Buffett on bonds

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erik265
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Buffett on bonds

Post by erik265 » Wed Jan 10, 2018 5:06 pm

Opinions??
I know buffet has much more than the rest of us and he can invest differently. Since bonds have been poorly performing and will most likely be in the future. Should higher stock allocations be a wise move. I know the concerns (riding through the tough times managing risk close to retirement etc etc) but if you are a long term investor around 40 is a lower bond AA a better move?
Is buffet right even though he is far from your average investor??
Last edited by erik265 on Wed Jan 10, 2018 6:18 pm, edited 2 times in total.

Swampy
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Re: Buffet on bonds

Post by Swampy » Wed Jan 10, 2018 5:18 pm

"Large vessels may venture more, but little boats should keep near shore." Attributed to Ben Franklin.

What's 'right' for the QE2 isn't necessarily 'right' for a canoe - and vice versa.
The principle works the same when your portfolio is 4-5-6-7 digits long compared to someone with an 11 digit long portfolio.
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Re: Buffett on bonds

Post by dbr » Wed Jan 10, 2018 5:32 pm

The answer depends on what you want and need from your investments and on what hazards apply to you from increased volatility, if any.

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cfs
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Re: Buffett on bonds

Post by cfs » Wed Jan 10, 2018 5:52 pm

I am not a BH, I know where he stands on cryptocurrencies (his comments were in the news this morning), but I don't know where he stands on owning individual bonds or bond mutual funds. Oh, by the way, I am talking about a different type of BH, as in Buffettheads. Good luck and thanks for reading ~cfs~
Last edited by cfs on Wed Jan 10, 2018 8:01 pm, edited 1 time in total.
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Re: Buffett on bonds

Post by oldzey » Wed Jan 10, 2018 6:09 pm

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Thesaints
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Re: Buffett on bonds

Post by Thesaints » Wed Jan 10, 2018 6:30 pm

Bonds have actually been very good performers in recent years. That's the reason behind our present expectation of them being not too good in the future.
Yet, one does not have to confuse expected return with expected volatility. Bonds will arguably still have lower volatility than stocks. The issue is instead the correlation of the two classes, which is expected to be a lot higher than usual, monetary policy being the major driver of both their and stocks' prices.

erik265
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Re: Buffett on bonds

Post by erik265 » Wed Jan 10, 2018 6:36 pm

Thesaints wrote:
Wed Jan 10, 2018 6:30 pm
Bonds have actually been very good performers in recent years. That's the reason behind our present expectation of them being not too good in the future.
Yet, one does not have to confuse expected return with expected volatility. Bonds will arguably still have lower volatility than stocks. The issue is instead the correlation of the two classes, which is expected to be a lot higher than usual, monetary policy being the major driver of both their and stocks' prices.
Total Bond Market ETF Market Price 1yr 3.54% 3yr 2.18% 5yr 2.03%

Bonds are expected to yield lower returns in future bc of expected raise in interest rates. But is the mitigation of volatility worth much much lower returns. If stocks over the next 10 years get you 6x returns is the higher beta not worth it?

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JoMoney
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Re: Buffett on bonds

Post by JoMoney » Wed Jan 10, 2018 6:46 pm

Buffett is right when he tells people to keep enough in cash/bonds that they sleep well at night and are comfortable with their allocation. Neither Buffet, nor I, or anybody else can tell you how much is appropriate for you to put at risk in stocks.

I am in the camp that thinks long-term prospects for bonds are dismal. Still a safe option if you're happy with the coupon and willing to hold to maturity/relative duration... but I think rates will be heading upward, perhaps for a long period of time, and not likely to be anything 'extra' garnered from falling rates (quite likely to be a loss for bonds not held to term).
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Buffett on bonds

Post by RRAAYY3 » Wed Jan 10, 2018 7:53 pm

There’s no reason to own bonds at all if you truly do have a long investment horizon and the mental fortitude to not panic during the next correction / crash

The more I look into bonds, the more I really don’t see the point (unless you’ve already “won the game” - then who cares you’re financially set)

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Re: Buffett on bonds

Post by TG2 » Wed Jan 10, 2018 8:08 pm

After my rollover a few months ago I was holding way too much money out trying to talk myself into bonds. Couldn't do it, and wasted several thousand dollars worth of potential gains by not going all into stocks like I should have. Don't need bonds. Don't want bonds. Will it change? Maybe, but given that I am newly in retirement at 100/0 and perfectly comfortable with that I kinda doubt it. :)

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Re: Buffett on bonds

Post by AnalogKid22 » Wed Jan 10, 2018 9:10 pm

Instead of investing in bonds, is the suggestion to put the money in a money market (MM), for example, and move the money from the MM to stocks during corrections?

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Re: Buffett on bonds

Post by TG2 » Wed Jan 10, 2018 9:49 pm

My suggestion would be that you should do whatever you feel truly comfortable with. For investing success you should maximize the risk that you are comfortable with. If you feel that you need to hold bonds, then do that. If you don't, then don't.

For me, I consider myself a long-term investor. I will probably always consider myself a long-term investor even when I don't really have a long term left. Stocks outperform bonds handily over the long term. Why would I not want to be all stocks? Yes, I could hold bonds to allow me to sell those and buy stocks during a downturn, but how much in gains would I have foregone to do that? Giving up years of gains in stocks to maybe buy stocks lower later seems like a really bad bet. More likely is that even when the downturn comes, and it will, you will be buying those stocks even higher than you would have originally.

The other key is that I have well over what I "need" now. If the market goes down 50% I can handle that. I will be at a "getting by okay" level rather than an "everything I want" level but that seems like little real problem for a couple (few) years.

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Re: Buffett on bonds

Post by Lou354 » Wed Jan 10, 2018 10:27 pm

erik265 wrote:
Wed Jan 10, 2018 5:06 pm
Opinions??
I know buffet has much more than the rest of us and he can invest differently. Since bonds have been poorly performing and will most likely be in the future. Should higher stock allocations be a wise move. I know the concerns (riding through the tough times managing risk close to retirement etc etc) but if you are a long term investor around 40 is a lower bond AA a better move?
Is buffet right even though he is far from your average investor??
Looking at a thread you started in January 2017, you felt the stock market was overvalued (S&P500 @2270) and were pretty confident there would be volatility with the new administration and a pullback sometime during the year. Now with the stock market even more highly valued you’re thinking of increasing your stock allocation. If you decide to do so, make sure you’re not faking yourself out by telling yourself it’s because you’ve been convinced by Buffett’s argument while in reality chasing returns.

Should higher stock allocations be a wise move? Devil’s in the details, isn’t it? What’s your stock allocation now and what are you considering changing it to?

A higher stock allocation could be okay, provided you’ll be able to stick with it through bear markets. I assume you’ve come across the observation that during the good times people tend to overestimate their ability to do so.

erik265
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Re: Buffett on bonds

Post by erik265 » Wed Jan 10, 2018 11:59 pm

Lou354 wrote:
Wed Jan 10, 2018 10:27 pm
erik265 wrote:
Wed Jan 10, 2018 5:06 pm
Opinions??
I know buffet has much more than the rest of us and he can invest differently. Since bonds have been poorly performing and will most likely be in the future. Should higher stock allocations be a wise move. I know the concerns (riding through the tough times managing risk close to retirement etc etc) but if you are a long term investor around 40 is a lower bond AA a better move?
Is buffet right even though he is far from your average investor??
Looking at a thread you started in January 2017, you felt the stock market was overvalued (S&P500 @2270) and were pretty confident there would be volatility with the new administration and a pullback sometime during the year. Now with the stock market even more highly valued you’re thinking of increasing your stock allocation. If you decide to do so, make sure you’re not faking yourself out by telling yourself it’s because you’ve been convinced by Buffett’s argument while in reality chasing returns.

Should higher stock allocations be a wise move? Devil’s in the details, isn’t it? What’s your stock allocation now and what are you considering changing it to?

A higher stock allocation could be okay, provided you’ll be able to stick with it through bear markets. I assume you’ve come across the observation that during the good times people tend to overestimate their ability to do so.
Based on historical data the market should be overvalued. Interest rates have been extraordinarily low so it has given the market a big boost. I don't exactly know how much the market is actually overvalued if you consider low interest rates. So I still somewhat agree with my original assessment of market overvaluation because I just don't know how much low interest rates inflate the market. Also i believe in reversion to the mean-- so will the market probably revert to normal multiples probably but when is anyones guess. It will depend on interest rates govt policies GDP etc alot to think about. With all that being said over the long term the market will most likely outperform bonds by a large margin. I have a 70/30 allocation at the moment I have fluctuated between 60/40 to 70/30 I will stay the course in that range unless something dramatic changes my thinking. I have learned that just bc I thought that what I was doing was right doesn't mean it really is best strategy. I am only as wise as the information available to me at the time limited by one mind to process that data. So because of that limitation I will always need to be flexible if new information becomes available or even if it is old information that i may have overlooked :) That is why I employ a very simple investing strategy because of my limitations.

PS I did underestimate market resilience as well as valuations I thought that the market would be more volatile over the past year but deregulation lower taxes etc overwhelmed any global turmoil. Plus I did not factor in how much low interest rates would inflate the market as well. That is why predicting markets esp in the short run is a losers game but I still can't help myself haha

I am not trying to chase the market I am trying to employ the best possible long term strategy possible. This forum has been the best resource I have found. I am grateful for this forum and all the the knowledge I have gained from it...

I made another error instead of just putting all the extra money I had to invest in one lump sum to work in Jan I filtered it in over the year decreasing my returns. I used that strategy incorrectly thinking the market would pull back 5 to 10% but it never did losing gains I would have made. I should have gone all in at beginning of the year but I wrongly made poor predictions. :(
Last edited by erik265 on Thu Jan 11, 2018 12:47 am, edited 7 times in total.

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Re: Buffett on bonds

Post by whodidntante » Thu Jan 11, 2018 12:19 am

Bill Gross says the bond bull market is over, according to a teaser I heard on CNBC at lunchtime. I was instructed to stay tuned to learn how this may affect my portfolio, which I did not do.

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Re: Buffett on bonds

Post by venkman » Thu Jan 11, 2018 12:19 am

erik265 wrote:
Wed Jan 10, 2018 5:06 pm
Opinions??
I know buffet has much more than the rest of us and he can invest differently. Since bonds have been poorly performing and will most likely be in the future. Should higher stock allocations be a wise move. I know the concerns (riding through the tough times managing risk close to retirement etc etc) but if you are a long term investor around 40 is a lower bond AA a better move?
Is buffet right even though he is far from your average investor??
Isn't Berkshire sitting on nearly $100 billion in cash right now, presumably because Warren Buffett can't find any investments he feels are attractively valued?

TG2
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Re: Buffett on bonds

Post by TG2 » Thu Jan 11, 2018 12:40 am

venkman wrote:
Thu Jan 11, 2018 12:19 am
erik265 wrote:
Wed Jan 10, 2018 5:06 pm
Opinions??
I know buffet has much more than the rest of us and he can invest differently. Since bonds have been poorly performing and will most likely be in the future. Should higher stock allocations be a wise move. I know the concerns (riding through the tough times managing risk close to retirement etc etc) but if you are a long term investor around 40 is a lower bond AA a better move?
Is buffet right even though he is far from your average investor??
Isn't Berkshire sitting on nearly $100 billion in cash right now, presumably because Warren Buffett can't find any investments he feels are attractively valued?
Last I read it was $109 billion, with an estimate for an additional $37 billion benefit from the tax plan.

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Re: Buffett on bonds

Post by jcavana1 » Thu Jan 11, 2018 8:29 am

I think it is important to note for the avg investor that Buffett says stocks are better value than "bonds" but has $110 billion in short term treasuries or "bonds".

He has said owning 30 yrs treasuries or bonds is crazy right now.

So it's a little more nuanced than not liking bonds.

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Re: Buffet on bonds

Post by Toons » Thu Jan 11, 2018 8:56 am

Swampy wrote:
Wed Jan 10, 2018 5:18 pm
"Large vessels may venture more, but little boats should keep near shore." Attributed to Ben Franklin.

What's 'right' for the QE2 isn't necessarily 'right' for a canoe - and vice versa.
The principle works the same when your portfolio is 4-5-6-7 digits long compared to someone with an 11 digit long portfolio.

Very Well Said :sharebeer
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Re: Buffett on bonds

Post by stan1 » Thu Jan 11, 2018 9:23 am

It always surprises me when people with 5, 6, or 7 digit portfolios look to people with 9, 10, or 11 digit portfolios for specific investment advice. That's left of the decimal point. Very successful, well respected and wealthy individuals do have good insight and perspective but sometimes its hard to tell whether they are talking about the general economy, their own portfolio, or what they would recommend for a close family member who is in their 20s, 30s, or 40s. If anything what I'd take a statement such as "stocks still attractive versus bonds" to mean "stay the course". I think Mr. Buffett would say the same thing to you if you had the chance to discuss your personal portfolio with him.

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Re: Buffett on bonds

Post by PolarInvest » Thu Jan 11, 2018 9:38 am

First of all, you can't say with certainty that bonds will perform poorly in the future. The bond market already incorporates all expected future rate increases in the yield curve. Bonds should perform about as well as their current yield, which is better now than it was last year and the year before that.

Second, long-term investors should be happy in a period of rising interest rates. Sure it's a small hit now (unless you're doing something like buying 30 year bonds), but future bond returns are much higher. My 2nd tier emergency fund is in 2 year treasury bonds, and I'm much happier getting 2% on those rather than the 1.2% I was getting at this time last year. Heck, I'll even accept the fact that the emergency fund didn't make any money at all last year, and I'm hoping that it doesn't make any money again this year and we're looking at 2.8% 2 year bond rates in 2019.

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Re: Buffett on bonds

Post by MichaelRpdx » Thu Jan 11, 2018 12:06 pm

Buffett can also peacefully sleep through a 40, 50, or 60% market decline in trading value. He has rock solid conviction and enough equity to sustain his life through any market event.
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erik265
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Re: Buffett on bonds

Post by erik265 » Thu Jan 11, 2018 2:54 pm

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erik265
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Re: Buffett on bonds

Post by erik265 » Thu Jan 11, 2018 2:55 pm

stan1 wrote:
Thu Jan 11, 2018 9:23 am
It always surprises me when people with 5, 6, or 7 digit portfolios look to people with 9, 10, or 11 digit portfolios for specific investment advice. That's left of the decimal point. Very successful, well respected and wealthy individuals do have good insight and perspective but sometimes its hard to tell whether they are talking about the general economy, their own portfolio, or what they would recommend for a close family member who is in their 20s, 30s, or 40s. If anything what I'd take a statement such as "stocks still attractive versus bonds" to mean "stay the course". I think Mr. Buffett would say the same thing to you if you had the chance to discuss your personal portfolio with him.
I am not looking to Buffet only bc of his 11 figure net worth. I am looking to him bc of his market knowledge and insights. His company his talented staff his access/resources far exceed most of us. So when he gives an opinion it means more than most because of his position and where he sits. It's like I am looking from the 1st floor window and he is in the penthouse my view is pretty limited relative to his. As for his advice I try to decipher as best I can but I do think he is talking in a general sense. Of course you need to consider your own individual circumstances. I believe if I was sitting with Buffet he would tell me to invest as much as I can in stocks allowing a certain amount in bonds to ride through tough times and market downturns. My job security and overall assets would be a factor in what my exact allocation would be but I think he would push for highest stock aa possible.

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Re: Buffett on bonds

Post by dbr » Thu Jan 11, 2018 4:53 pm

erik265 wrote:
Thu Jan 11, 2018 2:55 pm
stan1 wrote:
Thu Jan 11, 2018 9:23 am
It always surprises me when people with 5, 6, or 7 digit portfolios look to people with 9, 10, or 11 digit portfolios for specific investment advice. That's left of the decimal point. Very successful, well respected and wealthy individuals do have good insight and perspective but sometimes its hard to tell whether they are talking about the general economy, their own portfolio, or what they would recommend for a close family member who is in their 20s, 30s, or 40s. If anything what I'd take a statement such as "stocks still attractive versus bonds" to mean "stay the course". I think Mr. Buffett would say the same thing to you if you had the chance to discuss your personal portfolio with him.
I am not looking to Buffet only bc of his 11 figure net worth. I am looking to him bc of his market knowledge and insights. His company his talented staff his access/resources far exceed most of us. So when he gives an opinion it means more than most because of his position and where he sits. It's like I am looking from the 1st floor window and he is in the penthouse my view is pretty limited relative to his. As for his advice I try to decipher as best I can but I do think he is talking in a general sense. Of course you need to consider your own individual circumstances. I believe if I was sitting with Buffet he would tell me to invest as much as I can in stocks allowing a certain amount in bonds to ride through tough times and market downturns. My job security and overall assets would be a factor in what my exact allocation would be but I think he would push for highest stock aa possible.
This is another of those what did he/is he really saying to your or me, but I am inclined to agree with your analysis above.

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Re: Buffett on bonds

Post by UpperNwGuy » Thu Jan 11, 2018 5:11 pm

Buffet is a very smart and successful investor, and I greatly admire the man, but his investment advice is not relevant to me. I hold international stocks, and I hold bonds. They meet my needs for diversity and stability as a small-scale investor.

I was pleased to discover that Buffet is a graduate of DC's Woodrow Wilson High School about half a mile from my home.

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Re: Buffett on bonds

Post by abuss368 » Thu Jan 11, 2018 9:05 pm

I think the story of Warren Buffett is amazing. That said, his advice is very general to the ordinary investor. I find myself following Jack Bogle's advice more. That said I would not sleep well with no bonds with 90% in stocks and 10% in cash.

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Re: Buffett on bonds

Post by birdog » Thu Jan 11, 2018 9:20 pm

abuss368 wrote:
Thu Jan 11, 2018 9:05 pm
I think the story of Warren Buffett is amazing. That said, his advice is very general to the ordinary investor. I find myself following Jack Bogle's advice more. That said I would not sleep well with no bonds with 90% in stocks and 10% in cash.

Best.
I thought Buffett advocated 90% stocks and 10% government bonds. Did that change?

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Re: Buffett on bonds

Post by abuss368 » Thu Jan 11, 2018 10:03 pm

birdog wrote:
Thu Jan 11, 2018 9:20 pm
abuss368 wrote:
Thu Jan 11, 2018 9:05 pm
I think the story of Warren Buffett is amazing. That said, his advice is very general to the ordinary investor. I find myself following Jack Bogle's advice more. That said I would not sleep well with no bonds with 90% in stocks and 10% in cash.

Best.
I thought Buffett advocated 90% stocks and 10% government bonds. Did that change?
Perhaps that was it.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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munemaker
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Re: Buffett on bonds

Post by munemaker » Thu Jan 11, 2018 10:07 pm

birdog wrote:
Thu Jan 11, 2018 9:20 pm
abuss368 wrote:
Thu Jan 11, 2018 9:05 pm
I think the story of Warren Buffett is amazing. That said, his advice is very general to the ordinary investor. I find myself following Jack Bogle's advice more. That said I would not sleep well with no bonds with 90% in stocks and 10% in cash.

Best.
I thought Buffett advocated 90% stocks and 10% government bonds. Did that change?
That was for his wife. I don't know if he advocates that for everyone else. I would think it depends on your specific circumstances.

investorpeter
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Re: Buffett on bonds

Post by investorpeter » Thu Jan 11, 2018 10:46 pm

In a recent interview, I believe he said he doesn’t have anything against bonds as an asset class, but in the current environment he expects better returns in stocks. In the early 1980’s he held alot of bonds.

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Re: Buffett on bonds

Post by dbr » Fri Jan 12, 2018 9:20 am

munemaker wrote:
Thu Jan 11, 2018 10:07 pm
birdog wrote:
Thu Jan 11, 2018 9:20 pm
abuss368 wrote:
Thu Jan 11, 2018 9:05 pm
I think the story of Warren Buffett is amazing. That said, his advice is very general to the ordinary investor. I find myself following Jack Bogle's advice more. That said I would not sleep well with no bonds with 90% in stocks and 10% in cash.

Best.
I thought Buffett advocated 90% stocks and 10% government bonds. Did that change?
That was for his wife. I don't know if he advocates that for everyone else. I would think it depends on your specific circumstances.
It is certainly my impression that he also suggested that advice for anyone. Whether or not it makes sense for a person to just fly out and follow some quip of Mr. Buffett, or of Mr. Bogle for that matter, is a different discussion. I would think that a better approach is for each person to decide the issue with some knowledge of how things work and what is the best match to exactly the above, the specific circumstances.

The world is full of brilliant and successful people who can all too easily say something that is a little out of their range and not necessarily a good idea at all. Also, everyone is responsible for making their own decisions.

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Re: Buffett on bonds

Post by Bigbonds » Fri Jan 12, 2018 9:40 am

abuss368 wrote:
Thu Jan 11, 2018 9:05 pm
I think the story of Warren Buffett is amazing. That said, his advice is very general to the ordinary investor. I find myself following Jack Bogle's advice more. That said I would not sleep well with no bonds with 90% in stocks and 10% in cash.

Best.
Hopefully you’re not following Jacks advice and predictions too closely. He has been say for at least 5 years that future gains would be small, 3 to 4% and that his portfolio is something like 60% bonds. All the while Warren has been saying pretty much the exact opposite and has been right.

There is no free lunch. If investors are following Jacks advice about bonds over Warren’s they are still taking a huge risk that their portfolio will underperform, not produce enough and slowly draw down the principal. This is a much bigger risk for most than sequence of return. Again no free lunch either way.

Warren has consistently given out amazing free advice to anyone willing to listen and has been more accurate than anybody else. Warren doesn’t get nearly enough credit around the bogleheads forum.

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Re: Buffett on bonds

Post by dbr » Fri Jan 12, 2018 9:45 am

Bigbonds wrote:
Fri Jan 12, 2018 9:40 am


There is no free lunch. If investors are following Jacks advice about bonds over Warren’s they are still taking a huge risk that their portfolio will underperform, not produce enough and slowly draw down the principal. This is a much bigger risk for most than sequence of return. Again no free lunch either way.
This is very true. The current flurry over "sequence of returns risk" seems to be in ignorance of the larger picture. On the other had the historical numbers don't seem to show that 60% bonds is too high for those withdrawing from portfolios in retirement. That does not also mean that 90% stocks is automatically the optimum for everyone. Even so, your point is well taken.

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Re: Buffett on bonds

Post by munemaker » Fri Jan 12, 2018 6:10 pm

dbr wrote:
Fri Jan 12, 2018 9:20 am
munemaker wrote:
Thu Jan 11, 2018 10:07 pm
birdog wrote:
Thu Jan 11, 2018 9:20 pm
abuss368 wrote:
Thu Jan 11, 2018 9:05 pm
I think the story of Warren Buffett is amazing. That said, his advice is very general to the ordinary investor. I find myself following Jack Bogle's advice more. That said I would not sleep well with no bonds with 90% in stocks and 10% in cash.

Best.
I thought Buffett advocated 90% stocks and 10% government bonds. Did that change?
That was for his wife. I don't know if he advocates that for everyone else. I would think it depends on your specific circumstances.
It is certainly my impression that he also suggested that advice for anyone. Whether or not it makes sense for a person to just fly out and follow some quip of Mr. Buffett, or of Mr. Bogle for that matter, is a different discussion. I would think that a better approach is for each person to decide the issue with some knowledge of how things work and what is the best match to exactly the above, the specific circumstances.

The world is full of brilliant and successful people who can all too easily say something that is a little out of their range and not necessarily a good idea at all. Also, everyone is responsible for making their own decisions.
I completely agree.

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