Rethinking bonds

[stocknoob4111]

Was just listening to Burton Malkiel on Animal Spirits podcast (https://animalspiritspod.libsyn.com/a-r ... on-malkiel) and he mentioned that he think Bonds no longer serve any purpose in a portfolio due to their negative inflation adjusted yield.

The part about bonds starts at time 22:00 into the podcast.

He instead thinks that we could replace Bonds with high dividend blue chip stocks such as IBM that are very stable, have low historical volatility but pay a good dividend.

Not quite sure I would agree with him but it's tough to disagree with someone as iconic as Malkiel. What do you think about his philosophy?

[arcticpineapplecorp.]

stocks are not bonds.

[AlohaJoe]

Was just listening to Burton Malkiel

Burton Malkiel has been suggesting this for many years. If you search his name you'll find hundreds of previous threads on the subject and can read everything there is to say on what people think.

[stocknoob4111]

stocks are not bonds.

however, I could also make the argument that bonds are not bonds... meaning that bonds today are not behaving like bonds of the past, they are not yielding a positive return inflation adjusted and a lot of the bond mutual funds also are much riskier - in March 2020, VBTLX/VBILX fell 10%, now not as much as equities but for a bond fund 10% is a precipitous drop. If the Fed did not step in who knows where these bond funds woiuld've ended up... for those that are relying on bonds to be stable this is concerning.

[UpperNwGuy]

@stocknoob4111, are you going to sell your bonds and buy high dividend blue chip stocks?

[Admiral]

VBTLX has returned 7.03% as of September 30th, 2020.

The sky is always falling when it comes to bonds. Yet, it doesn't.

[stocknoob4111]

VBTLX has returned 7.03% as of September 30th, 2020.

That is in the past as interest rates have fallen drastically, however we are now at a point where it isn't going lower so that performance isn't going to repeat.

Even if interest rates go to zero (which they probably will not) you have only .5% of a buffer, on a 6 year term that's a possible 3% upside. Meanwhile the yield is dropping into negative real territory.

Besides nobody really cares what happened in the past.. i'm concerned about what it is going to return in the future. The past is done.

I'm not saying I have any good alternatives but I agree with Malkiel that Bonds are not a great choice at this time, but I don't necessarily agree with his alternative of using blue chip equities.

[Admiral]

VBTLX has returned 7.03% as of September 30th, 2020.

That is in the past as interest rates have fallen drastically, however we are now at a point where it isn't going lower so that performance isn't going to repeat.

Even if interest rates go to zero (which they probably will not) you have only .5% of a buffer, on a 6 year term that's a possible 3% upside. Meanwhile the yield is dropping into negative real territory.

Besides nobody really cares what happened in the past.. i'm concerned about what it is going to return in the future. The past is done.

I'm not saying I have any good alternatives but I agree with Malkiel that Bonds are not a great choice at this time, but I don't necessarily agree with his alternative of using blue chip equities.

Yes, well I am better at predicting the past than the future. Do you sell your stocks when they drop in value?

Bonds are for preservation of capital. If you want to chase returns, well, that's what stocks are for.

[arcticpineapplecorp.]

stocks are not bonds.

however, I could also make the argument that bonds are not bonds... meaning that bonds today are not behaving like bonds of the past, they are not yielding a positive return inflation adjusted and a lot of the bond mutual funds also are much riskier - in March 2020, VBTLX/VBILX fell 10%, now not as much as equities but for a bond fund 10% is a precipitous drop. If the Fed did not step in who knows where these bond funds woiuld've ended up... for those that are relying on bonds to be stable this is concerning.

didn't have much time to post before so let me counter your claim.

1. while vbtlx/vbilx fell 10%, the total stock market fell 32%.

2. I'm not sure the bonds fell 10%. I'm seeing them falling 2%:



source:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

3. the bonds recovered much more quickly than the stocks...did they not? (see chart above)

4. there is no such thing as a safe stock, even if they are "blue chip". I mean, GE was a blue chip stock for a long time too, right? How would that blue chip stock have done for you? (GE added to chart below...in yellow):



source:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

now for fun...only because Malkiel supposedly named IBM by name (have to take your word for that)...let's add IBM to the chart shall we? (in purple below). How'd IBM do?



source:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

answer: it did worse than the stock market and worse than bonds.

so why should we accept any notion that stocks are good substitutes for bonds?

they're not.

[joetro29]

Interesting. It’s for this reason I’m reluctant to pull trigger and move traditional 457b from stock index to bond index

[000]

Having a bonds allocation of 0% is probably ok for some people.

But thinking stocks can act like bonds isn't.

[Always passive]

@stocknoob4111, are you going to sell your bonds and buy high dividend blue chip stocks?

The point is that given today's situation, the investor must only own as much in bonds as absolutely necessary and no more. Let me just add that high yielding paying stocks are not necessary the best strategy. We all know, and Larry Swedroe has mentioned it repeatedly, when investing in stocks, total return is what counts. If you need income from stocks, sell what you need.

[stimulacra]

Wow… IBM?

I think bluechip dividend investing has its place but replacement for bonds isn't it.

I much prefer substituting corporate bonds for government to slightly bump up yield versus adding more equity.

Bonds have performed quite well for me and don't see any reason for that to change any time soon.

[Always passive]

Wow… IBM?

I think bluechip dividend investing has its place but replacement for bonds isn't it.

I much prefer substituting corporate bonds for government to slightly bump up yield versus adding more equity.

Bonds have performed quite well for me and don't see any reason for that to change any time soon.

Curious to know what is the role of “ bluechip dividend investing”. I was always taught that one should only look at total return. So, if I may ask, under which conditions high yielding equities should be used?

[MikeG62]

...I'm not saying I have any good alternatives but I agree with Malkiel that Bonds are not a great choice at this time, but I don't necessarily agree with his alternative of using blue chip equities.

Agree on both points.

I am using traditional CD's as an alternative to bonds in this environment. Not selling existing intermediate-term bond funds, but redeploying (or have redeployed) MMF's, online savings accounts, ultra short-term investment grade bond funds, maturing no-penalty CD's and called Muni bonds to traditional CD's.

I don't consider equities to be an alternative to fixed income.

[ljford7]

I listened to the interview a few days ago and I believe his point was in regards to getting income out of bonds. If you need income, you might want to look at blue chip stocks with high dividends (I think he said IBM was at 6%) because bonds are not going to be providing the income a lot of retirees need moving forward.

You don't have to agree with his suggestions for blue chip stocks, but he has a very good point that bonds are not going to be producing the income some investors need moving forward and they are going to have to look elsewhere.

[Always passive]

I listened to the interview a few days ago and I believe his point was in regards to getting income out of bonds. If you need income, you might want to look at blue chip stocks with high dividends (I think he said IBM was at 6%) because bonds are not going to be providing the income a lot of retirees need moving forward.

You don't have to agree with his suggestions for blue chip stocks, but he has a very good point that bonds are not going to be producing the income some investors need moving forward and they are going to have to look elsewhere.

Your comments are right. The problem is that the solution is not trivial, it most likely involves taking more risk.

[Day9]

Bogleheads in the accumulation phase:

The solution to historically low bond yields and historically high stock valuations is to save more and work longer. Reconsider what are "needs" and what are "wants". Expect a longer career and plan accordingly, for example by sharpening your skills in a way you would not have done if you expected to retire sooner.

Do not replace safe bonds with risky assets like stocks, MLPs, convertible notes, junk bonds, emerging market bonds, or anything of the sort.

[Robot Monster]

I listened to the interview a few days ago and I believe his point was in regards to getting income out of bonds. If you need income, you might want to look at blue chip stocks with high dividends (I think he said IBM was at 6%) because bonds are not going to be providing the income a lot of retirees need moving forward.

You don't have to agree with his suggestions for blue chip stocks, but he has a very good point that bonds are not going to be producing the income some investors need moving forward and they are going to have to look elsewhere.

Your comments are right. The problem is that the solution is not trivial, it most likely involves taking more risk.

Yes, not trival, and possibly dangerous if people into take on more risk than they can handle, and could potentially panic-sell in a downturn.

[stimulacra]

Wow… IBM?

I think bluechip dividend investing has its place but replacement for bonds isn't it.

I much prefer substituting corporate bonds for government to slightly bump up yield versus adding more equity.

Bonds have performed quite well for me and don't see any reason for that to change any time soon.

Curious to know what is the role of “ bluechip dividend investing”. I was always taught that one should only look at total return. So, if I may ask, under which conditions high yielding equities should be used?

I never said "High yielding"… but I think for investors focused solely on income (for whatever reason they choose to be), blue chip dividend paying stocks would be a good place to start.

Using qualified dividends to generate a passive income stream from a basket of individual blue chip stocks held in a taxable account is one scenario that comes to mind. You're not selling off shares, touching the principal, or having to think about capital appreciation.

“Yield on cost" is a seductive concept for many investors. I've heard dividends described as essentially free money to many investors; an ATM on your front lawn, fruits off a planted tree, or money dripping off a rotisserie chicken. Total return involves a higher level of abstraction

[Robot Monster]

“Yield on cost" is a seductive concept for many investors. I've heard dividends described as essentially free money to many investors; an ATM on your front lawn, fruits off a planted tree, or money dripping off a rotisserie chicken.

Do you agree with this characterization?

[Always passive]

Wow… IBM?

I think bluechip dividend investing has its place but replacement for bonds isn't it.

I much prefer substituting corporate bonds for government to slightly bump up yield versus adding more equity.

Bonds have performed quite well for me and don't see any reason for that to change any time soon.

Curious to know what is the role of “ bluechip dividend investing”. I was always taught that one should only look at total return. So, if I may ask, under which conditions high yielding equities should be used?

I never said "High yielding"… but I think for investors focused solely on income (for whatever reason they choose to be), blue chip dividend paying stocks would be a good place to start.

Using qualified dividends to generate a passive income stream from a basket of individual blue chip stocks held in a taxable account is one scenario that comes to mind. You're not selling off shares, touching the principal, or having to think about capital appreciation.

“Yield on cost" is a seductive concept for many investors. I've heard dividends described as essentially free money to many investors; an ATM on your front lawn, fruits off a planted tree, or money dripping off a rotisserie chicken. Total return involves a higher level of abstraction

Larry Swedroe has discussed this subject extensively in his books and articles. I just googled one:
Please read: https://www.etf.com/sections/index-inve ... nopaging=1
The highlights....
Irrelevance Of Dividends
Research has established that dividend policy should be irrelevant to stock returns, yet investors have long demonstrated an irrational preference for them. Mutual fund providers are well-aware of this fact.

[greg24]

It is often said around these parts that investing is behavioral.

Income investors like getting that "paycheck" every month. If it helps them stay the course, it may be the best option.

But many are going to get burned reaching for yield.

[Always passive]

It is often said around these parts that investing is behavioral.

Income investors like getting that "paycheck" every month. If it helps them stay the course, it may be the best option.

But many are going to get burned reaching for yield.

Good point!

[stimulacra]

“Yield on cost" is a seductive concept for many investors. I've heard dividends described as essentially free money to many investors; an ATM on your front lawn, fruits off a planted tree, or money dripping off a rotisserie chicken.

Do you agree with this characterization?

Not really… it's a fun braggadocios metric that works great for something like Coke, Microsoft or Apple (if you bought in the 90's) but I'm gonna say it's very prone to survivorship bias.

What got me off the dividend kick was that some of the highest performing stocks don't pay a dividend (Berkshire Hathaway, Google, Amazon) and that companies are not above fudging their numbers to avoid cutting dividends.

With that said… what is the value of a company that never returns capital to its shareholders (assuming the shareholder never sells their shares of that company)?

[AerialWombat]

Saying that I should sell my bonds to buy equities is like telling me to sell my rental properties to buy gold.

Different asset classes serve different purposes, and are not interchangeable.

[Always passive]

Saying that I should sell my bonds to buy equities is like telling me to sell my rental properties to buy gold.

Different asset classes serve different purposes, and are not interchangeable.

Most Bogleheads are in agreement that high dividend stocks are not a substitute of bonds.
The only point that must be understood very well is that the bond market will not be what it used to be for the foreseeable future. And every investor must consider that when making their plans. To me this is most likely the major change in my 30+ years of investing. And the bad thing about it is that there is no solution short of taking more risk.

[AerialWombat]

Saying that I should sell my bonds to buy equities is like telling me to sell my rental properties to buy gold.

Different asset classes serve different purposes, and are not interchangeable.

Most Bogleheads are in agreement that high dividend stocks are not a substitute of bonds.
The only point that must be understood very well is that the bond market will not be what it used to be for the foreseeable future. And every investor must consider that when making their plans. To me this is most likely the major change in my 30+ years of investing. And the bad thing about it is that there is no solution short of taking more risk.

I disagree. This is immaterial noise. There is another thread going on that delves into bonds as ballast, which is what they are. One holds bonds for capital preservation in that portion of their portfolio, not really to earn return. Any return from bonds is just a bonus.

[Robot Monster]

The only point that must be understood very well is that the bond market will not be what it used to be for the foreseeable future.

There simply is no guarantee we couldn't break new ground into negative interest rate territory. The Fed has said it is not looking at negative interest rates. This could change. If we started to have deflation, like Switzerland is currently experiencing, what's to stop our 10yr Treasury, now yielding 0.78%, from matching Switzerland's 10yr yield of -0.514%? Switzerland's deflation is only -0.8%. In 1932 the US hit deflation of -10.3%

[aristotelian]

IBM? What do they even make any more? The stock dropped near 50% in March. I still stick with bonds for my bond allocation, thanks.

I do hold a low volatility stock ETF (USMV) but the dividend is irrelevant.

[Independent George]

Increasing stock allocation to increase long-term apprecaition in a low rate environment is rational; exchanging bonds for dividend stocks (especially individual stocks) because you expect them to perform similarly is not.

I am at 90/10 because I can handle the volatility that comes with the high stock allocation. The average investor - who is not only risk-averse, but also has no idea that they are risk averse - is very likely to engage in behavioral errors with a higher stock allocation, and especially if they are buying individual stocks for their dividends. You hold bonds because it smooths out the volatility and makes a person more likely to stay the course with their portfolio.

I think the recent bull market in bonds happened has made otherwise sensible people bonds are there to increase returns.

[Always passive]

The only point that must be understood very well is that the bond market will not be what it used to be for the foreseeable future.

There simply is no guarantee we couldn't break new ground into negative interest rate territory. The Fed has said it is not looking at negative interest rates. This could change. If we started to have deflation, like Switzerland is currently experiencing, what's to stop our 10yr Treasury, now yielding 0.78%, from matching Switzerland's 10yr yield of -0.514%? Switzerland's deflation is only -0.8%. In 1932 the US hit deflation of -10.3%

How much lower can they go? And then what? It is the end, for a while, a long while and we better get used to it. You do not believe that given our tools today we cannot stop a deflation of 1932 size?

[Robot Monster]

The only point that must be understood very well is that the bond market will not be what it used to be for the foreseeable future.

There simply is no guarantee we couldn't break new ground into negative interest rate territory. The Fed has said it is not looking at negative interest rates. This could change. If we started to have deflation, like Switzerland is currently experiencing, what's to stop our 10yr Treasury, now yielding 0.78%, from matching Switzerland's 10yr yield of -0.514%? Switzerland's deflation is only -0.8%. In 1932 the US hit deflation of -10.3%

How much lower can they go? And then what? It is the end, for a while, a long while and we better get used to it. You do not believe that given our tools today we cannot stop a deflation of 1932 size?

Someone just posted the Oct 4th, 2020 Walk Street Journal article, "Five Reasons Why Investors Might Buy Negative-Yielding Debt." Reason #5:

The most important reason investors would willingly choose to invest in negative-yielding bonds is when there is deflation...For instance, consider a one-year bond that yields minus 5% but at the same time inflation is expected to be minus 10% over the same period...“You can have negative interest rates at any level as long as the expected inflation rate justified,” says Mr. Ranson.

link

[Third Son]

Bonds definitely did their job today.

[Always passive]

Bonds definitely did their job today.

Cash also did its job today. I think that the point here is that the historical bond strategy may need to be rethought. We all have used Total US Bond Index or similar for ages. Giving its duration (somewhere higher than 5) and YTM close to zero, should it not be better to hold short term bonds with less sensitive to interest rates and a YTM very similar to intermediate term bonds? What about inflation, the real killer of bonds, should it not be more desirable to hold short term Tips?

[Robot Monster]

Bonds definitely did their job today.

Cash also did its job today. I think that the point here is that the historical bond strategy may need to be rethought. We all have used Total US Bond Index or similar for ages. Giving its duration (somewhere higher than 5) and YTM close to zero, should it not be better to hold short term bonds with less sensitive to interest rates and a YTM very similar to intermediate term bonds? What about inflation, the real killer of bonds, should it not be more desirable to hold short term Tips?

Always passive,

Did you read the article referenced in the thread, "Overweight Consumer Staples and Tech According to Bridgewater?" link The article concludes that TIPS are a better hedge against an equity portfolio than nominal bonds. Very important: this conclusion is based on the assumption the US will not follow Europe and Japan into negative rate territory.

[abuss368]

Was just listening to Burton Malkiel on Animal Spirits podcast (https://animalspiritspod.libsyn.com/a-r ... on-malkiel) and he mentioned that he think Bonds no longer serve any purpose in a portfolio due to their negative inflation adjusted yield.

The part about bonds starts at time 22:00 into the podcast.

He instead thinks that we could replace Bonds with high dividend blue chip stocks such as IBM that are very stable, have low historical volatility but pay a good dividend.

Not quite sure I would agree with him but it's tough to disagree with someone as iconic as Malkiel. What do you think about his philosophy?

Honestly, with all due respect to Burton Malkiel, I am not sure what is going on anymore with his advice. It appears that every year or couple of years, the general advice, and “Random Walk Down Wall Street” is changing.

I can not get on board with no bonds. Bonds provide ballast and dry powder to a portfolio. Importantly bonds also provide an opportunity to rebalance into stocks when the inevitable market corrections happen.

[abuss368]

In my opinion, Taylor’s saying is the best: “Bonds let us sleep well. Stocks let us eat well.”

Investors would be wise to listen to that advice.

[Nowizard]

So many threads on bond concerns these days that reveal much confusion about their returns. I'll stick with them since it is often best to do nothing when uncertain and getting conflicting opinions. The outperformance over recent years has led to part of the confusion about the traditional role they play in a portfolio in my opinion. A favorite personal comment in difficult times is that if you have a reasonably conservative portfolio, at least one with a ratio of bonds fitting your circumstances, that there are occasions where you "Make the most by losing the least."

Tim

[dziuniek]

If one has access to a decent stable value fund in their 401/403/457 - that might be the answer. Mine still yields 2.68% so more of my fixed allocation sits in that as opposed to total bond. Still it's a guess.

If I had no access to it, I'd still be in total bond simply because there's no better alternative for 'ballast' accessible to me.

[Always passive]

Bonds definitely did their job today.

Cash also did its job today. I think that the point here is that the historical bond strategy may need to be rethought. We all have used Total US Bond Index or similar for ages. Giving its duration (somewhere higher than 5) and YTM close to zero, should it not be better to hold short term bonds with less sensitive to interest rates and a YTM very similar to intermediate term bonds? What about inflation, the real killer of bonds, should it not be more desirable to hold short term Tips?

Always passive,

Did you read the article referenced in the thread, "Overweight Consumer Staples and Tech According to Bridgewater?" link The article concludes that TIPS are a better hedge against an equity portfolio than nominal bonds. Very important: this conclusion is based on the assumption the US will not follow Europe and Japan into negative rate territory.

Thank you, very interesting and highly credible

[atdharris]

I sold all my shares of TLT in my taxable account yesterday around the close of the market. At 31 years old, I have come to the conclusion that given the size of my taxable account, and the risk that long-term government bonds pose right now given where rates are and the run they have had this year is greater than the reward. Thus, it no longer makes sense for me to hold TLT.

Whether or not I simply put this cash into equities in my taxable account or into short-term t-bills, I am not sure. I suppose my brokerage's cash account is earning just as much as short-term bonds right now.

[Always passive]

I sold all my shares of TLT in my taxable account yesterday around the close of the market. At 31 years old, I have come to the conclusion that given the size of my taxable account, and the risk that long-term government bonds pose right now given where rates are and the run they have had this year is greater than the reward. Thus, it no longer makes sense for me to hold TLT.

Whether or not I simply put this cash into equities in my taxable account or into short-term t-bills, I am not sure. I suppose my brokerage's cash account is earning just as much as short-term bonds right now.

Very smart!

[Soon2BXProgrammer]

Was just listening to Burton Malkiel on Animal Spirits podcast (https://animalspiritspod.libsyn.com/a-r ... on-malkiel) and he mentioned that he think Bonds no longer serve any purpose in a portfolio due to their negative inflation adjusted yield.

The part about bonds starts at time 22:00 into the podcast.

He instead thinks that we could replace Bonds with high dividend blue chip stocks such as IBM that are very stable, have low historical volatility but pay a good dividend.

Not quite sure I would agree with him but it's tough to disagree with someone as iconic as Malkiel. What do you think about his philosophy?

I don't hold normal nominal bonds. I primarily own stable value, TSP G fund, illiquid 4% interest fund in a NQDC plan, 5% yielding cash balance pension plan, i-bonds, and a few other instruments.. I give up the upside when rates fall, and i don't get slaughtered when rates rise. Effectively, its higher yielding cash then cash.

This means my "bond" holding is ultra safe, but i choose to hold less of it, then maybe someone else.

I am a firm believer in taking all my risk on the equity side, and hold the amount of "bond substitutes" i need to have confidence to hold my stocks indefinitely.

[tibbitts]

That is in the past as interest rates have fallen drastically, however we are now at a point where it isn't going lower so that performance isn't going to repeat.

That's what I told myself when I passed on those guaranteed 17-year 6% EEs. And when I didn't renew my 8% CD because it would only renew at 4%. And the list goes on. How long have you been convinced interest rates aren't going lower? Honestly I thought we'd turned a corner in 2019, and then came Covid... totally didn't see that coming. Eventually interest rates will probably rise - I just wish I knew when.

[abuss368]

So many threads on bond concerns these days that reveal much confusion about their returns. I'll stick with them since it is often best to do nothing when uncertain and getting conflicting opinions. The outperformance over recent years has led to part of the confusion about the traditional role they play in a portfolio in my opinion. A favorite personal comment in difficult times is that if you have a reasonably conservative portfolio, at least one with a ratio of bonds fitting your circumstances, that there are occasions where you "Make the most by losing the least."

Tim

That is well said. I have learned that when investment experts disagree it usually does not make much difference.

[corp_sharecropper]

Saying that I should sell my bonds to buy equities is like telling me to sell my rental properties to buy gold.

Different asset classes serve different purposes, and are not interchangeable.

Most Bogleheads are in agreement that high dividend stocks are not a substitute of bonds.
The only point that must be understood very well is that the bond market will not be what it used to be for the foreseeable future. And every investor must consider that when making their plans. To me this is most likely the major change in my 30+ years of investing. And the bad thing about it is that there is no solution short of taking more risk.

I disagree. This is immaterial noise. There is another thread going on that delves into bonds as ballast, which is what they are. One holds bonds for capital preservation in that portion of their portfolio, not really to earn return. Any return from bonds is just a bonus.

No one is in the business of lending money and thinking it will just be a nice bonus if they do better than break even for taking all the credit risk, duration risk, inflation risk, and reinvestment risk. No one would lend to anyone if that's what lending was about. Bonds are you lending money at a competitive yield based on the risks/rewards/duration that you find acceptable. Why go through the trouble if you literally expect zero? There is risk in every bond, even treasuries (early 1930's and 1979, and whatever we'll eventually experience down the road). Contrary to popular belief, the credit worthiness of the US government is not some immutable law of the universe, creditors have received less than they expected and later than they expected already. By and large people want something for taking risk or it wouldn't be worth the time or overhead.

[AerialWombat]

Saying that I should sell my bonds to buy equities is like telling me to sell my rental properties to buy gold.

Different asset classes serve different purposes, and are not interchangeable.

Most Bogleheads are in agreement that high dividend stocks are not a substitute of bonds.
The only point that must be understood very well is that the bond market will not be what it used to be for the foreseeable future. And every investor must consider that when making their plans. To me this is most likely the major change in my 30+ years of investing. And the bad thing about it is that there is no solution short of taking more risk.

I disagree. This is immaterial noise. There is another thread going on that delves into bonds as ballast, which is what they are. One holds bonds for capital preservation in that portion of their portfolio, not really to earn return. Any return from bonds is just a bonus.

No one is in the business of lending money and thinking it will just be a nice bonus if they do better than break even for taking all the credit risk, duration risk, inflation risk, and reinvestment risk. No one would lend to anyone if that's what lending was about. Bonds are you lending money at a competitive yield based on the risks/rewards/duration that you find acceptable. Why go through the trouble if you literally expect zero? There is risk in every bond, even treasuries (early 1930's and 1979, and whatever we'll eventually experience down the road). Contrary to popular belief, the credit worthiness of the US government is not some immutable law of the universe, creditors have received less than they expected and later than they expected already. By and large people want something for taking risk or it wouldn't be worth the time or overhead.

Yes, it's lending. But as a retail investor, I view it as less of a lending situation and more of a capital preservation situation. I still think the analogy holds. This is also why CDs may be a better investment than bonds, quite frankly.

[3funder]

It was easy for me to disagree!

[Independent George]

There's a legitimate case to be made that bond performance in the next few decades will be poorer than in the bull market of the last 40 years, and therefore one should consider a either a higher stock allocation (with the higher volatility that comes with it), or lower their expectations on what a more conservative portfolio will get you.

I am deeply skeptical at the notion that high dividend stocks are in any way an appropriate substitute for bonds in a portfolio.