I hate bonds

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AkwardDoct@rd
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I hate bonds

Post by AkwardDoct@rd » 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?

edgeagg
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Re: I hate bonds

Post by edgeagg » Tue Mar 26, 2019 10:05 pm

I did, till I read Swedroe's excellent book. But my fixed investment portfolio is still pretty simple.

livesoft
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Re: I hate bonds

Post by livesoft » Tue Mar 26, 2019 10:14 pm

Nope. My personality doesn't let me spend hours on something like this. Thanks for asking!
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jbranx
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Re: I hate bonds

Post by jbranx » Tue Mar 26, 2019 10:16 pm

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?
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.

HEDGEFUNDIE
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Re: I hate bonds

Post by HEDGEFUNDIE » Tue Mar 26, 2019 10:20 pm

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.

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MP123
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Re: I hate bonds

Post by MP123 » Tue Mar 26, 2019 10:26 pm

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.

1claire
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Re: I hate bonds

Post by 1claire » Tue Mar 26, 2019 10:30 pm

I do agree with you its never been easy to figure it out, everything is indeed a learning process.

pdavi21
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Re: I hate bonds

Post by pdavi21 » 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.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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Portfolio7
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Re: I hate bonds

Post by Portfolio7 » Tue Mar 26, 2019 11:15 pm

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.
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whodidntante
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Re: I hate bonds

Post by whodidntante » Wed Mar 27, 2019 12:54 am

You would probably like bonds if they were returning 4% real right now. Hate the yield, not the bond.

klaus14
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Re: I hate bonds

Post by klaus14 » Wed Mar 27, 2019 1:01 am

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.

Thesaints
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Re: I hate bonds

Post by Thesaints » Wed Mar 27, 2019 1:13 am

Bonds are "easier" than stocks. That's why they tend to return less.

toblerone
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Re: I hate bonds

Post by toblerone » Wed Mar 27, 2019 1:25 am

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.

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peterinjapan
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Re: I hate bonds

Post by peterinjapan » 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.

cheesepep
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Re: I hate bonds

Post by cheesepep » Wed Mar 27, 2019 3:30 am

I also hate bonds, so I own zero of them.

zuma
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Re: I hate bonds

Post by zuma » Wed Mar 27, 2019 4:04 am

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.

RobLyons
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Re: I hate bonds

Post by RobLyons » Wed Mar 27, 2019 4:34 am

No. I follow Taylor's lazy 3 fund portfolio and done.
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columbia
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Re: I hate bonds

Post by columbia » Wed Mar 27, 2019 4:56 am

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.
0.9% :shock:

livesoft
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Re: I hate bonds

Post by livesoft » Wed Mar 27, 2019 6:40 am

peterinjapan wrote:
Wed Mar 27, 2019 3:05 am
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.
Morningstar.com does this trivially. Chart the mutual fund first.
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rich126
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Re: I hate bonds

Post by rich126 » 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.

rkhusky
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Re: I hate bonds

Post by rkhusky » Wed Mar 27, 2019 7:03 am

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, ...
So, you've figured out diversification, efficient portfolios and factor investing?

alex_686
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Re: I hate bonds

Post by alex_686 » Wed Mar 27, 2019 7:11 am

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.

BogleMelon
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Re: I hate bonds

Post by BogleMelon » Wed Mar 27, 2019 7:14 am

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:
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).
And you will end up probably doing way better than picking your own bond funds.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

robphoto
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Re: I hate bonds

Post by robphoto » Wed Mar 27, 2019 8:19 am

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.

UpperNwGuy
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Re: I hate bonds

Post by UpperNwGuy » Wed Mar 27, 2019 8:25 am

I love bonds, and I own lots of them, all through two mutual funds: Total Bond and Intermediate Tax Exempt.

acegolfer
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Re: I hate bonds

Post by acegolfer » Wed Mar 27, 2019 8:25 am

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.

Topic Author
AkwardDoct@rd
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Re: I hate bonds

Post by AkwardDoct@rd » Wed Mar 27, 2019 8:32 am

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.
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 .

cheesepep wrote:
Wed Mar 27, 2019 3:30 am
I also hate bonds, so I own zero of them.
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
rkhusky wrote:
Wed Mar 27, 2019 7:03 am
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, ...
So, you've figured out diversification, efficient portfolios and factor investing?
Yes, Yes and factor investing I spent some time looking at and decided it wasn't for me but understand the basic concepts

OnLevel
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Re: I hate bonds

Post by OnLevel » Wed Mar 27, 2019 8:34 am

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.
Aren't CD's bonds? Do you just not like bond funds? I get that.

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AerialWombat
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Re: I hate bonds

Post by AerialWombat » Wed Mar 27, 2019 8:36 am

I love bonds. I own multiple bond funds. With a securities AA of 30/70, I have no choice but to be educated about bonds, bond funds, and other fixed income securities. It has been a great education the past year, and I am very happy with the bond funds I now use, and will stay the course with them.

I do not own any Total Bond Fund.

It’s the stocks that drive me nuts, and that I would rather do without, but that’s not practical. For the most part, I let Wellesley pick my stocks for me. Since I know and like real estate, most of my equities outside Wellesley are REITs.

Will I simplify next year when I semi-FIRE? Probably not.
“Life doesn’t come with a warranty.” -Michael LeBoeuf

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Taylor Larimore
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Re: I hate bonds

Post by Taylor Larimore » Wed Mar 27, 2019 8:53 am

HEDGEFUNDIE wrote: And if you prefer to follow the crowd and not get reprimanded by Taylor, buy Total Bond.
This gave me a good laugh. However, I also wrote this:
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).
There is more than one road to Dublin.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Admiral
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Re: I hate bonds

Post by Admiral » Wed Mar 27, 2019 8:56 am

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.

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jeffyscott
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Re: I hate bonds

Post by jeffyscott » Wed Mar 27, 2019 8:57 am

alex_686 wrote:
Wed Mar 27, 2019 7:11 am
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.
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.
Time is your friend; impulse is your enemy. - John C. Bogle

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jeffyscott
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Re: I hate bonds

Post by jeffyscott » Wed Mar 27, 2019 9:07 am

OnLevel wrote:
Wed Mar 27, 2019 8:34 am
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.
Aren't CD's bonds? Do you just not like bond funds? I get that.
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.

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.
Time is your friend; impulse is your enemy. - John C. Bogle

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Taylor Larimore
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Bonds are very complex

Post by Taylor Larimore » Wed Mar 27, 2019 9:14 am

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
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

alex_686
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Re: I hate bonds

Post by alex_686 » Wed Mar 27, 2019 9:15 am

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.
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.

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.

Admiral
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Re: I hate bonds

Post by Admiral » Wed Mar 27, 2019 9:15 am

jeffyscott wrote:
Wed Mar 27, 2019 9:07 am
OnLevel wrote:
Wed Mar 27, 2019 8:34 am
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.
Aren't CD's bonds? Do you just not like bond funds? I get that.
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.

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.
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.

Ferdinand2014
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Re: I hate bonds

Post by Ferdinand2014 » Wed Mar 27, 2019 9:26 am

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.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

JBTX
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Re: I hate bonds

Post by JBTX » Wed Mar 27, 2019 9:32 am

Admiral wrote:
Wed Mar 27, 2019 9:15 am
jeffyscott wrote:
Wed Mar 27, 2019 9:07 am
OnLevel wrote:
Wed Mar 27, 2019 8:34 am
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.
Aren't CD's bonds? Do you just not like bond funds? I get that.
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.

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.
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.
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
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Re: I hate bonds

Post by Admiral » Wed Mar 27, 2019 9:34 am

JBTX wrote:
Wed Mar 27, 2019 9:32 am
Admiral wrote:
Wed Mar 27, 2019 9:15 am
jeffyscott wrote:
Wed Mar 27, 2019 9:07 am
OnLevel wrote:
Wed Mar 27, 2019 8:34 am
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.
Aren't CD's bonds? Do you just not like bond funds? I get that.
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.

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.
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.
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.
The NAV fluctuates. That's what I was referring to. If you sell early, you can lose principal.

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jeffyscott
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Re: I hate bonds

Post by jeffyscott » Wed Mar 27, 2019 9:39 am

alex_686 wrote:
Wed Mar 27, 2019 9:15 am
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.
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.
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.
Time is your friend; impulse is your enemy. - John C. Bogle

alex_686
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Re: I hate bonds

Post by alex_686 » Wed Mar 27, 2019 9:40 am

JBTX wrote:
Wed Mar 27, 2019 9:32 am
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.
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.

JBTX
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Re: I hate bonds

Post by JBTX » Wed Mar 27, 2019 9:40 am

Admiral wrote:
Wed Mar 27, 2019 9:34 am
JBTX wrote:
Wed Mar 27, 2019 9:32 am
Admiral wrote:
Wed Mar 27, 2019 9:15 am
jeffyscott wrote:
Wed Mar 27, 2019 9:07 am
OnLevel wrote:
Wed Mar 27, 2019 8:34 am


Aren't CD's bonds? Do you just not like bond funds? I get that.
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.

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.
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.
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.
The NAV fluctuates. That's what I was referring to. If you sell early, you can lose principal.
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.

I only bring this up because many seem to see CDS as safer, but that really isn't true.

alex_686
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Re: I hate bonds

Post by alex_686 » Wed Mar 27, 2019 9:43 am

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.
Why is a bond no longer a bond if the bond has the added feature of FDIC insurance?

Random Walker
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Re: I hate bonds

Post by Random Walker » 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

Random Walker
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Re: I hate bonds

Post by Random Walker » Wed Mar 27, 2019 9:58 am

I strongly recommend this book. It’s my favorite bond book. Why Bother With Bonds by Rick Van Ness.

Dave

Amphian
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Re: I hate bonds

Post by Amphian » Wed Mar 27, 2019 9:59 am

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.
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.

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

Post by Jack FFR1846 » Wed Mar 27, 2019 10:02 am

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.
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.

.....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

Admiral
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Re: I hate bonds

Post by Admiral » Wed Mar 27, 2019 10:09 am

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
You have just described TBM.

Admiral
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Re: I hate bonds

Post by Admiral » Wed Mar 27, 2019 10:15 am

Amphian wrote:
Wed Mar 27, 2019 9:59 am
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.
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.

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.
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.

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.

ETadvisor
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Re: I hate bonds

Post by ETadvisor » Wed Mar 27, 2019 10:21 am

I utilize bonds for safety. I chase returns with equity. I just buy total bond mutual funds for simplicity.

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