Bonds - Am I missing something

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simplesimon
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Re: Bonds - Am I missing something

Post by simplesimon » Fri Feb 02, 2018 4:00 pm

RRAAYY3 wrote:
Fri Feb 02, 2018 9:07 am
simplesimon wrote:
Fri Feb 02, 2018 8:02 am
You're missing typical modern portfolio theory stuff like having uncorrelated assets that improve your risk/return ratio.
Regarding risk, I have 20 years to ride out and only invest money I know I won’t need for a few years. That volatility is irrelevant to me - because of my long term outlook, and the fact it’s with funds I don’t “need”. I hope they grow, but if they don’t we likely have bigger problems in this world than asset allocation.

Regarding managing that risk, I think once rates rise CD’s (and their guaranteed returns) will be something I strongly consider as I age. Bonds, for the “safety” they provide, can still lose value - which is something I find to be ridiculous since that is where the “safe money” is supposed to go for stability.
Sure that's fine. I'm just telling you what you're missing. Borrow money and invest on margin if you'd like.

RRAAYY3
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Re: Bonds - Am I missing something

Post by RRAAYY3 » Fri Feb 02, 2018 4:01 pm

Da5id wrote:
Fri Feb 02, 2018 3:19 pm
RRAAYY3 wrote:
Fri Feb 02, 2018 3:11 pm
I’m not mocking anyone - the Vanguard Total Bond fund looks more volatile and unpredictable than stocks have been
Suggestion: Go to https://www.portfoliovisualizer.com/backtest-portfolio, Enter VBTLX and VTSAX. Look at resulting graphs and tables. Then come discuss volatility and unpredictability.
Looks like stocks outperforms bonds 76% of the time, often significantly.

Finridge
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Re: Bonds - Am I missing something

Post by Finridge » Fri Feb 02, 2018 4:06 pm

RRAAYY3 wrote:
Fri Feb 02, 2018 3:11 pm
I’m not mocking anyone - the Vanguard Total Bond fund looks more volatile and unpredictable than stocks have been

Better question: why would anyone young own bonds (if they won’t freak out about a downturn)

* I’ve bought Int’l Index twice this week on downturns - maybe I’ll buy some Us too *
Did you look at the links I posted upthread? Also, do run scenarios on portfoliovisualizer for different portfolios and over different time frames.
https://www.portfoliovisualizer.com/bac ... sisResults

Compare the Vanguard Total Bond Fund to the Vanguard Total Stock Market Fund. These are good proxies for the entire bond and stock markets. The stock fund is exponentially more volatile than the bond fund.

And you probably already saw my comment that an all-equity portfolio is not unreasonable choice for someone in your shoes (and in fact it was the choice I went with, and without any regrets). But I think you can only make an informed on this if you understand the characteristics of stocks and bonds, and their respective pros and cons. So when I hear you make statements that the Vanguard Total Bond fund is more volatile and unpredictable then stocks, when in fact the opposite is true, and true in spades -- well, I would personally recommend that you not make any decisions right now. Spend more time reading and learning. I strongly recommend reading some of the books suggested in the wiki. The forums here are great, but to get indepth knowledge, the books are a better way to go.
Last edited by Finridge on Fri Feb 02, 2018 4:09 pm, edited 1 time in total.

bloom2708
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Re: Bonds - Am I missing something

Post by bloom2708 » Fri Feb 02, 2018 4:08 pm

Why keep arguing Ray? You can keep your 100/0 portfolio. Stay the course!

“Ray. People will come, Ray. They'll come to Iowa for reasons they can't even fathom. They'll turn up your driveway not knowing for sure why they're doing it. They'll arrive at your door as innocent as children, longing for the past. "Of course, we won't mind if you look around", you'll say, "It's only $20 per person". They'll pass over the money without even thinking about it: for it is money they have and peace they lack. And they'll walk out to the bleachers; sit in shirtsleeves on a perfect afternoon. They'll find they have reserved seats somewhere along one of the baselines, where they sat when they were children and cheered their heroes. And they'll watch the game and it'll be as if they dipped themselves in magic waters. The memories will be so thick they'll have to brush them away from their faces. People will come Ray. The one constant through all the years, Ray, has been baseball. America has rolled by like an army of steamrollers. It has been erased like a blackboard, rebuilt and erased again. But baseball has marked the time. This field, this game: it's a part of our past, Ray. It reminds us of all that once was good and that could be again. Oh...people will come Ray. People will most definitely come.”

Terrance Mann (James Earl Jones) - Field of Dreams
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend very little time here! | 3. You have no control <--spend no time here

RRAAYY3
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Re: Bonds - Am I missing something

Post by RRAAYY3 » Fri Feb 02, 2018 4:19 pm

RRAAYY3 wrote:
Fri Feb 02, 2018 3:11 pm
I’m not mocking anyone - the Vanguard Total Bond fund looks more volatile and unpredictable than stocks have been

Better question: why would anyone young own bonds (if they won’t freak out about a downturn)

* I’ve bought Int’l Index twice this week on downturns - maybe I’ll buy some Us too *
Forgot to include I was only looking at last 5 years - hence the “have been”

VBTLX over the last 5 years sure has looked like a roller coaster of a ride

** I’m well aware bonds are actually less volatile than stocks, I was simply shocked at how up and down it has been in recent years - making me question how “safe” they really are **

It’s Friday, have a good one BH!

Da5id
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Re: Bonds - Am I missing something

Post by Da5id » Fri Feb 02, 2018 4:34 pm

RRAAYY3 wrote:
Fri Feb 02, 2018 4:01 pm
Da5id wrote:
Fri Feb 02, 2018 3:19 pm
RRAAYY3 wrote:
Fri Feb 02, 2018 3:11 pm
I’m not mocking anyone - the Vanguard Total Bond fund looks more volatile and unpredictable than stocks have been
Suggestion: Go to https://www.portfoliovisualizer.com/backtest-portfolio, Enter VBTLX and VTSAX. Look at resulting graphs and tables. Then come discuss volatility and unpredictability.
Looks like stocks outperforms bonds 76% of the time, often significantly.
Holy non sequiturs Batman.

stocknoob4111
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Re: Bonds - Am I missing something

Post by stocknoob4111 » Fri Feb 02, 2018 10:42 pm

well VBTLX dropped another 0.3% today and I am looking at the yield at it's stuck at 2.69% for the last 3 0.25-0.3% declines in value, I thought yield was supposed to keep going up when NAV drops? These bond funds make no sense to me.

I bought VBTLX at 10.69 when the yield was 2.55%, so now the price is 10.54 which represents 1.4% drop in NAV. Taking term as 6 years, 1.4/6 = .23%.

so I expect a yield increase of .23% and it should be at 2.55+.23 = 2.78%

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ogd
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Re: Bonds - Am I missing something

Post by ogd » Sat Feb 03, 2018 7:14 am

stocknoob4111 wrote:
Fri Feb 02, 2018 10:42 pm
well VBTLX dropped another 0.3% today and I am looking at the yield at it's stuck at 2.69% for the last 3 0.25-0.3% declines in value, I thought yield was supposed to keep going up when NAV drops? These bond funds make no sense to me.

I bought VBTLX at 10.69 when the yield was 2.55%, so now the price is 10.54 which represents 1.4% drop in NAV. Taking term as 6 years, 1.4/6 = .23%.

so I expect a yield increase of .23% and it should be at 2.55+.23 = 2.78%
The fund yield is a 30 day average, for rather arcane reasons. After 30 days of stability, the yield will look very much like what you expect. It's pretty mathematical stuff, though the average can obscure things for a while.

If you want to verify the math using the SEC yield number, it's best to do it between two points that were each preceded by about 30 days of nothing much happening.

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ogd
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Re: Bonds - Am I missing something

Post by ogd » Sat Feb 03, 2018 7:26 am

RRAAYY3 wrote:
Fri Feb 02, 2018 4:19 pm

Forgot to include I was only looking at last 5 years - hence the “have been”

VBTLX over the last 5 years sure has looked like a roller coaster of a ride
I think you're doing this wrong, like eyeballing the volatility from one line at a time. Either read the numbers to see how big the fluctuations really are, or put them on the same graph.

Clearly more volatile, and these are good years for the stock market. But what's more important about safe bonds vs stocks is that you're guaranteed to get more yield after each drop, and ultimately more money overall. There's no such guarantee for stocks.

Here's one of the best arguments for bonds in my case: if stocks vastly outperform stocks, I'll be in great shape anyway. But if they do worse, I might be in trouble, and if the economy is in shambles and my job is not assured even more trouble. So why detract from the bad scenario just to make an already good scenario even better? I'm not a luxury type of guy so one difference matters much more than the other.

RRAAYY3
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Re: Bonds - Am I missing something

Post by RRAAYY3 » Sat Feb 03, 2018 7:57 am

Thank you all. As I age, I may be more inclined to “buy in” (literally?) to this whole bond thing. At the moment, I’m not too concerned with volatility (actually joked with my girlfriend about how much money I lost yesterday so maybe we should “stay in” as we were getting ready to go out). Instead, I bought more shares at a discount and had a lovely evening.

Wasn’t trying to be argumentative or disrespectful. This site has been a godsend - although I’m strongly considering a “CD ladder” when it gets time to preserve some of my portfolio, especially as rates rise. Ironically, I can deal with up and downs of equity better than I can the idea of my “safe” assets being in anything that could drop in value

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simplesimon
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Re: Bonds - Am I missing something

Post by simplesimon » Sat Feb 03, 2018 8:30 am

RRAAYY3 wrote:
Sat Feb 03, 2018 7:57 am
Thank you all. As I age, I may be more inclined to “buy in” (literally?) to this whole bond thing. At the moment, I’m not too concerned with volatility (actually joked with my girlfriend about how much money I lost yesterday so maybe we should “stay in” as we were getting ready to go out). Instead, I bought more shares at a discount and had a lovely evening.

Wasn’t trying to be argumentative or disrespectful. This site has been a godsend - although I’m strongly considering a “CD ladder” when it gets time to preserve some of my portfolio, especially as rates rise. Ironically, I can deal with up and downs of equity better than I can the idea of my “safe” assets being in anything that could drop in value
Many Bogleheads bought yesterday, likely to rebalance and sold off bond funds to do so. You did it with cash. Doesn't seem all that different.

Glad you recognize that it's irrational that you accept stock volatility to achieve higher long term returns over bonds but can't accept bond volatility to achieve higher long term returns over cash.

RRAAYY3
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Re: Bonds - Am I missing something

Post by RRAAYY3 » Sat Feb 03, 2018 8:40 am

simplesimon wrote:
Sat Feb 03, 2018 8:30 am
RRAAYY3 wrote:
Sat Feb 03, 2018 7:57 am
Thank you all. As I age, I may be more inclined to “buy in” (literally?) to this whole bond thing. At the moment, I’m not too concerned with volatility (actually joked with my girlfriend about how much money I lost yesterday so maybe we should “stay in” as we were getting ready to go out). Instead, I bought more shares at a discount and had a lovely evening.

Wasn’t trying to be argumentative or disrespectful. This site has been a godsend - although I’m strongly considering a “CD ladder” when it gets time to preserve some of my portfolio, especially as rates rise. Ironically, I can deal with up and downs of equity better than I can the idea of my “safe” assets being in anything that could drop in value
Many Bogleheads bought yesterday, likely to rebalance and sold off bond funds to do so. You did it with cash. Doesn't seem all that different.

Glad you recognize that it's irrational that you accept stock volatility to achieve higher long term returns over bonds but can't accept bond volatility to achieve higher long term returns over cash.
i always assumed bonds were the safety net where “nothing bad could happen”, when in reality it seems the the bad is just not as bad as equity.

Perhaps CDs will be my “safe” route - but I’ve got 5+ years before I even consider preservation.

Regarding cash - this site helped me “unwind” that cash into low cost investments and advised me to do something I never thought I would - pay off a car in full. Cash is only 10% of my assets as of now and my investments are pretty much on autopilot. Life’s good.

Looking forward to piling up enough of a portfolio that I have to worry about preserving it. Until then, i’ll Just keep on investing each month and re-assess in 5-10 years.

Da5id
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Re: Bonds - Am I missing something

Post by Da5id » Sat Feb 03, 2018 8:49 am

simplesimon wrote:
Sat Feb 03, 2018 8:30 am
Many Bogleheads bought yesterday, likely to rebalance and sold off bond funds to do so. You did it with cash. Doesn't seem all that different.
I"d actually guess fairly few bought, but maybe that is just me. Not due to lack of staying the course or anything, but many of us were probably on the positive side of our stock allocation but not up to a rebalance point. So I'm actually still very slightly above my target stock allocation.

autopeep
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Re: Bonds - Am I missing something

Post by autopeep » Sat Feb 03, 2018 8:49 am

RRAAYY3 wrote:
Sat Feb 03, 2018 8:40 am
simplesimon wrote:
Sat Feb 03, 2018 8:30 am
RRAAYY3 wrote:
Sat Feb 03, 2018 7:57 am
Thank you all. As I age, I may be more inclined to “buy in” (literally?) to this whole bond thing. At the moment, I’m not too concerned with volatility (actually joked with my girlfriend about how much money I lost yesterday so maybe we should “stay in” as we were getting ready to go out). Instead, I bought more shares at a discount and had a lovely evening.

Wasn’t trying to be argumentative or disrespectful. This site has been a godsend - although I’m strongly considering a “CD ladder” when it gets time to preserve some of my portfolio, especially as rates rise. Ironically, I can deal with up and downs of equity better than I can the idea of my “safe” assets being in anything that could drop in value
Many Bogleheads bought yesterday, likely to rebalance and sold off bond funds to do so. You did it with cash. Doesn't seem all that different.

Glad you recognize that it's irrational that you accept stock volatility to achieve higher long term returns over bonds but can't accept bond volatility to achieve higher long term returns over cash.
i always assumed bonds were the safety net where “nothing bad could happen”, when in reality it seems the the bad is just not as bad as equity.

Perhaps CDs will be my “safe” route - but I’ve got 5+ years before I even consider preservation.

Regarding cash - this site helped me “unwind” that cash into low cost investments and advised me to do something I never thought I would - pay off a car in full. Cash is only 10% of my assets as of now and my investments are pretty much on autopilot. Life’s good.

Looking forward to piling up enough of a portfolio that I have to worry about preserving it. Until then, i’ll Just keep on investing each month and re-assess in 5-10 years.
I still don't think you understand fixed income. There is nothing wrong with CDs (if you are interested in them, you should read Kevin M's post); however they have risk too. Are you able to explain the difference in risk between a CD, an individual bond, and a bond fund?

Da5id
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Re: Bonds - Am I missing something

Post by Da5id » Sat Feb 03, 2018 8:50 am

RRAAYY3 wrote:
Sat Feb 03, 2018 8:40 am
i always assumed bonds were the safety net where “nothing bad could happen”, when in reality it seems the the bad is just not as bad as equity.
If you are offended by NAV decreases of bond funds, you can buy actual bonds and hold to term. But IMHO bond funds are just fine.

RRAAYY3
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Re: Bonds - Am I missing something

Post by RRAAYY3 » Sat Feb 03, 2018 8:57 am

I assume Total Bond Fund is the way to go

Why a bond fund vs a CD? I thought CDs were essentially guaranteed returns (with restrictions, but locked in returns)

autopeep
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Re: Bonds - Am I missing something

Post by autopeep » Sat Feb 03, 2018 9:07 am

I would encourage you to read more. If you buy an individual (high quality) bond, you will get paid the full value of that bond at the end of it's duration. You will not lose money. Why don't we all do it? It's inconvenient, it's hard to diversify, interest rate risk , etc.

Da5id
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Re: Bonds - Am I missing something

Post by Da5id » Sat Feb 03, 2018 9:25 am

RRAAYY3 wrote:
Sat Feb 03, 2018 8:57 am
I assume Total Bond Fund is the way to go

Why a bond fund vs a CD? I thought CDs were essentially guaranteed returns (with restrictions, but locked in returns)
Generally, guaranteed returns are lower. You are compensated for risk. Whether you are compensated enough is for you to decide. Do some research.

22twain
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Re: Bonds - Am I missing something

Post by 22twain » Sat Feb 03, 2018 9:56 am

RRAAYY3 wrote:
Sat Feb 03, 2018 8:57 am
Why a bond fund vs a CD? I thought CDs were essentially guaranteed returns (with restrictions, but locked in returns)
Enter "bonds versus cds" in the search box at the top of the page. This topic comes up a few times a month.

Shortly after entering retirement, my "bond" allocation is about 50%. About half of it is in a stable-value account in my 403(b) plan (TIAA Traditional Account), and the rest is in Vanguard Total Bond Market. I use it because I'm lazy. I don't want to have to keep track of a bunch of CDs, and move money around chasing good rates as they mature. The fund's yield is good enough for me. I'm a "satisficer", not a "maximizer."
My investing princiPLEs do not include absolutely preserving princiPAL.

stocknoob4111
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Re: Bonds - Am I missing something

Post by stocknoob4111 » Sat Feb 03, 2018 12:15 pm

ogd wrote:
Sat Feb 03, 2018 7:14 am
The fund yield is a 30 day average, for rather arcane reasons. After 30 days of stability, the yield will look very much like what you expect. It's pretty mathematical stuff, though the average can obscure things for a while.

If you want to verify the math using the SEC yield number, it's best to do it between two points that were each preceded by about 30 days of nothing much happening.
I see, thanks for that info, makes more sense now! :happy

chevca
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Re: Bonds - Am I missing something

Post by chevca » Sat Feb 03, 2018 12:42 pm

RRAAYY3 wrote:
Sat Feb 03, 2018 8:40 am
Cash is only 10% of my assets as of now and my investments are pretty much on autopilot. Life’s good.
So, you're not really 100/0 then? :wink:

I'm not a big believer in the dry powder thing. If you want to claim 100/0, then go all in. Your monthly contributions will buy when low or high markets are here.

RRAAYY3
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Re: Bonds - Am I missing something

Post by RRAAYY3 » Sat Feb 03, 2018 12:48 pm

chevca wrote:
Sat Feb 03, 2018 12:42 pm
RRAAYY3 wrote:
Sat Feb 03, 2018 8:40 am
Cash is only 10% of my assets as of now and my investments are pretty much on autopilot. Life’s good.
So, you're not really 100/0 then? :wink:

I'm not a big believer in the dry powder thing. If you want to claim 100/0, then go all in. Your monthly contributions will buy when low or high markets are here.
Cash is just my e-fund - Anything I have “invested” is US / Int’l index

S_Track
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Re: Bonds - Am I missing something

Post by S_Track » Sat Feb 03, 2018 1:45 pm

ogd wrote:
Sat Feb 03, 2018 7:14 am
The fund yield is a 30 day average, for rather arcane reasons. After 30 days of stability, the yield will look very much like what you expect. It's pretty mathematical stuff, though the average can obscure things for a while.

If you want to verify the math using the SEC yield number, it's best to do it between two points that were each preceded by about 30 days of nothing much happening.
Will the sec yield give you an idea on what the distributions will be for the fund? So in the case of total bond I could divide it by 12 and be close to the monthly distribution. It seems to work or am I looking at this wrong? thanks

deltaneutral83
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Re: Bonds - Am I missing something

Post by deltaneutral83 » Sat Feb 03, 2018 6:56 pm

RRAAYY3 wrote:
Sat Feb 03, 2018 8:40 am
i always assumed bonds were the safety net where “nothing bad could happen”, when in reality it seems the the bad is just not as bad as equity.
Well yea, but Bonds have been down 8% in their worst year. Fall 2008 saw 8% swings (and mostly downward) in stocks in one day...more than several times. I recall DOW in Sept-Dec 2008 having at least 10 days were the market moved 7-8%. Context is important if you're going with bonds are "bad just not as bad as equity" with regards to volatility.

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burt
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Re: Bonds - Am I missing something

Post by burt » Sat Feb 03, 2018 7:15 pm

This may or may not be true.
Supposedly Groucho Marx was interviewed after he lost much of his fortune in the stock market.
Groucho indicated to the interviewer that he now had most of his money in bonds.
The interviewer commented "bonds don't pay anything".

Groucho replied "They do if you have a lot of them."

burt

chrismj
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Re: Bonds - Am I missing something

Post by chrismj » Sat Feb 03, 2018 8:53 pm

Big Dutch wrote:
Fri Feb 02, 2018 2:42 pm
It seems to me that this post might be getting hung up on semantics. I don't know what posters' annual expenses are but keeping 1-2 years in cash is hardly "100% equity", especially if this money is available to be invested during a downturn. IMO, that would be more conservative than holding some % in bonds.

~Big Dutch
This is 100% (pun intended) correct, and also the best comment on this thread.

stocknoob4111
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Re: Bonds - Am I missing something

Post by stocknoob4111 » Sun Feb 04, 2018 1:11 am

can someone comment on what David Stockman is talking here? Is this guy completely off the mark? He is giving his reasons for 30% loss in Bonds but his numbers make no sense. He says if the 10YT goes to 3.5% then there will be a 30% loss in the Bonds... I know this guy is a permabear but just trying to understand his logic here or if he even has any logic. In my calculations, if the 10YT goes to 3.5 (from current 2.85) a 6 year term bond index fund NAV should drop by around 4% or so, a long term 10Y bond index approx by 6.5% or so, and if you hold to term then there shouldn't be much of a problem at all...where is he getting the 30% figure from? That sounds ridiculous! His whole argument seems total nonsense to me.

https://www.youtube.com/watch?v=W2rutyHMLtM

Da5id
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Re: Bonds - Am I missing something

Post by Da5id » Mon Feb 05, 2018 6:37 pm

My bonds were up today, my stocks down. Glad part of my portfolio didn't tank :)

RRAAYY3
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Re: Bonds - Am I missing something

Post by RRAAYY3 » Mon Feb 05, 2018 6:52 pm

Da5id wrote:
Mon Feb 05, 2018 6:37 pm
My bonds were up today, my stocks down. Glad part of my portfolio didn't tank :)
total bond was down for the day, my cash stayed the same, and shares got cheaper. Glad we're both glad.

Da5id
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Re: Bonds - Am I missing something

Post by Da5id » Mon Feb 05, 2018 7:01 pm

RRAAYY3 wrote:
Mon Feb 05, 2018 6:52 pm
Da5id wrote:
Mon Feb 05, 2018 6:37 pm
My bonds were up today, my stocks down. Glad part of my portfolio didn't tank :)
total bond was down for the day, my cash stayed the same, and shares got cheaper. Glad we're both glad.
Total bond was up 0.47% today, what are you looking at? See, e.g. https://personal.vanguard.com/us/funds/ ... irect=true

RRAAYY3
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Re: Bonds - Am I missing something

Post by RRAAYY3 » Mon Feb 05, 2018 7:05 pm

Da5id wrote:
Mon Feb 05, 2018 7:01 pm
RRAAYY3 wrote:
Mon Feb 05, 2018 6:52 pm
Da5id wrote:
Mon Feb 05, 2018 6:37 pm
My bonds were up today, my stocks down. Glad part of my portfolio didn't tank :)
total bond was down for the day, my cash stayed the same, and shares got cheaper. Glad we're both glad.
Total bond was up 0.47% today, what are you looking at? See, e.g. https://personal.vanguard.com/us/funds/ ... irect=true
whoops, chart was for last 3 months [down]. unless that's wrong too, cash > bonds so far in 2018 ?

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Mithrilman
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Re: Bonds - Am I missing something

Post by Mithrilman » Mon Feb 05, 2018 7:05 pm

Da5id wrote:
Mon Feb 05, 2018 7:01 pm
RRAAYY3 wrote:
Mon Feb 05, 2018 6:52 pm
Da5id wrote:
Mon Feb 05, 2018 6:37 pm
My bonds were up today, my stocks down. Glad part of my portfolio didn't tank :)
total bond was down for the day, my cash stayed the same, and shares got cheaper. Glad we're both glad.
Total bond was up 0.47% today, what are you looking at? See, e.g. https://personal.vanguard.com/us/funds/ ... irect=true
Correct...

Total Bond +0.47%
Intermediate-term +0.42%
Short-term +0.19%
International Bond +0.09%
Remember that there is nothing stable in human affairs; therefore avoid undue elation in prosperity, or undue depression in adversity. -Socrates

Da5id
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Re: Bonds - Am I missing something

Post by Da5id » Mon Feb 05, 2018 7:08 pm

RRAAYY3 wrote:
Mon Feb 05, 2018 7:05 pm
whoops, chart was for last 3 months [down]. unless that's wrong too, cash > bonds so far in 2018 ?
Probably correct. You appear to have an extremely short term focus. Whatever works for you, but not an approach I use.

RRAAYY3
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Re: Bonds - Am I missing something

Post by RRAAYY3 » Mon Feb 05, 2018 7:12 pm

nope, i'm starting to [somewhat] get the appeal of bonds - as i age. a day/week like we've had recently with a larger portfolio and / or near retirement would probably have me freaked out.

looks like Total Bond has barely given CD-level returns over the last few years (i.e. no point in me owning them, at this time.) maybe in 5-10 years I'll add that Total Bond Fund to my portfolio

FBN2014
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Re: Bonds - Am I missing something

Post by FBN2014 » Sat Feb 17, 2018 10:10 am

stocknoob4111 wrote:
Sun Feb 04, 2018 1:11 am
can someone comment on what David Stockman is talking here? Is this guy completely off the mark? He is giving his reasons for 30% loss in Bonds but his numbers make no sense. He says if the 10YT goes to 3.5% then there will be a 30% loss in the Bonds... I know this guy is a permabear but just trying to understand his logic here or if he even has any logic. In my calculations, if the 10YT goes to 3.5 (from current 2.85) a 6 year term bond index fund NAV should drop by around 4% or so, a long term 10Y bond index approx by 6.5% or so, and if you hold to term then there shouldn't be much of a problem at all...where is he getting the 30% figure from? That sounds ridiculous! His whole argument seems total nonsense to me.

https://www.youtube.com/watch?v=W2rutyHMLtM
Stockman is a financial entertainer who has been crying that the sky is falling for 30 years so he can sell his newsletter and books. The more outrageous he sounds then the more attention and money he makes. Shut off CNBC and Fox Business and relax. Cramer, Bartiromo, etc. are all entertainers who are paid by their Wall Street sponsors to lie, deceive, and mislead.

For those of you who are worried about bond prices, here is my take on what is going on. The US is now running trillion dollar deficits as far as the eye can see thanks to the insane budget agreement that Trump signed into law. Stock buybacks were over $170 billion since Jan 1, the highest in recorded history so corporations don't seem to be investing their projected tax savings in new plants, equipment, higher wages ($1,000 bonuses are all public relations). So unless the economy actually does grow at 4-5% (highly unlikely IMO due to record consumer debt and unfavorable demographics - the population is aging and old people spend less) then we will see another round of quantitative easing by the fed to bring down interest rates so the interest on the debt can be manageable which will prop up your bond prices. Remember when Trump mentioned during the campaign that US sovereign debt would have to be renegotiated just like he did with his bankrupt casinos. Actually he was right because at some point Stockman will be right and the whole system will collapse otherwise. Can you spell Greece?
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

naturaforver
Posts: 8
Joined: Sun Feb 18, 2018 5:58 pm

Re: Bonds - Am I missing something

Post by naturaforver » Mon Apr 16, 2018 1:57 pm

livesoft wrote:
Thu Feb 01, 2018 5:51 pm
Bond funds will help put your portfolio asset allocation on the so-called Efficient Frontier.
Livesoft, can you kindly post some links on what you mean by the above? I am trying to find links to diverting funds to bonds but navigating the forums to glean information is a bit tricky.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Bonds - Am I missing something

Post by dbr » Mon Apr 16, 2018 2:22 pm

naturaforver wrote:
Mon Apr 16, 2018 1:57 pm
livesoft wrote:
Thu Feb 01, 2018 5:51 pm
Bond funds will help put your portfolio asset allocation on the so-called Efficient Frontier.
Livesoft, can you kindly post some links on what you mean by the above? I am trying to find links to diverting funds to bonds but navigating the forums to glean information is a bit tricky.
https://www.google.com/search?source=hp ... hhV3_Z-Wyw

mega317
Posts: 2554
Joined: Tue Apr 19, 2016 10:55 am

Re: Bonds - Am I missing something

Post by mega317 » Mon Apr 16, 2018 2:43 pm

dbr wrote:
Mon Apr 16, 2018 2:22 pm
naturaforver wrote:
Mon Apr 16, 2018 1:57 pm
livesoft wrote:
Thu Feb 01, 2018 5:51 pm
Bond funds will help put your portfolio asset allocation on the so-called Efficient Frontier.
Livesoft, can you kindly post some links on what you mean by the above? I am trying to find links to diverting funds to bonds but navigating the forums to glean information is a bit tricky.
https://www.google.com/search?source=hp ... hhV3_Z-Wyw
Even if you spell it wrong you'll get good google hits!

GibsonL6s
Posts: 216
Joined: Tue Aug 29, 2017 12:17 pm

Re: Bonds - Am I missing something

Post by GibsonL6s » Mon Apr 16, 2018 4:04 pm

Historically, an 80/20 portfolio has done as well as 100/0 with a "better" worst year and volatility. It would seem that 80/20 should be the most aggressive portfolio to hold if one wanted to be the "most" aggressive.

Dandy
Posts: 5283
Joined: Sun Apr 25, 2010 7:42 pm

Re: Bonds - Am I missing something

Post by Dandy » Mon Apr 16, 2018 5:06 pm

Equities outperform fixed income over time -- by a lot. They are also subject to rather sudden and sometimes scary declines of 50% or more. You will probably experience one of those scary events once every 15 or 20 years (guess work not researched).

So, younger accumulators who are not very risk averse can have very aggressive equity allocations for 2 reasons
1. They have lots of human capital to make up scary losses and usually have rising earnings.
2. Their dollar assets at risk in equities is usually fairly modest so it is relatively to overcome a scary dollar loss.

Obviously, as you age your human capital tends to decline somewhat offset by rising income. As you human capital declines your dollars at equity risk get to a level that a scary decline is increasingly difficult to overcome for 2 reasons 1. The absolute dollar amount is much larger and 2. the earning years are fewer.

So, some of the value of bonds as you age and your assets rise is making sure your human capital/assets at equity risk are manageable as you get nearer to retirement. Post retirement just makes the issue more important.

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