Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

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Chac2
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by Chac2 » Thu Apr 16, 2020 11:10 am

alluringreality wrote:
Thu Apr 16, 2020 9:23 am
nisiprius wrote:
Wed Apr 15, 2020 6:37 pm
There are bonds in three out of those four boxes.
The linked article doesn't explain exactly what he was talking about. Without any context, I'll guess maybe he may have been referring to nominal bonds in the quote, which are only included in 2 of the 4 boxes. According to the chart nominal bonds are fine for falling growth and falling inflation, and inflation linked bonds work for falling growth and rising inflation. I don't think too many people would be commenting about rising growth at this time, so based on the framework of the four boxes, I'd have to surmise maybe the quote was intended as commentary about holding nominal bonds if rising inflation was to happen in the future. The link talks about "When investing over the long run, all you can have confidence in is that (1) holding assets should provide a return above cash", and by the way he talks about cash as not being inflation linked, I'd have to guess maybe he thinks that nominal bonds may not provide a return above cash. Of course I could be totally wrong, since the article does not fill in the necessary details to make actual sense of the comment.
I wonder if longer-term TIPS, such as PIMCO 15+ Year US TIPS ETF (LTPZ), can do well in both boxes: falling growth with falling inflation, and falling growth with rising inflation?

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by chicagoan23 » Thu Apr 16, 2020 11:34 am

petilon wrote:
Wed Apr 15, 2020 5:26 pm
I have been staying away from bonds for over 10 years because it is so confusing. As I understand bond prices fall when interest rates go up as investors unload old bonds to buy newer bonds that bear higher interest rates. Interest rates have been low over the last decade, so why have people been buying bonds over the last decade?

And now this hedge fund manager says you're crazy if you hold bonds right now. (Ray Dalio is founder of Bridgewater Associates, the world’s largest hedge fund): https://www.marketwatch.com/story/billi ... latestnews

So much of my money is sitting in money markets right now. Because bonds are bad right now, and stocks are bad too because the upcoming crash (when poor earnings reports start rolling in) is going to be worse than 2008.

How do retirees avoid eating into principal during times like this?
Free tip #1: You can make money by holding bonds, even when interest rates are very low.

Free tip #2: Holding a majority of your portfolio in "risk-free" assets like money markets is actually very risky over the long term. It may make sense for retirees or those with a shorter holding period. But over a long period it is a guaranteed loser, as the essay in my signature explains.
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by Stormbringer » Thu Apr 16, 2020 11:34 am

dziuniek wrote:
Thu Apr 16, 2020 9:59 am
Stormbringer wrote:
Wed Apr 15, 2020 7:55 pm
The thought of loaning someone money for 10 years @ 0.63% nominal interest makes my stomach churn.
Sure, but if rates go even lower - you'll be making a hefty return.
Okay, lend me $100,000 for 10 years at .63% interest then. You might make a hefty return. :D
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by hoops777 » Thu Apr 16, 2020 12:19 pm

Just another example showing how unpredictable investing is and that nobody really knows what is going to happen. Like everything else in life, people want to know and many think they know a lot more than they do about everything. There is a very famous person right now on tv everyday who is the greatest example of this in human history but I will not be naming names. I continue to be amazed about the certainty so many have about incredibly complex topics. A great example on a much lower level of complexity is sports. It is amazing how so many who really know virtually nothing think they know more than a coach who has spent a lifetime trying to learn and gain knowledge and is actually in the room or on the field with the players everyday. Of course emotional things are the most susceptible.
K.I.S.S........so easy to say so difficult to do.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by watchnerd » Thu Apr 16, 2020 12:25 pm

hoops777 wrote:
Thu Apr 16, 2020 12:19 pm
Just another example showing how unpredictable investing is and that nobody really knows what is going to happen.
Not really.

What it really is, is just another example of financial services marketing masquerading as information.

Dalio is saying so publicly because it's in his business interest to do so.
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by minimalistmarc » Thu Apr 16, 2020 12:33 pm

mrspock wrote:
Wed Apr 15, 2020 7:46 pm
I'm taking this thread as a very bullish sign. Thanks OP!
Glad I’m not the only one.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by hoops777 » Thu Apr 16, 2020 12:35 pm

watchnerd wrote:
Thu Apr 16, 2020 12:25 pm
hoops777 wrote:
Thu Apr 16, 2020 12:19 pm
Just another example showing how unpredictable investing is and that nobody really knows what is going to happen.
Not really.

What it really is, is just another example of financial services marketing masquerading as information.

Dalio is saying so publicly because it's in his business interest to do so.
Pretty much the same thing unless you think he knows.
K.I.S.S........so easy to say so difficult to do.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by BalancedJCB19 » Thu Apr 16, 2020 12:45 pm

Didn't read the article but like other said The All Weather is more bonds then many portfolios.

Ray Dalio is no John Bogle. He can talk for hours and I still don't understand what he's saying.

Brilliant Hedge Managers are not what average folks need for common sense advice.

During retirement be flexible with your withdrawals and if you have to take from principal, so be it. Wasn't the point of saving for retirement was so you can eat, have shelter and enjoy life without being tied to a job. I intend to structure my life in such a way where I will be able to get by on social security if I have to, but the 401K will be the money I use to still live the life I had while I was working.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by jhsu802701 » Thu Apr 16, 2020 1:07 pm

I agree with Ray Dalio on this.

Bonds look good in the rear view mirror, because interest rates were higher in the past. If you buy bonds and interest rates fall, that's good news, because you earn an above-market yield. If you want to sell rather than hold your bonds in this scenario, you get to sell them for a higher price than what you paid.

If you buy bonds and interest rates rise, that's bad news. You face the choice of being stuck with a below-market yield or selling the bonds for a lower price than what you paid.

Given that interest rates are at historic lows and don't even keep up with current inflation, buying bonds is even riskier than buying large cap US stocks (and I'm bearish on those as well). Bonds are in a bubble. What makes this bubble even crazier than others is that it doesn't even make the hollow promise of a jackpot.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by DB2 » Thu Apr 16, 2020 1:16 pm

jhsu802701 wrote:
Thu Apr 16, 2020 1:07 pm
I agree with Ray Dalio on this.

Bonds look good in the rear view mirror, because interest rates were higher in the past. If you buy bonds and interest rates fall, that's good news, because you earn an above-market yield. If you want to sell rather than hold your bonds in this scenario, you get to sell them for a higher price than what you paid.

If you buy bonds and interest rates rise, that's bad news. You face the choice of being stuck with a below-market yield or selling the bonds for a lower price than what you paid.

Given that interest rates are at historic lows and don't even keep up with current inflation, buying bonds is even riskier than buying large cap US stocks (and I'm bearish on those as well). Bonds are in a bubble. What makes this bubble even crazier than others is that it doesn't even make the hollow promise of a jackpot.
Agreed.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by dziuniek » Thu Apr 16, 2020 2:14 pm

Stormbringer wrote:
Thu Apr 16, 2020 11:34 am
dziuniek wrote:
Thu Apr 16, 2020 9:59 am
Stormbringer wrote:
Wed Apr 15, 2020 7:55 pm
The thought of loaning someone money for 10 years @ 0.63% nominal interest makes my stomach churn.
Sure, but if rates go even lower - you'll be making a hefty return.
Okay, lend me $100,000 for 10 years at .63% interest then. You might make a hefty return. :D
I don't have to issue debt to pay my current obligations :twisted:

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physixfan
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by physixfan » Thu Apr 16, 2020 2:15 pm

Interest rate has nowhere to go but DOWN in the near future (~10 years) in my opinion. Some other parts of the world are already in the negative interest rate regime, and the US will follow. I can't imagine the FED dare to raise the interest in the current environment, because the interest payments of the debts will make many companies blow up. Therefore I believe at least in the next 10 years, long term bond is still something worth buying. Ray Dalio has a lot of long term treasuries in his portfolio as well, and I think he just want other people to stay away from them so the price can go down a little bit...

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by onourway » Thu Apr 16, 2020 2:16 pm

jhsu802701 wrote:
Thu Apr 16, 2020 1:07 pm
I agree with Ray Dalio on this.

Bonds look good in the rear view mirror, because interest rates were higher in the past. If you buy bonds and interest rates fall, that's good news, because you earn an above-market yield. If you want to sell rather than hold your bonds in this scenario, you get to sell them for a higher price than what you paid.

If you buy bonds and interest rates rise, that's bad news. You face the choice of being stuck with a below-market yield or selling the bonds for a lower price than what you paid.

Given that interest rates are at historic lows and don't even keep up with current inflation, buying bonds is even riskier than buying large cap US stocks (and I'm bearish on those as well). Bonds are in a bubble. What makes this bubble even crazier than others is that it doesn't even make the hollow promise of a jackpot.
Yet you can look at a number of recent time periods of even several years in length where interest rates rose from near zero and Total Bond made just about its normal 3-5% annual return.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by HomerJ » Thu Apr 16, 2020 2:17 pm

jhsu802701 wrote:
Thu Apr 16, 2020 1:07 pm
If you buy bonds and interest rates rise, that's bad news. You face the choice of being stuck with a below-market yield or selling the bonds for a lower price than what you paid.
Are you talking about bonds or bond funds?

Because that statement is incorrect about bond funds.

Bond funds are self-correcting...

Interest rates go down... bond funds start paying less, but the fund goes up in value...
Interest rates go up, fund value goes down, but the funds start paying MORE.

You're NOT stuck with below-market yield forever when interest rates go up. Old bonds are replaced with higher-paying new bonds.

Sure, if interest rates go up, a bond fund may drop 5% in value, but then it will start paying more, and you'll make that money back fairly quickly, and then start gaining again.
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by Hector » Thu Apr 16, 2020 4:41 pm

jhsu802701 wrote:
Thu Apr 16, 2020 1:07 pm
I agree with Ray Dalio on this.

Bonds look good in the rear view mirror, because interest rates were higher in the past. If you buy bonds and interest rates fall, that's good news, because you earn an above-market yield. If you want to sell rather than hold your bonds in this scenario, you get to sell them for a higher price than what you paid.

If you buy bonds and interest rates rise, that's bad news. You face the choice of being stuck with a below-market yield or selling the bonds for a lower price than what you paid.

Given that interest rates are at historic lows and don't even keep up with current inflation, buying bonds is even riskier than buying large cap US stocks (and I'm bearish on those as well). Bonds are in a bubble. What makes this bubble even crazier than others is that it doesn't even make the hollow promise of a jackpot.
We still have higher interest rates compared with lots of developed nations.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by DaufuskieNate » Thu Apr 16, 2020 4:54 pm

HomerJ wrote:
Thu Apr 16, 2020 2:17 pm
jhsu802701 wrote:
Thu Apr 16, 2020 1:07 pm
If you buy bonds and interest rates rise, that's bad news. You face the choice of being stuck with a below-market yield or selling the bonds for a lower price than what you paid.
Are you talking about bonds or bond funds?

Because that statement is incorrect about bond funds.

Bond funds are self-correcting...

Interest rates go down... bond funds start paying less, but the fund goes up in value...
Interest rates go up, fund value goes down, but the funds start paying MORE.

You're NOT stuck with below-market yield forever when interest rates go up. Old bonds are replaced with higher-paying new bonds.

Sure, if interest rates go up, a bond fund may drop 5% in value, but then it will start paying more, and you'll make that money back fairly quickly, and then start gaining again.
Individual bonds are self-correcting too. Just set up a ladder with bonds maturing every year. Those bonds can be replaced with higher yielding bonds in a rising rate environment.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by Sufferlandrian » Thu Apr 16, 2020 5:03 pm

Given a choice between Ray Dalio on one hand, or Nisiprius (or HomerJ, Taylor Larimore, and John C. Bogle) on the other hand, I’ll choose the advice of Nisiprius every time!
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by epilnk » Thu Apr 16, 2020 5:23 pm

Crazy like a fox. For simplicity (ok too lazy to calculate) I am pulling simple yoy numbers off VG, so this isn't limited to the downturn:

total return since april 2019: -5.7%
equities: -12.9%
bonds: +5.0%

Now of course I'm not buying bond funds any more. I've temporarily halted dividend reinvestment since the downturn has put me well outside my rebalancing bands, and my contributions for the foreseeable future will be equities. That will be fun, I haven't had an opportunity to buy equities in years. And I may have to rebalance by selling some bonds. But I'm certainly not going to reduce the bond allocation. My bond funds have served me well and will continue to provide an income stream long after the NAV goes back down.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by watchnerd » Thu Apr 16, 2020 5:35 pm

epilnk wrote:
Thu Apr 16, 2020 5:23 pm
Crazy like a fox. For simplicity (ok too lazy to calculate) I am pulling simple yoy numbers off VG, so this isn't limited to the downturn:

total return since april 2019: -5.7%
equities: -12.9%
bonds: +5.0%
What kinds of bonds are you holding?

If I average across my bond holdings for 1 year, I get +17.15%.
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by birdog » Thu Apr 16, 2020 5:43 pm

petilon wrote:
Wed Apr 15, 2020 5:49 pm
kmft wrote:
Wed Apr 15, 2020 5:31 pm
Sounds like he's long equities and wants you to hop on and pump them up for him. Do your civic duty and inflate the bubble man!
Not true at all. Watch this video. He says coronacrash is going to be worse than 2008.
https://www.ted.com/talks/ray_dalio_wha ... al_economy
Just watched about 60% of that video. He’s pretty great at not answering the questions that he’s asked. I guess when you’re held in such high esteem you can get away with that.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by Willmunny » Thu Apr 16, 2020 6:00 pm

I don't know much about Dalio, so I won't make ad hominem attacks about him. I will address his claim.

He is right to some extent, in my opinion. Although the headline is a simplistic exaggeration. That doesn't mean you abandon fixed income. Even compared to "quality" diversified funds like BND with some exposure to corporate debt, you can easily find direct bank or credit union CDs for 5 years that yield more and only have a small withdrawal penalty if you need access earlier. That withdrawal penalty is a nice option to have in the back pocket. I gladly paid it to move from a 2.65% rate to a 4.1% rate at another institution on a 5 year CD issued in the fall of 2018. I realize you will be lucky to find a CD paying 1/2 of this rate now, but it is still far better than BND, with its credit risk and interest rate risk for a 1.82% yield as today. There is really very little upside that I see in BND at these yields. At some point, there is a floor and the potential for capital appreciation stops. How much further can the yield go down before people say it is not worth the risk and go to a FDIC insured vehicle? Would you take the interest rate and credit risk of BND for 1% yield? How about 0.5%? How about 0%? I'd rather keep my money in a mattress than take such an uncompensated risk.

I truly believe that if Jack Bogle (the king of staying the course) were alive today, he would modify his behavior with respect to BND just as he drastically reduced his equity exposure ahead of the dot.com bubble. I think it is that obvious. I doubt there will be huge losses in BND like the dot.com bubble (hopefully there will be no losses), but the reward is out of whack with the risk, in my opinion. I will stick to CDs (mixing in some online savings for liquidity/dry powder). I've owned BND in the past, but the only way I would own it now is if I needed to invest in fixed income in a 401(k) per my IPS and BND was my best fixed income option in the 401(k) (which, unfortunately, is the case for many 401(k)s I have seen). If I were stuck in a situation like that inside a 401(k), I think I would hold my nose and stay the course with BND rather than increase equity exposure.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by SandysDad » Thu Apr 16, 2020 6:14 pm

birdog wrote:
Thu Apr 16, 2020 5:43 pm
petilon wrote:
Wed Apr 15, 2020 5:49 pm
kmft wrote:
Wed Apr 15, 2020 5:31 pm
Sounds like he's long equities and wants you to hop on and pump them up for him. Do your civic duty and inflate the bubble man!
Not true at all. Watch this video. He says coronacrash is going to be worse than 2008.
https://www.ted.com/talks/ray_dalio_wha ... al_economy
Just watched about 60% of that video. He’s pretty great at not answering the questions that he’s asked. I guess when you’re held in such high esteem you can get away with that.
I think his central thesis is that things will be quite different among the world order financially after this virus in a few years than they were before. He did not want to say how this will change because no one knows. His point was that we can’t have al developed countries printing this kind of money and not have it change things.

Was it immediately actionable? no but.....
I agree with him and I liked the Ted talk.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by dziuniek » Thu Apr 16, 2020 6:23 pm

Well... if all the countries print... everything is relatively the same.

Printing money might cause inflation, but there is no demand right now so there's the counterforce.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by hoops777 » Thu Apr 16, 2020 9:08 pm

So if one was to invest 100,000 in BND tomorrow what is the end result ten years from now? Predictions....why not,nobody knows anyway. I have no opinion because I have no idea.
K.I.S.S........so easy to say so difficult to do.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by Robot Monster » Thu Apr 16, 2020 9:32 pm

Hector wrote:
Thu Apr 16, 2020 4:41 pm
jhsu802701 wrote:
Thu Apr 16, 2020 1:07 pm
I agree with Ray Dalio on this.

Bonds look good in the rear view mirror, because interest rates were higher in the past. If you buy bonds and interest rates fall, that's good news, because you earn an above-market yield. If you want to sell rather than hold your bonds in this scenario, you get to sell them for a higher price than what you paid.

If you buy bonds and interest rates rise, that's bad news. You face the choice of being stuck with a below-market yield or selling the bonds for a lower price than what you paid.

Given that interest rates are at historic lows and don't even keep up with current inflation, buying bonds is even riskier than buying large cap US stocks (and I'm bearish on those as well). Bonds are in a bubble. What makes this bubble even crazier than others is that it doesn't even make the hollow promise of a jackpot.
We still have higher interest rates compared with lots of developed nations.
Indeed. For instance, Germany and Switzerland yield -.078% and -.248% respectively on their 30-year compared to the U.S.'s 1.27%, sky high in comparison.

Here's an article wondering if the bond bubble is finally bursting...

https://money.cnn.com/2012/03/15/market ... /index.htm

Thing is, it's from 2012.
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by watchnerd » Thu Apr 16, 2020 9:40 pm

hoops777 wrote:
Thu Apr 16, 2020 9:08 pm
So if one was to invest 100,000 in BND tomorrow what is the end result ten years from now? Predictions....why not,nobody knows anyway. I have no opinion because I have no idea.
That's a terrible idea.

Invest it in TIPS and I'll tell you exactly what they'll be worth 10 years from now.
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by gwe67 » Thu Apr 16, 2020 10:05 pm

Why is it OK to post everything Ray Dalio says but not Larry Swedroe?
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by fennewaldaj » Thu Apr 16, 2020 10:14 pm

physixfan wrote:
Thu Apr 16, 2020 2:15 pm
Interest rate has nowhere to go but DOWN in the near future (~10 years) in my opinion. Some other parts of the world are already in the negative interest rate regime, and the US will follow. I can't imagine the FED dare to raise the interest in the current environment, because the interest payments of the debts will make many companies blow up. Therefore I believe at least in the next 10 years, long term bond is still something worth buying. Ray Dalio has a lot of long term treasuries in his portfolio as well, and I think he just want other people to stay away from them so the price can go down a little bit...
might be true. All the money printing done as part of the response might actually trigger inflation this time too. So there is the possibility of a very bad outcome in longer term bonds. TIPs on the other hand seem fairly safe.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by petilon » Thu Apr 16, 2020 11:20 pm

watchnerd wrote:
Thu Apr 16, 2020 9:40 pm
hoops777 wrote:
Thu Apr 16, 2020 9:08 pm
So if one was to invest 100,000 in BND tomorrow what is the end result ten years from now? Predictions....why not,nobody knows anyway. I have no opinion because I have no idea.
That's a terrible idea.

Invest it in TIPS and I'll tell you exactly what they'll be worth 10 years from now.
How are you able to predict that with any accuracy? VIPSX is a TIPS based fund and its performance is not a straight line. See: https://www.morningstar.com/funds/xnas/vipsx/quote

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by justsomeguy2018 » Thu Apr 16, 2020 11:49 pm

Reading this thread makes me wonder if some kind of CD Ladder would be a better FI holding in my Roth IRA than a bond fund. But then that would be hard to rebalance I imagine.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by watchnerd » Fri Apr 17, 2020 12:21 am

petilon wrote:
Thu Apr 16, 2020 11:20 pm
watchnerd wrote:
Thu Apr 16, 2020 9:40 pm
hoops777 wrote:
Thu Apr 16, 2020 9:08 pm
So if one was to invest 100,000 in BND tomorrow what is the end result ten years from now? Predictions....why not,nobody knows anyway. I have no opinion because I have no idea.
That's a terrible idea.

Invest it in TIPS and I'll tell you exactly what they'll be worth 10 years from now.
How are you able to predict that with any accuracy? VIPSX is a TIPS based fund and its performance is not a straight line. See: https://www.morningstar.com/funds/xnas/vipsx/quote
They'll be worth at least what the CPI says they should be worth, plus or minus adjustments.
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by redbarn » Fri Apr 17, 2020 12:27 am

The duration of BND is currently about 6 years. The SEC yield for BND 6 years ago was just above 2%. I know the duration changes somewhat over time but even if you take 5 or 7 years ago, the SEC yield would be either a bit below or above 2%. Under some assumptions, the SEC yield should give us a reasonable estimate of the return of a bond fund over its duration. In this case, the actual return from 2016-2020 is closer to twice the SEC yield than the SEC yield. Does someone know what exactly accounts for this? Why would BND with an SEC yield of about 2% and a duration of about 6 years do so much better than holding a 6-year bond with a 2% SEC yield to maturity would have done?

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by restingonmylaurels » Fri Apr 17, 2020 2:38 am

nisiprius wrote:
Wed Apr 15, 2020 6:37 pm
The ultimate asset allocation mapped asset classes onto the environmental boxes framework, as shown in the diagram below.
Image
There are bonds in three out of those four boxes.
I may be misinterpreting the labels but are there not bonds (corporate credit, EM credit, IL bonds, nominal bonds) in all four boxes?

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by Sammy_M » Fri Apr 17, 2020 5:34 am

The above visual would be clearer if the vertical axis read 'unexpected rise' / 'unexpected fall'. It also makes me think of Bernstein's four horsemen, which is nicely summarized by wadepfau:

1. Severe and prolonged high inflation
2. Prolonged deflation
3. Confiscation
4. Devastation
wadepfau wrote:Bernstein’s conclusion is that the best long-term defense against deep risk is a globally diversified equity portfolio with tilting toward value and precious metals and natural resource companies, TIPS, and potentially some gold and foreign real estate. Because of inflation, bonds become riskier than stocks over long horizons, while shallow risk makes investors with shorter time horizons more vulnerable with stocks.
My take - Dalio is likely referring to nominal bonds. Berstein too concludes that bonds are an inferior investment for averting deep risk. I doubt either has objection to anyone staying the course and rebalancing. A flight away from equities and toward bonds, particularly nominal ones is ill-advised unless you have outstanding market timing abilities and will know when to get back in (no one does).

As respects the four-horsemen and the current state of the world, my views...

#1. More appeal of Inflation-linked bonds, i.e. TIPS and I-bonds. The market's expectation on inflation is very low. 10-Year Breakeven Inflation ~1%. https://fred.stlouisfed.org/series/T10YIE. Unexpected inflation insurance is cheap. Also, more appeal of physical gold, precious metal equities, timber/farm land, etc. but requires an iron will.

#2. Reason to still keep some portion in nominal bonds, perhaps 50% of fixed-income allocation, but there is also a deflation floor for I-Bonds and TIPS held to maturity.

#3. More appeal of Roth conversions, particularly with reduced valuations, though no guarantees Roths will escape the risk.

#4. Bernstein acknowledges the cost of protection is too expensive for most. It'd also seem that directly holding foreign real estate increases exposure to #3.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by alluringreality » Fri Apr 17, 2020 7:27 am

Chac2 wrote:
Thu Apr 16, 2020 11:10 am
I wonder if longer-term TIPS, such as PIMCO 15+ Year US TIPS ETF (LTPZ), can do well in both boxes: falling growth with falling inflation, and falling growth with rising inflation?
I haven't considered buying a TIPS fund, so I'm not exactly sure how they compare to purchasing an individual TIPS.
restingonmylaurels wrote:
Fri Apr 17, 2020 2:38 am
I may be misinterpreting the labels but are there not bonds (corporate credit, EM credit, IL bonds, nominal bonds) in all four boxes?
That's the way I read it. I think bonds as used on this forum often tends to refer to government credit, rather than corporate or emerging market credit, although total bond market is popular here and currently includes around 1/4 investment grade corporate bonds.
Last edited by alluringreality on Fri Apr 17, 2020 7:50 am, edited 1 time in total.
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by anon_investor » Fri Apr 17, 2020 7:38 am

Isn't this the same guy that said buy Chinese equities last year? And didn't his fund take a beating in this crash because he was long equities entering 2020?

He talks about negative interest government debt and that being a terrible investment, and inflation, etc.

Not sure what he talks about totally applies to total bond (aka VBTLX/BND), which I think is totally fine. I Bonds and EE Bonds look pretty good to me too.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by nisiprius » Fri Apr 17, 2020 7:56 am

restingonmylaurels wrote:
Fri Apr 17, 2020 2:38 am
nisiprius wrote:
Wed Apr 15, 2020 6:37 pm
The ultimate asset allocation mapped asset classes onto the environmental boxes framework, as shown in the diagram below.
Image
There are bonds in three out of those four boxes.
I may be misinterpreting the labels but are there not bonds (corporate credit, EM credit, IL bonds, nominal bonds) in all four boxes?
I think you are right. :oops:
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by hoops777 » Fri Apr 17, 2020 10:06 am

watchnerd wrote:
Thu Apr 16, 2020 9:40 pm
hoops777 wrote:
Thu Apr 16, 2020 9:08 pm
So if one was to invest 100,000 in BND tomorrow what is the end result ten years from now? Predictions....why not,nobody knows anyway. I have no opinion because I have no idea.
That's a terrible idea.

Invest it in TIPS and I'll tell you exactly what they'll be worth 10 years from now.
Terrible idea yet nobody has any idea what that 100,000 will be worth. Yea I know this time is different but how many years has it been now that many people here have been saying the same thing,bonds are done.The bubble has popped. Yet somehow they keep on going like the energizer bunny.
K.I.S.S........so easy to say so difficult to do.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by watchnerd » Fri Apr 17, 2020 10:16 am

hoops777 wrote:
Fri Apr 17, 2020 10:06 am


Terrible idea yet nobody has any idea what that 100,000 will be worth.
Au contraire.

The $100,000 will be worth an inflation-adjusted $100,000 in the future, as defined by CPI.
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by hoops777 » Fri Apr 17, 2020 10:28 am

watchnerd wrote:
Fri Apr 17, 2020 10:16 am
hoops777 wrote:
Fri Apr 17, 2020 10:06 am


Terrible idea yet nobody has any idea what that 100,000 will be worth.
Au contraire.

The $100,000 will be worth an inflation-adjusted $100,000 in the future, as defined by CPI.
BND not Tips
K.I.S.S........so easy to say so difficult to do.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by watchnerd » Fri Apr 17, 2020 10:31 am

hoops777 wrote:
Fri Apr 17, 2020 10:28 am
watchnerd wrote:
Fri Apr 17, 2020 10:16 am
hoops777 wrote:
Fri Apr 17, 2020 10:06 am


Terrible idea yet nobody has any idea what that 100,000 will be worth.
Au contraire.

The $100,000 will be worth an inflation-adjusted $100,000 in the future, as defined by CPI.
BND not Tips
Right. Which is why I said to invest it in TIPS if you need it to be worth something predictable 10 years from now.
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by birdog » Fri Apr 17, 2020 10:36 am

watchnerd wrote:
Fri Apr 17, 2020 10:31 am
Right. Which is why I said to invest it in TIPS if you need it to be worth something predictable 10 years from now.
What's your thoughts on VTIP (Vanguard Short Term Inflation Protected Securities ETF) (SEC yield: .70%) as a way to hold TIPS?

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by watchnerd » Fri Apr 17, 2020 11:18 am

birdog wrote:
Fri Apr 17, 2020 10:36 am
watchnerd wrote:
Fri Apr 17, 2020 10:31 am
Right. Which is why I said to invest it in TIPS if you need it to be worth something predictable 10 years from now.
What's your thoughts on VTIP (Vanguard Short Term Inflation Protected Securities ETF) (SEC yield: .70%) as a way to hold TIPS?
See my sig. ;)
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by hoops777 » Fri Apr 17, 2020 11:22 am

watchnerd wrote:
Fri Apr 17, 2020 10:31 am
hoops777 wrote:
Fri Apr 17, 2020 10:28 am
watchnerd wrote:
Fri Apr 17, 2020 10:16 am
hoops777 wrote:
Fri Apr 17, 2020 10:06 am


Terrible idea yet nobody has any idea what that 100,000 will be worth.
Au contraire.

The $100,000 will be worth an inflation-adjusted $100,000 in the future, as defined by CPI.
BND not Tips
Right. Which is why I said to invest it in TIPS if you need it to be worth something predictable 10 years from now.
Yes.But you are the one saying BND is a terrible investment so I am simply asking what you think a 100,000 investment will be worth in 10 years. You must have an opinion since you think it is such a bad idea.I understand you are just throwing out a number but just curious how bad you think it is.
K.I.S.S........so easy to say so difficult to do.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by watchnerd » Fri Apr 17, 2020 11:29 am

hoops777 wrote:
Fri Apr 17, 2020 11:22 am
watchnerd wrote:
Fri Apr 17, 2020 10:31 am
hoops777 wrote:
Fri Apr 17, 2020 10:28 am
watchnerd wrote:
Fri Apr 17, 2020 10:16 am
hoops777 wrote:
Fri Apr 17, 2020 10:06 am


Terrible idea yet nobody has any idea what that 100,000 will be worth.
Au contraire.

The $100,000 will be worth an inflation-adjusted $100,000 in the future, as defined by CPI.
BND not Tips
Right. Which is why I said to invest it in TIPS if you need it to be worth something predictable 10 years from now.
Yes.But you are the one saying BND is a terrible investment so I am simply asking what you think a 100,000 investment will be worth in 10 years. You must have an opinion since you think it is such a bad idea.I understand you are just throwing out a number but just curious how bad you think it is.
I think you misunderstood.

I'm not saying BND is a terrible investment, generally. Not at all.

I'm saying it's a terrible choice if your main goal is predicting what $100k will be worth.

There are two ways to view your framing:

1. You have a liability matching need
2. You're just asking for SWAGs

My point was directed at #1.

For #2, see 10 year forecasts from Vanguard, Blackrock, and Morgan Stanley for anticipated bond guesstimates.
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by hoops777 » Fri Apr 17, 2020 11:34 am

Ok. I did misunderstand.
K.I.S.S........so easy to say so difficult to do.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by birdog » Fri Apr 17, 2020 11:41 am

watchnerd wrote:
Fri Apr 17, 2020 11:18 am
birdog wrote:
Fri Apr 17, 2020 10:36 am
watchnerd wrote:
Fri Apr 17, 2020 10:31 am
Right. Which is why I said to invest it in TIPS if you need it to be worth something predictable 10 years from now.
What's your thoughts on VTIP (Vanguard Short Term Inflation Protected Securities ETF) (SEC yield: .70%) as a way to hold TIPS?
See my sig. ;)
I know you like short TIPS but I was referring specifically to the VTIP ETF as a way to hold them. I haven't looked into the different ways to hold TIPS. Sounds like you're OK with the Vanguard ETF, I gather.

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by AlphaLess » Fri Apr 17, 2020 12:04 pm

I like Dalio as a person. I like him as someone who understands long-term macroeconomic theory.

I like him for educating the masses.

I like him for his philanthropic endeavors.

And on top of that, I *COMPLETELY* ignore what he has to say about investing.
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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by watchnerd » Fri Apr 17, 2020 12:07 pm

birdog wrote:
Fri Apr 17, 2020 11:41 am
watchnerd wrote:
Fri Apr 17, 2020 11:18 am
birdog wrote:
Fri Apr 17, 2020 10:36 am
watchnerd wrote:
Fri Apr 17, 2020 10:31 am
Right. Which is why I said to invest it in TIPS if you need it to be worth something predictable 10 years from now.
What's your thoughts on VTIP (Vanguard Short Term Inflation Protected Securities ETF) (SEC yield: .70%) as a way to hold TIPS?
See my sig. ;)
I know you like short TIPS but I was referring specifically to the VTIP ETF as a way to hold them. I haven't looked into the different ways to hold TIPS. Sounds like you're OK with the Vanguard ETF, I gather.
I hold both some individual TIPS and VTAPX/VTIP. I didn't buy any more individual 5 year TIPS at this week's auction because of the indicative yield.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

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Re: Ray Dalio: ‘you’d be pretty crazy to hold bonds’ right now

Post by birdog » Fri Apr 17, 2020 12:11 pm

watchnerd wrote:
Fri Apr 17, 2020 12:07 pm
birdog wrote:
Fri Apr 17, 2020 11:41 am
watchnerd wrote:
Fri Apr 17, 2020 11:18 am
birdog wrote:
Fri Apr 17, 2020 10:36 am
watchnerd wrote:
Fri Apr 17, 2020 10:31 am
Right. Which is why I said to invest it in TIPS if you need it to be worth something predictable 10 years from now.
What's your thoughts on VTIP (Vanguard Short Term Inflation Protected Securities ETF) (SEC yield: .70%) as a way to hold TIPS?
See my sig. ;)
I know you like short TIPS but I was referring specifically to the VTIP ETF as a way to hold them. I haven't looked into the different ways to hold TIPS. Sounds like you're OK with the Vanguard ETF, I gather.
I hold both some individual TIPS and VTAPX/VTIP. I didn't buy any more individual 5 year TIPS at this week's auction because of the indicative yield.
Thank you.

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