I hate bonds
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I hate bonds
I feel I have a relatively good grasp on stock market funds, how they work, why you choose this fund or that fund,but bonds are way more complicated in my opinion. After trying to learn more about bonds ,I have realized that I haven't even scratched the surface on understanding them. Kinda of like the Dunning-Kruger effect.
After spending hours trying to figure out the best fund for myself ( Short/intermediate/long term treasuries, corporate, GNMA, TIPS etc...)
I have decided that I give up and just go back to the Total bond fund with really no change Anyone have a similar experience?
After spending hours trying to figure out the best fund for myself ( Short/intermediate/long term treasuries, corporate, GNMA, TIPS etc...)
I have decided that I give up and just go back to the Total bond fund with really no change Anyone have a similar experience?
Re: I hate bonds
I did, till I read Swedroe's excellent book. But my fixed investment portfolio is still pretty simple.
Re: I hate bonds
Nope. My personality doesn't let me spend hours on something like this. Thanks for asking!
Re: I hate bonds
Pretty much agree with you, though it's pretty easy to possibly add some value to BND with VTIP, short-term tips, which are missing in total bond. Ideally, located in a non tax account. In taxable, at high incomes, VTEB, muni bond index, or Van. intermediate munis, add some value. One of the US treasury funds, probably intermediate, might perform better during a rough period for stocks. Not that complicated to add a bit of value if you want to blunt the D-K effect, but, hands down, the Total Bond index fund is the ideal compromise.AkwardDoct@rd wrote: ↑Tue Mar 26, 2019 10:02 pm I feel I have a relatively good grasp on stock market funds, how they work, why you choose this fund or that fund,but bonds are way more complicated in my opinion. After trying to learn more about bonds ,I have realized that I haven't even scratched the surface on understanding them. Kinda of like the Dunning-Kruger effect.
After spending hours trying to figure out the best fund for myself ( Short/intermediate/long term treasuries, corporate, GNMA, TIPS etc...)
I have decided that I give up and just go back to the Total bond fund with really no change Anyone have a similar experience?
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Re: I hate bonds
Bonds are really not that complicated. Which fund(s) you pick depends on what you want bonds to do for you.
If you want bonds to counteract a stock crash, buy an ultra long duration Treasury fund like EDV.
If you want bonds to make money for you, buy a well-established active bond fund like PIMIX.
If you are rich and need to hold bonds in taxable, buy your state's muni bond fund.
If you are conservative and want slightly more yield than money market, buy short term Treasuries.
If you are in retirement and want to protect against inflation risk, buy TIPS.
And if you prefer to follow the crowd and not get reprimanded by Taylor, buy Total Bond.
If you want bonds to counteract a stock crash, buy an ultra long duration Treasury fund like EDV.
If you want bonds to make money for you, buy a well-established active bond fund like PIMIX.
If you are rich and need to hold bonds in taxable, buy your state's muni bond fund.
If you are conservative and want slightly more yield than money market, buy short term Treasuries.
If you are in retirement and want to protect against inflation risk, buy TIPS.
And if you prefer to follow the crowd and not get reprimanded by Taylor, buy Total Bond.
Re: I hate bonds
Thanks for the "Dunning-Kruger effect". I didn't know that had a name.
The math in bonds can be difficult for some to grasp but ultimately makes them simpler and more predictable than stocks.
Total bond is good for most and not terrible for anyone.
The math in bonds can be difficult for some to grasp but ultimately makes them simpler and more predictable than stocks.
Total bond is good for most and not terrible for anyone.
Re: I hate bonds
I do agree with you its never been easy to figure it out, everything is indeed a learning process.
Re: I hate bonds
I think they are easier than you think. Duration and credit risk are already reflected in the price. You just have to decide how much of each you want. (Or hold Total Bond).
Taxes can be complicated if you hold bonds in taxable. If not, buying a tax advantaged fund is going to be paying for someone else's free lunch.
Taxes can be complicated if you hold bonds in taxable. If not, buying a tax advantaged fund is going to be paying for someone else's free lunch.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking
- Portfolio7
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Re: I hate bonds
I agree with you. While the mechanics of bonds are pretty straightforward, the differences between various kinds and the math involved takes a little time to really comprehend. I am definitely not in that group that fully comprehends; I know enough to know I have a ways to go. Honestly I knew more about the math 30 years ago than I can remember now, though imo there is nothing complicated about the actual math itself, more in the way it's applied, i.e. frequency of compounding, duration, that stuff is not something I've read up on so it's still a bit opaque to me. I suspect a few hours with the concepts and math would be most of what it takes, but my time is mostly not my own these days.
I liked Swenson's take on Bonds. US Treasuries are really the only bond where the borrowers interests align with the US investor... so I favor Intermediate Treasuries/TIPs. Over time, the risk and return for ITT is virtually the same as Total Bonds, maybe a little better on both counts, so I view ITT as very compatible with a Boglehead approach. However, I'm getting a solid return from my stable value fund, so most of my FI is there.
I figure that when I retire, I may dig into a more bond focused portfolio, and I may have a segment of the portfolio that's in relatively higher risk bonds, but for accumulation, I think ITT/Total Bond work great (or a good stable value fund if you have it) and Tips to the extent you want to protect against inflation risk.
I liked Swenson's take on Bonds. US Treasuries are really the only bond where the borrowers interests align with the US investor... so I favor Intermediate Treasuries/TIPs. Over time, the risk and return for ITT is virtually the same as Total Bonds, maybe a little better on both counts, so I view ITT as very compatible with a Boglehead approach. However, I'm getting a solid return from my stable value fund, so most of my FI is there.
I figure that when I retire, I may dig into a more bond focused portfolio, and I may have a segment of the portfolio that's in relatively higher risk bonds, but for accumulation, I think ITT/Total Bond work great (or a good stable value fund if you have it) and Tips to the extent you want to protect against inflation risk.
"An investment in knowledge pays the best interest" - Benjamin Franklin
- whodidntante
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Re: I hate bonds
You would probably like bonds if they were returning 4% real right now. Hate the yield, not the bond.
Re: I hate bonds
Bonds have been the most difficult part of my portfolio.
At the end, I decided I know nothing and no one knows anything and went with total market. I bought the widest one available, IUSB, which is mostly government but also includes all credit tranches and some foreign.
I am in my early 30s so i don't need any TIPS or bonds in taxable.
At the end, I decided I know nothing and no one knows anything and went with total market. I bought the widest one available, IUSB, which is mostly government but also includes all credit tranches and some foreign.
I am in my early 30s so i don't need any TIPS or bonds in taxable.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
Re: I hate bonds
Bonds are "easier" than stocks. That's why they tend to return less.
Re: I hate bonds
I need bonds for my 3-fundish portfolio, and I've learned enough about them to just put everything into BND / VBTLX (total bond). Diversified and cheap. The only exceptions are ibond purchases, and investing in taxable where I use munis.
- peterinjapan
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Re: I hate bonds
My Fidelity advisor guy talked me into putting my bonds into GIBLX, a managed mutual fund by Guggenheim with a 0.9% expense ratio. For a year it's done nothing though all the passive ETFs (BND/GOVT/LQD/whatever) have performed well. I guess I'll pull the trigger on selling it and picking some ETFs I'm more familiar with.
Another reason I dislike GIBLX is, it's a mutual fund, and apparently its impossible to compare an ETF and a mutual fund on a chart. At least, Fidelity refuses to do it for me.
Another reason I dislike GIBLX is, it's a mutual fund, and apparently its impossible to compare an ETF and a mutual fund on a chart. At least, Fidelity refuses to do it for me.
Re: I hate bonds
I also hate bonds, so I own zero of them.
Re: I hate bonds
The beauty of the three-fund portfolio is that it's cheap, diversified, and good enough, which means I don't have to agonize over decisions like which bond fund to buy.
Re: I hate bonds
0.9%peterinjapan wrote: ↑Wed Mar 27, 2019 3:05 am My Fidelity advisor guy talked me into putting my bonds into GIBLX, a managed mutual fund by Guggenheim with a 0.9% expense ratio. For a year it's done nothing though all the passive ETFs (BND/GOVT/LQD/whatever) have performed well. I guess I'll pull the trigger on selling it and picking some ETFs I'm more familiar with.
Another reason I dislike GIBLX is, it's a mutual fund, and apparently its impossible to compare an ETF and a mutual fund on a chart. At least, Fidelity refuses to do it for me.
Re: I hate bonds
Morningstar.com does this trivially. Chart the mutual fund first.peterinjapan wrote: ↑Wed Mar 27, 2019 3:05 amAnother reason I dislike GIBLX is, it's a mutual fund, and apparently its impossible to compare an ETF and a mutual fund on a chart. At least, Fidelity refuses to do it for me.
Re: I hate bonds
Right now I have a tough time investing in bonds even though retirement is nearby. I have a tough time believing bonds will provide any real return over the next decade or two. I know they are supposed to reduce risk but investing in something that may not even keep up with inflation seems like a bad idea.
Although since I don't think we will see inflation any time soon (I don't believe the economy is that good) maybe you can eek out a small positive real return.
I've been wrestling with this problem for a while and there just isn't any way I can put 40% into bonds at this point. I'd rather keep a chunk of it in CDs and at least know the principal won't go down but its still not providing any real return.
Although since I don't think we will see inflation any time soon (I don't believe the economy is that good) maybe you can eek out a small positive real return.
I've been wrestling with this problem for a while and there just isn't any way I can put 40% into bonds at this point. I'd rather keep a chunk of it in CDs and at least know the principal won't go down but its still not providing any real return.
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If you think something is important and it doesn't involve the health of someone, think again. Life goes too fast, enjoy it and be nice.
Re: I hate bonds
So, you've figured out diversification, efficient portfolios and factor investing?AkwardDoct@rd wrote: ↑Tue Mar 26, 2019 10:02 pm I feel I have a relatively good grasp on stock market funds, how they work, why you choose this fund or that fund, ...
Re: I hate bonds
I will take the other side.
Bonds are much more straightforward than stocks. The maths are clearer. The inputs tend to be hard and observable. Much less subjective then stocks.
Bonds are much more straightforward than stocks. The maths are clearer. The inputs tend to be hard and observable. Much less subjective then stocks.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: I hate bonds
In simple, bonds is lending someone else money. You lend the government money for short-term, and it is a "Short term bond" and so on.
If you are not sure which bond fund to buy, just go with an indexed bond fund. For instance, Vanguard Total Bond Market Index Fund has the following goal:
If you are not sure which bond fund to buy, just go with an indexed bond fund. For instance, Vanguard Total Bond Market Index Fund has the following goal:
And you will end up probably doing way better than picking your own bond funds.This fund is designed to provide broad exposure to U.S. investment-grade bonds. Reflecting this goal, the fund invests about 30% in corporate bonds and 70% in U.S. government bonds of all maturities (short-, intermediate-, and long-term issues).
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
Re: I hate bonds
I am close to 60/40, and also don't like bonds.
I figure if at the end of a 10-year stock bull market I feel this way, that's about right; if stocks take a dive, I'll feel happier about my bonds, less happy with the stocks.
I figure if at the end of a 10-year stock bull market I feel this way, that's about right; if stocks take a dive, I'll feel happier about my bonds, less happy with the stocks.
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Re: I hate bonds
I love bonds, and I own lots of them, all through two mutual funds: Total Bond and Intermediate Tax Exempt.
Re: I hate bonds
In basic finance courses, bonds are treated as risk-free assets and interest rate is constant. Students are tricked into a false impression that bonds are easy to understand. But once they see the real bonds, they get frustrated by the complexity of bond market. I believe this is what OP is experiencing. There are 3 options:
1. Give up bonds
2. Follow simple bond trading like 3-fund strategy
3. Study bond markets and develop a more refined strategy
For most investors, #2 should suffice.
1. Give up bonds
2. Follow simple bond trading like 3-fund strategy
3. Study bond markets and develop a more refined strategy
For most investors, #2 should suffice.
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Re: I hate bonds
No bonds in taxable. Evaluating which one for my particular scenario is difficult part. Understanding negative convexity w/ a GNMA I would say is a little more difficult than credit risk and duration .pdavi21 wrote: ↑Tue Mar 26, 2019 10:46 pm I think they are easier than you think. Duration and credit risk are already reflected in the price. You just have to decide how much of each you want. (Or hold Total Bond).
Taxes can be complicated if you hold bonds in taxable. If not, buying a tax advantaged fund is going to be paying for someone else's free lunch.
I also hate bonds which is part of the problem. But as my portfolio has grown and never going though a 2008 I don't think I could stomach a 40% drop anymore
Yes, Yes and factor investing I spent some time looking at and decided it wasn't for me but understand the basic conceptsrkhusky wrote: ↑Wed Mar 27, 2019 7:03 amSo, you've figured out diversification, efficient portfolios and factor investing?AkwardDoct@rd wrote: ↑Tue Mar 26, 2019 10:02 pm I feel I have a relatively good grasp on stock market funds, how they work, why you choose this fund or that fund, ...
Re: I hate bonds
Aren't CD's bonds? Do you just not like bond funds? I get that.rich126 wrote: ↑Wed Mar 27, 2019 6:43 am Right now I have a tough time investing in bonds even though retirement is nearby. I have a tough time believing bonds will provide any real return over the next decade or two. I know they are supposed to reduce risk but investing in something that may not even keep up with inflation seems like a bad idea.
Although since I don't think we will see inflation any time soon (I don't believe the economy is that good) maybe you can eek out a small positive real return.
I've been wrestling with this problem for a while and there just isn't any way I can put 40% into bonds at this point. I'd rather keep a chunk of it in CDs and at least know the principal won't go down but its still not providing any real return.
- AerialWombat
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Re: I hate bonds
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Last edited by AerialWombat on Fri Feb 04, 2022 7:18 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
- Taylor Larimore
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Re: I hate bonds
This gave me a good laugh. However, I also wrote this:HEDGEFUNDIE wrote: And if you prefer to follow the crowd and not get reprimanded by Taylor, buy Total Bond.
There is more than one road to Dublin.In my opinion, ANY low-cost, good quality, diversified short- or intermediate-term bond fund (or safe fixed-income security such as CDs or Treasuries) will do the important job of providing safety in a portfolio. Increase your stock allocation for higher return (and more risk).
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Re: I hate bonds
Everyone hates bonds, until a market crash, and then they don't.
Bonds are not exciting.
Bonds (at least lately) have middling to low returns.
Bonds reduce overall portfolio return.
Bonds are not the place to take on risk.
But here's the upside: They reduce volatility.
Total Bond is perfectly fine for 90% of investors. Perhaps not the sophisticated ones on Bhs, but for most people. As long as the bond or bond fund matches your investment horizon, just set it and forget it.
Bonds are not exciting.
Bonds (at least lately) have middling to low returns.
Bonds reduce overall portfolio return.
Bonds are not the place to take on risk.
But here's the upside: They reduce volatility.
Total Bond is perfectly fine for 90% of investors. Perhaps not the sophisticated ones on Bhs, but for most people. As long as the bond or bond fund matches your investment horizon, just set it and forget it.
- jeffyscott
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Re: I hate bonds
Agree, I think posts about bonds being more complex or harder to understand than stocks are actually because of this. For example people don't really think about or analyze "what duration should my stock fund be?" or "what will happen to the price of my stocks, if interest rates rise?".
Bonds are simply a loan, just decide what entities you are willing to loan to and for how long. If you are willing to loan to entities that have credit risk, then always use a fund (either an index fund or low cost managed fund). For treasuries, TIPS, I-bonds, EE bonds, and CDs, you can do so directly without a fund if you like.
- jeffyscott
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Re: I hate bonds
Technically "fixed income", but not really bonds. You are not making a loan to the bank when you buy a CD, just as your checking and savings accounts are not a loan to the bank. But, there is certainly nothing wrong with skipping bonds and using CDs in their place.OnLevel wrote: ↑Wed Mar 27, 2019 8:34 amAren't CD's bonds? Do you just not like bond funds? I get that.rich126 wrote: ↑Wed Mar 27, 2019 6:43 am Right now I have a tough time investing in bonds even though retirement is nearby. I have a tough time believing bonds will provide any real return over the next decade or two. I know they are supposed to reduce risk but investing in something that may not even keep up with inflation seems like a bad idea.
Although since I don't think we will see inflation any time soon (I don't believe the economy is that good) maybe you can eek out a small positive real return.
I've been wrestling with this problem for a while and there just isn't any way I can put 40% into bonds at this point. I'd rather keep a chunk of it in CDs and at least know the principal won't go down but its still not providing any real return.
As for earning a real return, the only guaranteed way to do that is to buy TIPS and I-bonds, neither of which require using a mutual fund or ETF to do so safely. Stocks are certainly not guaranteed to earn a real return over the next decade or two are they? If they are, then I guess true risk has now been abolished in the stock market.
- Taylor Larimore
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Bonds are very complex
Bogleheads:
Bonds are VERY complex. I learned this when I was a director of the Dade County Housing Authority in Miami. We employed a special "housing bond expert" because regular bond experts were insufficient.
Anyone who thinks they understand bonds, should read a BOND TRUST INDENTURE which prescribes every detail of the bond's provisions as well as the day-to-day management of the bond.
Best wishes.
Taylor
Bonds are VERY complex. I learned this when I was a director of the Dade County Housing Authority in Miami. We employed a special "housing bond expert" because regular bond experts were insufficient.
Anyone who thinks they understand bonds, should read a BOND TRUST INDENTURE which prescribes every detail of the bond's provisions as well as the day-to-day management of the bond.
Best wishes.
Taylor
Last edited by Taylor Larimore on Wed Mar 27, 2019 9:16 am, edited 2 times in total.
"Simplicity is the master key to financial success." -- Jack Bogle
Re: I hate bonds
Why do you say this? For a legal, accounting, and regulatory viewpoint all of these are treated as liabilities just like "normal" bonds. They have slightly different treatment when it comes to risk weighted capital requirements, but that is because of their liquidity and stickiness attributes. This was much clearer before FDIC insurance.jeffyscott wrote: ↑Wed Mar 27, 2019 9:07 am Technically "fixed income", but not really bonds. You are not making a loan to the bank when you buy a CD, just as your checking and savings accounts are not a loan to the bank.
Besides, if it walks like a duck and quakes like a duck.... The maths that drive bond pricing and risk and the same for CDs and other demand accounts.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Re: I hate bonds
Actually, you are making a loan to the bank. What do you think they use the money for? They lend it out at rates higher than what they pay you. It's just that your principal is guaranteed not to fall in value, which is not the case with bonds.jeffyscott wrote: ↑Wed Mar 27, 2019 9:07 amTechnically "fixed income", but not really bonds. You are not making a loan to the bank when you buy a CD, just as your checking and savings accounts are not a loan to the bank. But, there is certainly nothing wrong with skipping bonds and using CDs in their place.OnLevel wrote: ↑Wed Mar 27, 2019 8:34 amAren't CD's bonds? Do you just not like bond funds? I get that.rich126 wrote: ↑Wed Mar 27, 2019 6:43 am Right now I have a tough time investing in bonds even though retirement is nearby. I have a tough time believing bonds will provide any real return over the next decade or two. I know they are supposed to reduce risk but investing in something that may not even keep up with inflation seems like a bad idea.
Although since I don't think we will see inflation any time soon (I don't believe the economy is that good) maybe you can eek out a small positive real return.
I've been wrestling with this problem for a while and there just isn't any way I can put 40% into bonds at this point. I'd rather keep a chunk of it in CDs and at least know the principal won't go down but its still not providing any real return.
As for earning a real return, the only guaranteed way to do that is to buy TIPS and I-bonds, neither of which require using a mutual fund or ETF to do so safely. Stocks are certainly not guaranteed to earn a real return over the next decade or two are they? If they are, then I guess true risk has now been abolished in the stock market.
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Re: I hate bonds
I have zero bonds in my AA unless you consider Treasury Bills of less than 30 days duration in my money market fund as bonds.
My AA is enough cash/short treasuries to sleep like a baby
And the rest of everything else in a low cost S&P 500 index fund. No rebalancing. No worries about credit, duration, or interest rate risk. All my risk is on the equity side.
I love the simplicity.
My AA is enough cash/short treasuries to sleep like a baby
And the rest of everything else in a low cost S&P 500 index fund. No rebalancing. No worries about credit, duration, or interest rate risk. All my risk is on the equity side.
I love the simplicity.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
Re: I hate bonds
Bonds are guaranteed not to fall in value, at its point of termination, just like a cd. The difference is you can't sell a cd on the open market. You may be able to terminate cd with a penalty. The impact is roughly the same.Admiral wrote: ↑Wed Mar 27, 2019 9:15 amActually, you are making a loan to the bank. What do you think they use the money for? They lend it out at rates higher than what they pay you. It's just that your principal is guaranteed not to fall in value, which is not the case with bonds.jeffyscott wrote: ↑Wed Mar 27, 2019 9:07 amTechnically "fixed income", but not really bonds. You are not making a loan to the bank when you buy a CD, just as your checking and savings accounts are not a loan to the bank. But, there is certainly nothing wrong with skipping bonds and using CDs in their place.OnLevel wrote: ↑Wed Mar 27, 2019 8:34 amAren't CD's bonds? Do you just not like bond funds? I get that.rich126 wrote: ↑Wed Mar 27, 2019 6:43 am Right now I have a tough time investing in bonds even though retirement is nearby. I have a tough time believing bonds will provide any real return over the next decade or two. I know they are supposed to reduce risk but investing in something that may not even keep up with inflation seems like a bad idea.
Although since I don't think we will see inflation any time soon (I don't believe the economy is that good) maybe you can eek out a small positive real return.
I've been wrestling with this problem for a while and there just isn't any way I can put 40% into bonds at this point. I'd rather keep a chunk of it in CDs and at least know the principal won't go down but its still not providing any real return.
As for earning a real return, the only guaranteed way to do that is to buy TIPS and I-bonds, neither of which require using a mutual fund or ETF to do so safely. Stocks are certainly not guaranteed to earn a real return over the next decade or two are they? If they are, then I guess true risk has now been abolished in the stock market.
Re: I hate bonds
The NAV fluctuates. That's what I was referring to. If you sell early, you can lose principal.JBTX wrote: ↑Wed Mar 27, 2019 9:32 amBonds are guaranteed not to fall in value, at its point of termination, just like a cd. The difference is you can't sell a cd on the open market. You may be able to terminate cd with a penalty. The impact is roughly the same.Admiral wrote: ↑Wed Mar 27, 2019 9:15 amActually, you are making a loan to the bank. What do you think they use the money for? They lend it out at rates higher than what they pay you. It's just that your principal is guaranteed not to fall in value, which is not the case with bonds.jeffyscott wrote: ↑Wed Mar 27, 2019 9:07 amTechnically "fixed income", but not really bonds. You are not making a loan to the bank when you buy a CD, just as your checking and savings accounts are not a loan to the bank. But, there is certainly nothing wrong with skipping bonds and using CDs in their place.OnLevel wrote: ↑Wed Mar 27, 2019 8:34 amAren't CD's bonds? Do you just not like bond funds? I get that.rich126 wrote: ↑Wed Mar 27, 2019 6:43 am Right now I have a tough time investing in bonds even though retirement is nearby. I have a tough time believing bonds will provide any real return over the next decade or two. I know they are supposed to reduce risk but investing in something that may not even keep up with inflation seems like a bad idea.
Although since I don't think we will see inflation any time soon (I don't believe the economy is that good) maybe you can eek out a small positive real return.
I've been wrestling with this problem for a while and there just isn't any way I can put 40% into bonds at this point. I'd rather keep a chunk of it in CDs and at least know the principal won't go down but its still not providing any real return.
As for earning a real return, the only guaranteed way to do that is to buy TIPS and I-bonds, neither of which require using a mutual fund or ETF to do so safely. Stocks are certainly not guaranteed to earn a real return over the next decade or two are they? If they are, then I guess true risk has now been abolished in the stock market.
- jeffyscott
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Re: I hate bonds
Well, in any case, at this time in history an FDIC insured CD, savings account, or checking account is not the same thing as a bond issued by the bank.alex_686 wrote: ↑Wed Mar 27, 2019 9:15 amWhy do you say this? For a legal, accounting, and regulatory viewpoint all of these are treated as liabilities just like "normal" bonds. They have slightly different treatment when it comes to risk weighted capital requirements, but that is because of their liquidity and stickiness attributes. This was much clearer before FDIC insurance.jeffyscott wrote: ↑Wed Mar 27, 2019 9:07 am Technically "fixed income", but not really bonds. You are not making a loan to the bank when you buy a CD, just as your checking and savings accounts are not a loan to the bank.
Re: I hate bonds
I will point to broked CDs, which are tradable. I will also point to the restricted and unregistered debt that banks issue, which really don't trade. You may be able to terminate a CD with a penalty, but you may also be able to "put" a bond. I will finial point out that we are talking about the features of a fixed income instrument - not what that instrument actually is.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Re: I hate bonds
The nav fluctuates on a cd too. You just don't have the option to sell it. But by giving up interest early on termination, the effect is similar to losing NAV but keeping the interest.Admiral wrote: ↑Wed Mar 27, 2019 9:34 amThe NAV fluctuates. That's what I was referring to. If you sell early, you can lose principal.JBTX wrote: ↑Wed Mar 27, 2019 9:32 amBonds are guaranteed not to fall in value, at its point of termination, just like a cd. The difference is you can't sell a cd on the open market. You may be able to terminate cd with a penalty. The impact is roughly the same.Admiral wrote: ↑Wed Mar 27, 2019 9:15 amActually, you are making a loan to the bank. What do you think they use the money for? They lend it out at rates higher than what they pay you. It's just that your principal is guaranteed not to fall in value, which is not the case with bonds.jeffyscott wrote: ↑Wed Mar 27, 2019 9:07 amTechnically "fixed income", but not really bonds. You are not making a loan to the bank when you buy a CD, just as your checking and savings accounts are not a loan to the bank. But, there is certainly nothing wrong with skipping bonds and using CDs in their place.
As for earning a real return, the only guaranteed way to do that is to buy TIPS and I-bonds, neither of which require using a mutual fund or ETF to do so safely. Stocks are certainly not guaranteed to earn a real return over the next decade or two are they? If they are, then I guess true risk has now been abolished in the stock market.
I only bring this up because many seem to see CDS as safer, but that really isn't true.
Re: I hate bonds
Why is a bond no longer a bond if the bond has the added feature of FDIC insurance?jeffyscott wrote: ↑Wed Mar 27, 2019 9:39 am Well, in any case, at this time in history an FDIC insured CD, savings account, or checking account is not the same thing as a bond issued by the bank.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: I hate bonds
Yes and no. Yes, I’ve found bonds way more complicated. But instead of simply going TBM, I’ve decided bonds are for dampening the volatility of an equity heavy portfolio. Thus I keep quality high and keep average maturity to 5-6 years.
Dave
Dave
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Re: I hate bonds
I strongly recommend this book. It’s my favorite bond book. Why Bother With Bonds by Rick Van Ness.
Dave
Dave
Re: I hate bonds
This is exactly my issue with bonds, although I'm not as near retirement. Stocks are for growth with the market and dividends, which risks a decline in the market and loss of principal. Cash is for stability, which risks potential real losses due to inflation, but preserves principal. Bonds are for... supposedly stability, but they have both principal and inflationary risks unless I am missing something.rich126 wrote: ↑Wed Mar 27, 2019 6:43 am Right now I have a tough time investing in bonds even though retirement is nearby. I have a tough time believing bonds will provide any real return over the next decade or two. I know they are supposed to reduce risk but investing in something that may not even keep up with inflation seems like a bad idea.
Although since I don't think we will see inflation any time soon (I don't believe the economy is that good) maybe you can eek out a small positive real return.
I've been wrestling with this problem for a while and there just isn't any way I can put 40% into bonds at this point. I'd rather keep a chunk of it in CDs and at least know the principal won't go down but its still not providing any real return.
I would rather have IBonds or CDs, which at least don't risk principal or have the possibility of a negative return (not counting inflation on the CD as a potential negative real return). I'll need to do something more than IBonds when I get close to retirement, and I don't have an answer for what, since I'm struggling with understanding why bonds are supposed to balance stocks - which maybe comes from my not understanding bonds well enough.
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Re: I hate bonds
Do a search on "comparison chart bnd" and then add in GIBLX to the yahoo finance chart. I just did it. Boy.....GIBLX is a turd compared to BND.peterinjapan wrote: ↑Wed Mar 27, 2019 3:05 am My Fidelity advisor guy talked me into putting my bonds into GIBLX, a managed mutual fund by Guggenheim with a 0.9% expense ratio. For a year it's done nothing though all the passive ETFs (BND/GOVT/LQD/whatever) have performed well. I guess I'll pull the trigger on selling it and picking some ETFs I'm more familiar with.
Another reason I dislike GIBLX is, it's a mutual fund, and apparently its impossible to compare an ETF and a mutual fund on a chart. At least, Fidelity refuses to do it for me.
.....you talk with your Fidelity guy? I've left clear instructions for them to leave me alone. And I'm a Private Client with the manager's picture in the top right of my account page.
Bogle: Smart Beta is stupid
Re: I hate bonds
You have just described TBM.Random Walker wrote: ↑Wed Mar 27, 2019 9:54 am Yes and no. Yes, I’ve found bonds way more complicated. But instead of simply going TBM, I’ve decided bonds are for dampening the volatility of an equity heavy portfolio. Thus I keep quality high and keep average maturity to 5-6 years.
Dave
Re: I hate bonds
Bonds/bond funds are liquid and can be traded on the open market. CDs are not/cannot (brokered CDs aside). Many if not most on this forum hold bonds/bond funds in employer-sponsored [retirement] accounts. These accounts do not (typically) allow one to directly purchase CDs or Treasuries. Govt debt is purchased via a bond fund.Amphian wrote: ↑Wed Mar 27, 2019 9:59 amThis is exactly my issue with bonds, although I'm not as near retirement. Stocks are for growth with the market and dividends, which risks a decline in the market and loss of principal. Cash is for stability, which risks potential real losses due to inflation, but preserves principal. Bonds are for... supposedly stability, but they have both principal and inflationary risks unless I am missing something.rich126 wrote: ↑Wed Mar 27, 2019 6:43 am Right now I have a tough time investing in bonds even though retirement is nearby. I have a tough time believing bonds will provide any real return over the next decade or two. I know they are supposed to reduce risk but investing in something that may not even keep up with inflation seems like a bad idea.
Although since I don't think we will see inflation any time soon (I don't believe the economy is that good) maybe you can eek out a small positive real return.
I've been wrestling with this problem for a while and there just isn't any way I can put 40% into bonds at this point. I'd rather keep a chunk of it in CDs and at least know the principal won't go down but its still not providing any real return.
I would rather have IBonds or CDs, which at least don't risk principal or have the possibility of a negative return (not counting inflation on the CD as a potential negative real return). I'll need to do something more than IBonds when I get close to retirement, and I don't have an answer for what, since I'm struggling with understanding why bonds are supposed to balance stocks - which maybe comes from my not understanding bonds well enough.
That may not be all of the reason, but it's part of the reason. TBM has a lifetime return of almost 6%. Granted, it's not that high today, when we are still near historic lows in terms of rates, and certainly it's skewed from high rates of return from the late 80s. But it's not nothing. I think currently it's 2.99.
Re: I hate bonds
I utilize bonds for safety. I chase returns with equity. I just buy total bond mutual funds for simplicity.