no rebalancing as your equity is expected to grow more than bonds and increase your allocation to equities.

As to how to rebalance, it is really a personal preference. Many people use rebalancing bands; a common one is 5/25 which would be rebalancing if an asset moves more than 5% absolute or 25% relative. So if you are 50/50 you rebalance if anything hits 45 or 55, but say you were 50/45/5, you would rebalance if the 5% asset moved more than 1.25% in either direction.

Others simply rebalance annually or perhaps quarterly.

Really no right or wrong, I would just stay consistent. Also I would invest everything today and be done with it, but that is just me.

What is your target allocation and fund choices?
Thanks for the data. Where/what did you use to easily pull this info out?

I do really like the neg-correlation of the long term (just treasuries though?) when there's big equities flights. I do hear often about inevitable rising rates and thus long term can suffer. I could say, "Well I'll hold just Long term treasuries for 20+ years". But if stocks drop hard and people flock to bonds, wouldn't I want to rebalance and low priced grab stocks by selling those long term bonds? What if at that time interest rates have been wounding long term? I would assume I'd want to hold them, and thus my AA would get out of balance no? Unless I also keep some "total bond" as less volatile bond fodder in order to rebalance to stocks when it makes sense??

Target AA is still TBD, but likely 80/20 and glide towards 60/40 in 20 years or so. Fund choices are also a bit TBD (ESOP distributions arriving/arrived. See an earlier "Portfolio please help thread" and please add your thoughts / pick it apart viewtopic.php?f=1&t=280144&p=4526081#p4526081 )

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Re: Bonds beat S&P500 over last 20 years?

Post by wolf359 » Wed May 15, 2019 2:40 pm

Yes, there are time periods where bonds beat equities. This can even happen on 20 and 30 year time frames. This depends on when you start, when you finish, and which bonds and which equities that you're talking about.

It is much less likely to happen if:

1) You are contributing regularly. (Why: This is effectively time diversification. Most of the time, stocks win. This gives you multiple starts.)
2) You are rebalancing regularly (and have both stocks and bonds). (Why: When stocks are losing, bonds are sold to buy more. When stocks are winning, excess is sold to reduce exposure. Over time, this favors stocks.)
3) You have an indefinite timeframe. I'm never going to pull all my money out on one day and be "done." (Why: You don't know how much time you have.)
Last edited by wolf359 on Thu May 16, 2019 8:23 am, edited 1 time in total.

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OSUperu
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Re: Bonds beat S&P500 over last 20 years?

Post by OSUperu » Wed May 15, 2019 2:41 pm

Nate79 wrote:
Wed May 15, 2019 2:25 pm
Sure, you chose a period of time with 2 major crashes in the stock market and a period of time of about 13 years of no return and has only gone above the peaks since ~2012. But if you had chosen 10 year or 25 year stocks were the clear winner. So the lesson is yes, you can choose certain periods of time where bonds beat stocks.
No intent to cherry pick time periods to prove a point, and no ability for me to be 'pro' anything. I just thought it was interesting to see time periods where bonds beat equities. For my own naivety, that never occurred to me.

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Re: Bonds beat S&P500 over last 20 years?

Post by Leesbro63 » Wed May 15, 2019 2:44 pm

Not exactly the same point but related: Didn't I read on another thread that Warren Buffett (BRK) has trailed the S&P for the last 15 years? In other words, size caught up with Buffett (who still has an impressive record and personal status).

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OSUperu
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Re: Bonds beat S&P500 over last 20 years?

Post by OSUperu » Wed May 15, 2019 2:49 pm

nisiprius and wolf: Thank you for your responses. Insightful and helpful.

Rebalancing will be important for these large lump sum tIRAs w/o contributions, and so I need to read up / understand that topic in and out. So as to not pigeonhole myself into a situation that in the future will narrow my flexibility/ability to adapt my portfolio (Within the confines of the IPS?) :confused

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Re: Bonds beat S&P500 over last 20 years?

Post by columbia » Wed May 15, 2019 2:50 pm

They provide significant diversification from the US stock market, which few other assets can do. (I guess you could buy gold or other commodities, but that’s not my thing.)

I like bonds (and stable value funds).

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Re: Bonds beat S&P500 over last 20 years?

Post by Hector » Wed May 15, 2019 3:14 pm

OSUperu wrote:
Wed May 15, 2019 2:08 pm
Messing around with morningstar's chart history looking at bond funds for my tIRA lump, and just for fun I usually add the S&P just to see the contrast/neg-correlation. And I oddly saw this:

Image

Light blue is S&P and the others are various bond funds. Thesis statement is that if you put in $$$ in late Dec 1999 (and not contributed and just stayed put), today you'd have been beaten by long term bond funds and on par with inter term. I've read about "Bob the worst market timer" and yes he doesn't LOSE money over the long time period, but if he added in late Dec 1999 as a 'set and forget', he would have been beaten by or been equal to 100% bond holders even after 20yrs of the "compounding effect". Likely most people continue to contribute and rebalance of course, which would changes things greatly, but it never occurred to me as novice investor that even over a long time period; bonds can beat equities.

In my case I am lump summing a large amount into a tIRA (ESOP funds), are beyond tIRA income limits, and so only rebalancing is my option -which seems to be a dangerous game for a novice as well. And surprise, I'm not going in 100% equities or 100% bonds! :D

On a separate subject: Are there wiki's/advice on how to correctly reblance, i.e. the 'when' 'why' 'how much'?
Rebalancing reduces risk. For maximum return buy and forget is winner in most cases over long term.

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Re: Bonds beat S&P500 over last 20 years?

Post by MotoTrojan » Wed May 15, 2019 3:49 pm

OSUperu wrote:
Wed May 15, 2019 2:39 pm
MotoTrojan wrote:
Wed May 15, 2019 2:15 pm

VUSTX didn't look quite as hot during the 1950-1970 range.

Rebalancing maintains risk, it does not increase expected return. In fact, expected return increases with no rebalancing as your equity is expected to grow more than bonds and increase your allocation to equities.

As to how to rebalance, it is really a personal preference. Many people use rebalancing bands; a common one is 5/25 which would be rebalancing if an asset moves more than 5% absolute or 25% relative. So if you are 50/50 you rebalance if anything hits 45 or 55, but say you were 50/45/5, you would rebalance if the 5% asset moved more than 1.25% in either direction.

Others simply rebalance annually or perhaps quarterly.

Really no right or wrong, I would just stay consistent. Also I would invest everything today and be done with it, but that is just me.

What is your target allocation and fund choices?
Thanks for the data. Where/what did you use to easily pull this info out?

I do really like the neg-correlation of the long term (just treasuries though?) when there's big equities flights. I do hear often about inevitable rising rates and thus long term can suffer. I could say, "Well I'll hold just Long term treasuries for 20+ years". But if stocks drop hard and people flock to bonds, wouldn't I want to rebalance and low priced grab stocks by selling those long term bonds? What if at that time interest rates have been wounding long term? I would assume I'd want to hold them, and thus my AA would get out of balance no? Unless I also keep some "total bond" as less volatile bond fodder in order to rebalance to stocks when it makes sense??

Target AA is still TBD, but likely 80/20 and glide towards 60/40 in 20 years or so. Fund choices are also a bit TBD (ESOP distributions arriving/arrived. See an earlier "Portfolio please help thread" and please add your thoughts / pick it apart viewtopic.php?f=1&t=280144&p=4526081#p4526081 )
Data? I simply said 25% of 5% is 1.25% for this example. At 80/20 you can ignore the 25 portion and just rebalance anytime 80 becomes 75 or 85.

If equities and long bonds go down (rising rates) equally there’s no need to rebalance. This is what uncorrelation is, it happens. If stocks drop, rates drop, and long bonds pop then you rebalance by selling bonds to buy stocks.

If it was a certainty or even likely that rates would go up then bond yields would already be higher. Futures suggests a fed fund rate drop is most likely move too. Just like stocks, bonds can’t be timed.

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Re: Bonds beat S&P500 over last 20 years?

Post by DB2 » Wed May 15, 2019 5:25 pm

I've developed a lot more appreciation for bonds since I started investing; balanced portfolio is truly key.

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Re: Bonds beat S&P500 over last 20 years?

Post by pdavi21 » Wed May 15, 2019 6:04 pm

Try it with international and a value tilt.

EDIT: Your data is incorrect. Perhaps you are missing dividends or something. Also, some of the funds listed didn't exist in 1999.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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Re: Bonds beat S&P500 over last 20 years?

Post by FIREchief » Wed May 15, 2019 7:05 pm

So let's just take a step back..... Two investment classes. One has outperformed the other for two decades. Does that make it more or less likely to outperform for the next 20 years??

(ignoring the obvious math behind the bond returns that simply can't be replicated going forward)
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Re: Bonds beat S&P500 over last 20 years?

Post by OSUperu » Wed May 15, 2019 7:24 pm

pdavi21 wrote:
Wed May 15, 2019 6:04 pm
Try it with international and a value tilt.

EDIT: Your data is incorrect. Perhaps you are missing dividends or something. Also, some of the funds listed didn't exist in 1999.
I don't follow. This was just a snap shot of late 1999 until today with several bond funds and the S&P. No other variables are at play, otherwise of course the the results would change. Just like I qualified that the simple fact of rebalancing/contributing would total change the outcome. Just an interesting 'narrow' scenario I saw that gave me an 'inner novice epiphany'

I believe morningstar accounts for dividends anyways -but someone please confirm/deny this. I just double checked fund starts and crud, yes the VBILX started in 2001. I thought I grabbed all the old ones. But removing that, there's still an inter term investment grade VFICX that meets the S&P. (light green line)

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Re: Bonds beat S&P500 over last 20 years?

Post by columbia » Wed May 15, 2019 7:49 pm

DB2 wrote:
Wed May 15, 2019 5:25 pm
I've developed a lot more appreciation for bonds since I started investing; balanced portfolio is truly key.
:beer

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Re: Bonds beat S&P500 over last 20 years?

Post by arcticpineapplecorp. » Wed May 15, 2019 8:28 pm

I'm curious why you only used 20 years?
And for the record, it's not quite 20 years is it? You stared with 12/23/1999 so until it gets to 12/23/2019 it's not been "20 years".
And why exactly did you choose 12/23/1999 as your start date?

I don't happen to think 20 years is a long time to invest. That's because I've already invested for 20 years. And I'm looking at another 20 years before I retire. And then I hope to live another 30 years after that (in which I'll be holding my investments mostly and taking small amounts out per year, say 4%).

So I'm planning on an overall investing timeframe of 70 years, health willing. So why do I care about what happened over 20 years?

Anyway, for fun I thought I'd look at the last 30 years. Why? For starters it's more of a truer indicator of an investing period. As in, many start investing in their 30s and retire in their 60s, therefore investing for 30 years. If you look at 20 years are you assuming someone's only investing for 20 years? So did they start in their 40s and retire in their 60s or did they start in their 30s and retired in their 50s?

But for fun I looked at the last 30 years (1989 to present. But actual 30 years from today. Not "almost" 30 years). Here's what I found:

Image

source: https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

Looks like stocks trounced bonds, didn't it? Not even close. So what's the takeaway? Returns are highly dependent upon the time period. That argues for diversification. Only thing that sorta came close (but not really) was long term bonds (which you had on your list VUSTX and VWESX)....

FInally, the problem with long term bonds is:
1. what do you suppose happens to long term bonds when interest rates rise?
2. You aren't rewarded "enough"for the extra risk you're taking.
The yield on long term bond market index fund is 3.73% and on short term bond index fund is 2.05%.
Duration of short term bond index is 2.6 years and on long term bond index is 14.9 years.
Way riskier and not enough reward.
Last edited by arcticpineapplecorp. on Wed May 15, 2019 8:30 pm, edited 1 time in total.
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Re: Bonds beat S&P500 over last 20 years?

Post by SoonerD » Wed May 15, 2019 8:28 pm

OSUperu wrote:
Wed May 15, 2019 2:08 pm
Messing around with morningstar's chart history looking at bond funds for my tIRA lump, and just for fun I usually add the S&P just to see the contrast/neg-correlation. And I oddly saw this:

Image

Light blue is S&P and the others are various bond funds. Thesis statement is that if you put in $$$ in late Dec 1999 (and not contributed and just stayed put), today you'd have been beaten by long term bond funds and on par with inter term. I've read about "Bob the worst market timer" and yes he doesn't LOSE money over the long time period, but if he added in late Dec 1999 as a 'set and forget', he would have been beaten by or been equal to 100% bond holders even after 20yrs of the "compounding effect". Likely most people continue to contribute and rebalance of course, which would changes things greatly, but it never occurred to me as novice investor that even over a long time period; bonds can beat equities.

In my case I am lump summing a large amount into a tIRA (ESOP funds), are beyond tIRA income limits, and so only rebalancing is my option -which seems to be a dangerous game for a novice as well. And surprise, I'm not going in 100% equities or 100% bonds! :D

On a separate subject: Are there wiki's/advice on how to correctly reblance, i.e. the 'when' 'why' 'how much'?
Using Portfolio Visualizer I get very different results from you

1999 to 2019, Total US Stock earned 6.8% CAGR and Total Bond earned 4.4%

Stocks grow from 10k to 38k and bonds to 24k. Stocks are clear winner if one counts more money as winning.

Why did you start on 12/23/99 instead of 1/1? Why not compare the total stock asset class to the total bond class?
Last edited by SoonerD on Wed May 15, 2019 8:38 pm, edited 1 time in total.

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Re: Bonds beat S&P500 over last 20 years?

Post by arcticpineapplecorp. » Wed May 15, 2019 8:31 pm

SoonerD wrote:
Wed May 15, 2019 8:28 pm
OSUperu wrote:
Wed May 15, 2019 2:08 pm
Messing around with morningstar's chart history looking at bond funds for my tIRA lump, and just for fun I usually add the S&P just to see the contrast/neg-correlation. And I oddly saw this:

Image

Light blue is S&P and the others are various bond funds. Thesis statement is that if you put in $$$ in late Dec 1999 (and not contributed and just stayed put), today you'd have been beaten by long term bond funds and on par with inter term. I've read about "Bob the worst market timer" and yes he doesn't LOSE money over the long time period, but if he added in late Dec 1999 as a 'set and forget', he would have been beaten by or been equal to 100% bond holders even after 20yrs of the "compounding effect". Likely most people continue to contribute and rebalance of course, which would changes things greatly, but it never occurred to me as novice investor that even over a long time period; bonds can beat equities.

In my case I am lump summing a large amount into a tIRA (ESOP funds), are beyond tIRA income limits, and so only rebalancing is my option -which seems to be a dangerous game for a novice as well. And surprise, I'm not going in 100% equities or 100% bonds! :D

On a separate subject: Are there wiki's/advice on how to correctly reblance, i.e. the 'when' 'why' 'how much'?
Using Portfolio Visualizer I get very different results from you

1999 to 2019, Total US Stock earned 6.8% CAGR and Total Bond earned 4.4%
Are you starting with 12/23/1999? I don't think portfolio visualizer is that specific. And I don't know why the OP started with that exact date.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: Bonds beat S&P500 over last 20 years?

Post by columbia » Wed May 15, 2019 8:31 pm

Folks can posture all they want, but - for retirees - stocks can fail to deliver for longer than the rest of one’s life.

Balance is a virtue.

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Re: Bonds beat S&P500 over last 20 years?

Post by TomCat96 » Wed May 15, 2019 8:37 pm

OSUperu wrote:
Wed May 15, 2019 2:08 pm
Messing around with morningstar's chart history looking at bond funds for my tIRA lump, and just for fun I usually add the S&P just to see the contrast/neg-correlation. And I oddly saw this:

Image

Light blue is S&P and the others are various bond funds. Thesis statement is that if you put in $$$ in late Dec 1999 (and not contributed and just stayed put), today you'd have been beaten by long term bond funds and on par with inter term. I've read about "Bob the worst market timer" and yes he doesn't LOSE money over the long time period, but if he added in late Dec 1999 as a 'set and forget', he would have been beaten by or been equal to 100% bond holders even after 20yrs of the "compounding effect". Likely most people continue to contribute and rebalance of course, which would changes things greatly, but it never occurred to me as novice investor that even over a long time period; bonds can beat equities.

In my case I am lump summing a large amount into a tIRA (ESOP funds), are beyond tIRA income limits, and so only rebalancing is my option -which seems to be a dangerous game for a novice as well. And surprise, I'm not going in 100% equities or 100% bonds! :D

On a separate subject: Are there wiki's/advice on how to correctly reblance, i.e. the 'when' 'why' 'how much'?
Thanks for this. I found it fascinating. I also found it incredible how narrow the band was for bonds to beat out stocks.
I entered in the data for a few other bond funds, which started a little after december 1999, skewing the data. In those cases, bonds did not beat stocks.

One assessment I'm going to make is how incredibly unstable or out of equilibrium it is for bonds to outperform stocks--which makes sense from a market perspective. If I were a market timer, those rolling periods of outperformance would merit further study.

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Re: Bonds beat S&P500 over last 20 years?

Post by SoonerD » Wed May 15, 2019 8:41 pm

arcticpineapplecorp. wrote:
Wed May 15, 2019 8:31 pm
SoonerD wrote:
Wed May 15, 2019 8:28 pm
OSUperu wrote:
Wed May 15, 2019 2:08 pm
Messing around with morningstar's chart history looking at bond funds for my tIRA lump, and just for fun I usually add the S&P just to see the contrast/neg-correlation. And I oddly saw this:

Image

Light blue is S&P and the others are various bond funds. Thesis statement is that if you put in $$$ in late Dec 1999 (and not contributed and just stayed put), today you'd have been beaten by long term bond funds and on par with inter term. I've read about "Bob the worst market timer" and yes he doesn't LOSE money over the long time period, but if he added in late Dec 1999 as a 'set and forget', he would have been beaten by or been equal to 100% bond holders even after 20yrs of the "compounding effect". Likely most people continue to contribute and rebalance of course, which would changes things greatly, but it never occurred to me as novice investor that even over a long time period; bonds can beat equities.

In my case I am lump summing a large amount into a tIRA (ESOP funds), are beyond tIRA income limits, and so only rebalancing is my option -which seems to be a dangerous game for a novice as well. And surprise, I'm not going in 100% equities or 100% bonds! :D

On a separate subject: Are there wiki's/advice on how to correctly reblance, i.e. the 'when' 'why' 'how much'?
Using Portfolio Visualizer I get very different results from you

1999 to 2019, Total US Stock earned 6.8% CAGR and Total Bond earned 4.4%
Are you starting with 12/23/1999? I don't think portfolio visualizer is that specific. And I don't know why the OP started with that exact date.
No. PV used all of 1999. I selected 2019 as end point and it did show 2019 returns in the table but i dont know if that was Q or M end point.

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Re: Bonds beat S&P500 over last 20 years?

Post by arcticpineapplecorp. » Wed May 15, 2019 8:51 pm

SoonerD wrote:
Wed May 15, 2019 8:41 pm
arcticpineapplecorp. wrote:
Wed May 15, 2019 8:31 pm
SoonerD wrote:
Wed May 15, 2019 8:28 pm
OSUperu wrote:
Wed May 15, 2019 2:08 pm
Messing around with morningstar's chart history looking at bond funds for my tIRA lump, and just for fun I usually add the S&P just to see the contrast/neg-correlation. And I oddly saw this:

Image

Light blue is S&P and the others are various bond funds. Thesis statement is that if you put in $$$ in late Dec 1999 (and not contributed and just stayed put), today you'd have been beaten by long term bond funds and on par with inter term. I've read about "Bob the worst market timer" and yes he doesn't LOSE money over the long time period, but if he added in late Dec 1999 as a 'set and forget', he would have been beaten by or been equal to 100% bond holders even after 20yrs of the "compounding effect". Likely most people continue to contribute and rebalance of course, which would changes things greatly, but it never occurred to me as novice investor that even over a long time period; bonds can beat equities.

In my case I am lump summing a large amount into a tIRA (ESOP funds), are beyond tIRA income limits, and so only rebalancing is my option -which seems to be a dangerous game for a novice as well. And surprise, I'm not going in 100% equities or 100% bonds! :D

On a separate subject: Are there wiki's/advice on how to correctly reblance, i.e. the 'when' 'why' 'how much'?
Using Portfolio Visualizer I get very different results from you

1999 to 2019, Total US Stock earned 6.8% CAGR and Total Bond earned 4.4%
Are you starting with 12/23/1999? I don't think portfolio visualizer is that specific. And I don't know why the OP started with that exact date.
No. PV used all of 1999. I selected 2019 as end point and it did show 2019 returns in the table but i dont know if that was Q or M end point.
different dates will yield different results. There was a recent post about this showing how different results for a 10 year period (or longer) can be if your starting dates are off by just one month (or possibly even one day):
viewtopic.php?f=10&t=280919
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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OSUperu
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Re: Bonds beat S&P500 over last 20 years?

Post by OSUperu » Wed May 15, 2019 9:00 pm

That's my birthday! And I wanted to see 20 yrs. Arbitrary enough. And of course you can play with the data however you want in order to serve a purpose. My purpose was an internal 'wow' factor that it's not always "equities win" for a given long period (20 is long or not, depending on who you ask or how old you are no?). Like others have pointed out here, nothing's a guarantee and balance is key. And remember my AA currently is likely a 85/15 or 80/20 :D

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Re: Bonds beat S&P500 over last 20 years?

Post by Taylor Larimore » Wed May 15, 2019 9:05 pm

OSUperu:

Excellent Opening Post.

Better than words, your chart clearly shows the importance of holding bonds in a portfolio.

Thank you and best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Bonds beat S&P500 over last 20 years?

Post by garlandwhizzer » Wed May 15, 2019 9:17 pm

What this demonstrates is that if you carefully cherry-pick the dates you can demonstrate almost anything you want to even over a long 20 year time period. This example does not prove that bonds are likely to outperform stocks. In general the opposite is true and that truth has not been repealed. There are rare times when bonds do outperform stocks for prolonged periods of time, but it is not wise to count on that in building your portfolio. Best to choose your allocation on the rule rather than the exception IMO. What this also demonstrates is the strength of a balanced portfolio of stocks and bonds that is ready for both severe storms and sunny days.

Starting from where long term rates are now, a repeat of this bond outperformance going forward has a 0% chance of happening. 30 year Treasuries are currently yielding less than 3%, less than half what they yielded in 1999. Holding such a bond to maturity for 3 decades will produce less than a 3% nominal yield which works out to be about 1% real at current inflation rates. That doesn't include the impact of taxes on the interest payments which in high brackets can take the real post-tax return to about zero. If inflation increases significantly it's also entirely possible that three decades of compounded inflation will destroy your original principal value in real inflation adjusted dollars when after 30 years later they give the principal value back to you. What used to buy a modest house when you bought the 30 year bond may 30 years later suffice to buy a used car. Duration risk worked well going backwards in time, most of which was an exuberant bull market in bonds, the greatest in history. Going forward it will very likely be a different story. Also it's important to keep in mind that the start period, 1999, was at the height of the tech bubble when PE1 and PE10 were at exceptionally high levels and hence long term returns going forward have been at very low levels. This period also includes the 2 worst stock bear markets since the Great Depression. Backtesting can be a very flawed and misleading guide to what is going to happen in market's future.

IMO one take home message from this interesting post is that a balanced portfolio is a good idea in the face of future uncertainty. The other point is that at least one truly savvy investor (an exceptionally rare species but Jack Bogle was one) looked at the equity situation in 1999 and did something he had very rarely done before. Market timing. He saw that these astronomical valuations and euphoria were not sustainable and shifted some or all (I don't know which) of his portfolio from stocks to bonds at the right time. Jack was brilliant and always was an out-the-box original thinker since his days as a student at Princeton. He was something quite rare in the investing world which typically is dominated by self-interest and group-think. The inventor of the index fund also hit the nail on the head in 1999.

Garland Whizzer

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Re: Bonds beat S&P500 over last 20 years?

Post by pdavi21 » Wed May 15, 2019 9:53 pm

OSUperu wrote:
Wed May 15, 2019 7:24 pm
pdavi21 wrote:
Wed May 15, 2019 6:04 pm
Try it with international and a value tilt.

EDIT: Your data is incorrect. Perhaps you are missing dividends or something. Also, some of the funds listed didn't exist in 1999.
I don't follow. This was just a snap shot of late 1999 until today with several bond funds and the S&P. No other variables are at play, otherwise of course the the results would change. Just like I qualified that the simple fact of rebalancing/contributing would total change the outcome. Just an interesting 'narrow' scenario I saw that gave me an 'inner novice epiphany'

I believe morningstar accounts for dividends anyways -but someone please confirm/deny this. I just double checked fund starts and crud, yes the VBILX started in 2001. I thought I grabbed all the old ones. But removing that, there's still an inter term investment grade VFICX that meets the S&P. (light green line)
VBTLX also starts in 2001. I ran the numbers from December 23rd 1999 and got VFINX beating VBMFX by ~40%. Use VFINX vs VBMFX and see if VFINX still loses.

The INTL and value tilt was a joke. Both were worse than the SP 500.

EDIT: Also, in portfolio visualizer, VFINX beats VBMFX by 43% from January 2000 to April 2019. Only idea I have of why your numbers are off is your SP 500 must not have dividends included. Either that or the data is just wrong for other reasons. It is quite strange that the funds started in 2001 are showing up as if they existed in 1999. Also Dec 23 1999 to May 14th 2019 is less than 20 years. All around there are mistakes here that invalidate your original claim.
Last edited by pdavi21 on Thu May 16, 2019 12:08 pm, edited 4 times in total.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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Re: Bonds beat S&P500 over last 20 years?

Post by CraigTester » Wed May 15, 2019 10:01 pm

garlandwhizzer wrote:
Wed May 15, 2019 9:17 pm
What this demonstrates is that if you carefully cherry-pick the dates you can demonstrate almost anything you want to even over a long 20 year time period. This example does not prove that bonds are likely to outperform stocks. In general the opposite is true and that truth has not been repealed. There are rare times when bonds do outperform stocks for prolonged periods of time, but it is not wise to count on that in building your portfolio. Best to choose your allocation on the rule rather than the exception IMO. What this also demonstrates is the strength of a balanced portfolio of stocks and bonds that is ready for both severe storms and sunny days.

Starting from where long term rates are now, a repeat of this bond outperformance going forward has a 0% chance of happening. 30 year Treasuries are currently yielding less than 3%, less than half what they yielded in 1999. Holding such a bond to maturity for 3 decades will produce less than a 3% nominal yield which works out to be about 1% real at current inflation rates. That doesn't include the impact of taxes on the interest payments which in high brackets can take the real post-tax return to about zero. If inflation increases significantly it's also entirely possible that three decades of compounded inflation will destroy your original principal value in real inflation adjusted dollars when after 30 years later they give the principal value back to you. What used to buy a modest house when you bought the 30 year bond may 30 years later suffice to buy a used car. Duration risk worked well going backwards in time, most of which was an exuberant bull market in bonds, the greatest in history. Going forward it will very likely be a different story. Also it's important to keep in mind that the start period, 1999, was at the height of the tech bubble when PE1 and PE10 were at exceptionally high levels and hence long term returns going forward have been at very low levels. This period also includes the 2 worst stock bear markets since the Great Depression. Backtesting can be a very flawed and misleading guide to what is going to happen in market's future.

IMO one take home message from this interesting post is that a balanced portfolio is a good idea in the face of future uncertainty. The other point is that at least one truly savvy investor (an exceptionally rare species but Jack Bogle was one) looked at the equity situation in 1999 and did something he had very rarely done before. Market timing. He saw that these astronomical valuations and euphoria were not sustainable and shifted some or all (I don't know which) of his portfolio from stocks to bonds at the right time. Jack was brilliant and always was an out-the-box original thinker since his days as a student at Princeton. He was something quite rare in the investing world which typically is dominated by self-interest and group-think. The inventor of the index fund also hit the nail on the head in 1999.

Garland Whizzer
Just for fun, have you ever considered what negative interest rates might do to your 0% forecast?

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Re: Bonds beat S&P500 over last 20 years?

Post by pdavi21 » Wed May 15, 2019 10:47 pm

To clarify, the answer to the OP's question is a resounding NO.

The SP 500, Total US Stock Market, and Total Global Stock Market (via VFINX, VTSMX, and VTSMX/VGTSX) all beat "bonds" (via VBMFX) over the last twenty years and from Dec 23, 1999.

The graphic posted is incorrect.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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Re: Bonds beat S&P500 over last 20 years?

Post by OSUperu » Wed May 15, 2019 10:50 pm

pdavi21 wrote:
Wed May 15, 2019 9:53 pm
The INTL and value tilt was a joke. Both were worse than the SP 500.

EDIT: Also, in portfolio visualizer, VFINX beats VBMFX by 43% from January 2000 to April 2019. Only idea I have of why your numbers are off is your SP 500 must not have dividends included. Either that or the data is just wrong for other reasons. It is quite strange that the funds started in 2001 are showing up as if they existed in 1999. Also Dec 23 1999 to May 14th 2019 is less than 20 years. All around there are mistakes here that invalidate your original claim.
Let's remember the "?" at the end of my thread title.

No claims or postulating on a soapbox were made. Just an interesting result to me, of a specific timeframe, with specific funds, of the past... :beer

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Re: Bonds beat S&P500 over last 20 years?

Post by MotoTrojan » Wed May 15, 2019 11:22 pm

OSUperu wrote:
Wed May 15, 2019 10:50 pm
pdavi21 wrote:
Wed May 15, 2019 9:53 pm
The INTL and value tilt was a joke. Both were worse than the SP 500.

EDIT: Also, in portfolio visualizer, VFINX beats VBMFX by 43% from January 2000 to April 2019. Only idea I have of why your numbers are off is your SP 500 must not have dividends included. Either that or the data is just wrong for other reasons. It is quite strange that the funds started in 2001 are showing up as if they existed in 1999. Also Dec 23 1999 to May 14th 2019 is less than 20 years. All around there are mistakes here that invalidate your original claim.
Let's remember the "?" at the end of my thread title.

No claims or postulating on a soapbox were made. Just an interesting result to me, of a specific timeframe, with specific funds, of the past... :beer
Did you miss those telling you even your specific funds are wrong?

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Re: Bonds beat S&P500 over last 20 years?

Post by OSUperu » Thu May 16, 2019 12:08 am

How can funds be “wrong“? Two I now know are not 20 years old, but that still leaves those long-term treasury bonds showing higher -on this morningstar image, on my bday till today/yesterday, without contributions and without rebalancing, as has been stated. Is Morningstar not including dividends compared to portfolio visualizer? I have not played with that link much.

I appreciate all the comments and good experienced information and it does definitely show some inaccuracies in my novice post.

The only postulating I will do is remind everyone that we don’t want BH newbies to you think they need a masters of finance or be a CPA in order to post interesting forum allowed topics.

If anybody has any interesting comments on starting to grow wine grapes, I’ll be sure to listen, provide feedback and give the benefit of the doubt. And I’ll give free advice too! :D

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Re: Bonds beat S&P500 over last 20 years?

Post by willthrill81 » Thu May 16, 2019 12:14 am

By changing the dates just a little to get an exactly 20 year period, VTSMX (Vanguard Total Stock Market fund investor shares) returned 6.01% from 1999-2018 as compared to VBMFX's (Vanguard Total Bond Market fund investor shares) 4.33%.

So no, bonds did not outperform stocks over that 20 year period.

Interestingly, VBMFX's inflation-adjusted return from 2012-2018 was .37%. That's right, 37 basis points was the annualized real return.
“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

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Re: Bonds beat S&P500 over last 20 years?

Post by MotoTrojan » Thu May 16, 2019 12:19 am

OSUperu wrote:
Thu May 16, 2019 12:08 am
How can funds be “wrong“? Two I now know are not 20 years old, but that still leaves those long-term treasury bonds showing higher -on this morningstar image, on my bday till today/yesterday, without contributions and without rebalancing, as has been stated. Is Morningstar not including dividends compared to portfolio visualizer? I have not played with that link much.

I appreciate all the comments and good experienced information and it does definitely show some inaccuracies in my novice post.

The only postulating I will do is remind everyone that we don’t want BH newbies to you think they need a masters of finance or be a CPA in order to post interesting forum allowed topics.

If anybody has any interesting comments on starting to grow wine grapes, I’ll be sure to listen, provide feedback and give the benefit of the doubt. And I’ll give free advice too! :D
May have jumped the gun, read a post suggesting dividends may not have been reinvested but perhaps that isn’t the case. Keep the posts coming!

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Re: Bonds beat S&P500 over last 20 years?

Post by pdavi21 » Thu May 16, 2019 12:04 pm

Use this chart instead of the OP's
VFINX-SP 500 Vanguard
SP Total Return
VFITX: Vanguard Intermediate Treasury
VUSTX: Vanguard Long Term Treasury
VBMFX: Vanguard Total Bond

Only VUSTX beats VFINX and SP 500 TR.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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Re: Bonds beat S&P500 over last 20 years?

Post by garlandwhizzer » Thu May 16, 2019 12:29 pm

CraigTester wrote:

Just for fun, have you ever considered what negative interest rates might do to your 0% forecast?
I don't think anyone is going to get rich off of negative interest rate bonds which at maturity provide guaranteed nominal losses. Even if rates do go negative I believe strongly that stocks will outperform bonds over the next 20 years.

Garland Whizzer

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Re: Bonds beat S&P500 over last 20 years?

Post by Dialectical Investor » Thu May 16, 2019 12:42 pm

OSUperu wrote:
Wed May 15, 2019 2:08 pm

Likely most people continue to contribute and rebalance of course, which would changes things greatly, but it never occurred to me as novice investor that even over a long time period; bonds can beat equities.
It is good that some of the details were corrected, but this is the main takeaway of the post IMO. Whether it's 10 years, or 15 years, or 20 years, there are times when high-quality bonds of some duration will beat stocks. The exact situation in 1999 was unusual and may not be seen again in a generation or more, but it does not need to be replayed in all its splendor for a somewhat less remarkable yet nevertheless "unexpected" scenario to occur, and attentive and experienced investors should not be surprised when the time comes. At the same time, such investors will not be surprised when bonds lag inflation for many years, as nearly has been the case as of late.

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Re: Bonds beat S&P500 over last 20 years?

Post by Coltrane75 » Thu May 16, 2019 2:17 pm

Its my impression among people I know that bonds are kind of overlooked/underappreciated. Its either super aggressive with stocks or dooms-day prep level risk aversion.

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Re: Bonds beat S&P500 over last 20 years?

Post by Hector » Thu May 16, 2019 2:49 pm

Coltrane75 wrote:
Thu May 16, 2019 2:17 pm
Its my impression among people I know that bonds are kind of overlooked/underappreciated. Its either super aggressive with stocks or dooms-day prep level risk aversion.
Have you seen what happened to long term bond before the period indicated in the chart in this thread?

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