Do bonds make sense in my portfolio?

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Topic Author
mohd
Posts: 63
Joined: Wed Jul 22, 2020 2:10 am
Location: Bahrain

Do bonds make sense in my portfolio?

Post by mohd »

Hey there

This might be a newbie question (actually, yes it is)
Since I started investing last month, I was reading posts from there and there to enrich my knowledge

I've seen some people whether here or in other communities discussing about bonds in either two ways:
1. ditching bonds portion for young investors (in my case I'm ~29)
2. Bonds have low rates now and better to switch to high-yield saving accounts.

My portfolio allocation is as follow
VWRA (80%) and AGGU USD-hedged (20%)

I still have some cash and planning to, since I would need them in maybe 10 years for a big purchase, but the rest are invested as stated above.

So my questions are
1. Should I have bonds at this age and why?
2. Does it make sense to invest them in bonds if I can keep them in high-yield saving acc with 2% interest rates (banks are likely to be safe in my country)
3. Should I worry about the low rates of bonds now?
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Schlabba
Posts: 625
Joined: Sat May 11, 2019 9:14 am
Location: Netherlands

Re: Do bonds make sense in my portfolio?

Post by Schlabba »

mohd wrote: Sat Sep 12, 2020 6:41 am Hey there

This might be a newbie question (actually, yes it is)
Since I started investing last month, I was reading posts from there and there to enrich my knowledge

I've seen some people whether here or in other communities discussing about bonds in either two ways:
1. ditching bonds portion for young investors (in my case I'm ~29)
2. Bonds have low rates now and better to switch to high-yield saving accounts.

My portfolio allocation is as follow
VWRA (80%) and AGGU USD-hedged (20%)

I still have some cash and planning to, since I would need them in maybe 10 years for a big purchase, but the rest are invested as stated above.

So my questions are
1. Should I have bonds at this age and why?
2. Does it make sense to invest them in bonds if I can keep them in high-yield saving acc with 2% interest rates (banks are likely to be safe in my country)
3. Should I worry about the low rates of bonds now?
1. Bonds are your safety money. If you don't need safety money, you don't need bonds. Do you have a stable job? Are your skills in high demand? Does your spouse have a stable job? Do you have rich parents? (I don't need actual answers to these questions, you can consider these questions for yourself)
Consider your bonds like an insurance: You pay to keep yourself safe during tough times.
2. It seems that the 2% from your bank is a better deal. Also consider taxes, it might be that your bonds are taxed differently because they are investments.
3. Nope, see answer to question 1.
Secretly a dividend investor. Feel free to ask why.
Topic Author
mohd
Posts: 63
Joined: Wed Jul 22, 2020 2:10 am
Location: Bahrain

Re: Do bonds make sense in my portfolio?

Post by mohd »

Schlabba wrote: Sat Sep 12, 2020 6:57 am
mohd wrote: Sat Sep 12, 2020 6:41 am Hey there

This might be a newbie question (actually, yes it is)
Since I started investing last month, I was reading posts from there and there to enrich my knowledge

I've seen some people whether here or in other communities discussing about bonds in either two ways:
1. ditching bonds portion for young investors (in my case I'm ~29)
2. Bonds have low rates now and better to switch to high-yield saving accounts.

My portfolio allocation is as follow
VWRA (80%) and AGGU USD-hedged (20%)

I still have some cash and planning to, since I would need them in maybe 10 years for a big purchase, but the rest are invested as stated above.

So my questions are
1. Should I have bonds at this age and why?
2. Does it make sense to invest them in bonds if I can keep them in high-yield saving acc with 2% interest rates (banks are likely to be safe in my country)
3. Should I worry about the low rates of bonds now?
1. Bonds are your safety money. If you don't need safety money, you don't need bonds. Do you have a stable job? Are your skills in high demand? Does your spouse have a stable job? Do you have rich parents? (I don't need actual answers to these questions, you can consider these questions for yourself)
Consider your bonds like an insurance: You pay to keep yourself safe during tough times.
2. It seems that the 2% from your bank is a better deal. Also consider taxes, it might be that your bonds are taxed differently because they are investments.
3. Nope, see answer to question 1.
If the purpose of bonds is to have safety money, then In my case I believe the high-yield saving acc makes more sense. And if they do not generate more than 2% annually I don't see any point from having them.

Also, we don't have taxes in our country.
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Brianmcg321
Posts: 980
Joined: Mon Jul 15, 2019 8:23 am

Re: Do bonds make sense in my portfolio?

Post by Brianmcg321 »

I didn’t put any bonds in my portfolio until I turned 47 this year.

At your age, if your maxing out your accounts, that essentially acts like a bond, smoothing out the ride.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
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wander
Posts: 3260
Joined: Sat Oct 04, 2008 9:10 am

Re: Do bonds make sense in my portfolio?

Post by wander »

Yes, bonds make sense in any portfolio. That's my answer. But, people do have different opinions.
Topic Author
mohd
Posts: 63
Joined: Wed Jul 22, 2020 2:10 am
Location: Bahrain

Re: Do bonds make sense in my portfolio?

Post by mohd »

Brianmcg321 wrote: Sat Sep 12, 2020 7:45 am I didn’t put any bonds in my portfolio until I turned 47 this year.

At your age, if your maxing out your accounts, that essentially acts like a bond, smoothing out the ride.
It's different here in my country in case of retirement
We contribute by 6% of our income on my monthly basis to a pension fund. When you you retire you get 2 * worked years = % of your salary
So I think it's something equivalent to maxing out retirements accounts in other countries' case.
wander wrote: Sat Sep 12, 2020 8:54 am Yes, bonds make sense in any portfolio. That's my answer. But, people do have different opinions.
Can you please elaborate more on how they make sense in my portfolio? I'd like to know your opinion.
Thanks
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wander
Posts: 3260
Joined: Sat Oct 04, 2008 9:10 am

Re: Do bonds make sense in my portfolio?

Post by wander »

mohd wrote: Sat Sep 12, 2020 9:11 am Can you please elaborate more on how they make sense in my portfolio? I'd like to know your opinion.
Thanks
Well, I look at investing like a basketball game. You have to play offsense and defense. Can you win by just playing offsense and let the opponents score every time? Bonds make sense to me for defense, but many people don't care, because people do have different opinions. That's my common sense.
Topic Author
mohd
Posts: 63
Joined: Wed Jul 22, 2020 2:10 am
Location: Bahrain

Re: Do bonds make sense in my portfolio?

Post by mohd »

wander wrote: Sat Sep 12, 2020 2:21 pm
mohd wrote: Sat Sep 12, 2020 9:11 am Can you please elaborate more on how they make sense in my portfolio? I'd like to know your opinion.
Thanks
Well, I look at investing like a basketball game. You have to play offsense and defense. Can you win by just playing offsense and let the opponents score every time? Bonds make sense to me for defense, but many people don't care, because people do have different opinions. That's my common sense.
If bonds are used to rebalance the portfolio in bear market, why not use cash instead. Especially if u can store them in ~2% yield saving acc.

Also if they are there to prevent people from selling in down times, why don't they have an emergency fund for such cases?
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wander
Posts: 3260
Joined: Sat Oct 04, 2008 9:10 am

Re: Do bonds make sense in my portfolio?

Post by wander »

mohd wrote: Sat Sep 12, 2020 2:52 pm
wander wrote: Sat Sep 12, 2020 2:21 pm
mohd wrote: Sat Sep 12, 2020 9:11 am Can you please elaborate more on how they make sense in my portfolio? I'd like to know your opinion.
Thanks
Well, I look at investing like a basketball game. You have to play offsense and defense. Can you win by just playing offsense and let the opponents score every time? Bonds make sense to me for defense, but many people don't care, because people do have different opinions. That's my common sense.
If bonds are used to rebalance the portfolio in bear market, why not use cash instead. Especially if u can store them in ~2% yield saving acc.

Also if they are there to prevent people from selling in down times, why don't they have an emergency fund for such cases?
I do have bonds in my portfolio but I do not have emergency fund. Have a look at VBTLX, can cash earn that 7.27 YTD return? Again, it's your choice. You can have cash if it makes sense to you.
xxd091
Posts: 200
Joined: Sun Aug 21, 2011 4:41 am
Location: UK

Re: Do bonds make sense in my portfolio?

Post by xxd091 »

The main point of having bonds in a portfolio is to reduce a portfolios volatility -equities go up and down vigorously!
The return on the bond fund is a secondary function but important
Volatility not a big problem when you are young and earning money
A huge problem if old and dependent on portfolio for income
A rough rule is your age in bonds minus 10
Example
I am old -75-retired 18 years
Depend on my portfolio for income
Made a big enough pile of money
30/65/5- equities/bonds/ cash
This suits me
A young person might have a portfolio with equity and bond positions reversed
xxd09
Trader Joe
Posts: 1987
Joined: Fri Apr 25, 2014 6:38 pm

Re: Do bonds make sense in my portfolio?

Post by Trader Joe »

"Do bonds make sense in my portfolio?"

No, they do not.
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