Buffet says no to bonds - recommends equities and cash

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
stevewolfe
Posts: 1536
Joined: Fri Oct 10, 2008 7:07 pm

Re: Buffett on bonds

Post by stevewolfe » Sat May 18, 2013 11:50 am

Strevlac wrote:There has been a lot of talk about an inevitable increase in interest rates, but much less talk about our governments ability to pay higher rates on our national debt. What is it now, 13 trillion and rising? That's what has me thinking rates are going to be very, very low for the forseeable future. Of course I could have this all wrong but I haven't really seen anyone explain why that wouldn't be the case.
Agreed. Buy EE savings bonds. (BTW, $16 trillion and rising)

gerrym51
Posts: 1679
Joined: Sat Apr 27, 2013 1:44 pm

Re: Buffett on bonds

Post by gerrym51 » Sat May 18, 2013 11:57 am

1. Buffetts a gazilionaire. he does not worry about finances. i bet he still keeps some bonds.
2. this thing about interest rates rising. the government ,the federal reserve, the treasury and been trying to stimulate the economy. they have been pumping gazillions. they still have to borrow money to pay off the debt which increases their own borrowing costs. do you honestly believe they are suddenly going to increase rate to 3 percent and put the economy into a downer again just to appease return seekers.NO.

it's going to be a very gradual increase. i would not be suprised to see only a 1/4 to 1/2 percent a year. i forsee at least 10 years to get it to 3 percent. there will be more hysteria about interest rates rising. the hysteria will be worse than the actual increase.


SHEESH :oops:

Scooter57
Posts: 936
Joined: Thu Jan 24, 2013 9:20 am

Re: Buffett on bonds

Post by Scooter57 » Sat May 18, 2013 12:36 pm

Gerrym51,

I take it your astrologer's prediction is the basis of your certainty about how interest rates will rise, since no one else, including the Fed governors themselves have this information.

The issue that Buffett and everyone else is pointing to is that the problem with bonds is structural. Unlike markets which go up and down randomly, bond prices follow strict rules. The probability that interest rates will rise is very high. What happens when they start to rise is unknown, but it's safe to say that the people who are in bonds now because they are telling themselves "I will get out when rates start to rise" will dump their bonds when they do. And when that happens it's anyone's guess what happens. It will affect the liquidity of bonds and it will have a strong affect on the prices of Bond Funds which have to sell bonds to pay for redemptions.

There's no rule that says that bond prices have to adhere to the duration rule. Prices respond to demand. If the demand for bonds drops, then the funds will have to sell their bonds at whatever they can get, which might be less than the current NAV suggests--resulting in dramatic drops in NAV.

Perhaps very slow changes in interest rates will slow this process, but they won't stop it, and as long as rates keep dropping your fund NAV will be below current levels. New bonds will replace old ones, more slowly than has been the case over the past 30 years when bonds got called a lot, since companies don't call bonds when rates are rising. But if rates continue to rise, their prices continue to drop, too. Best case you have locked in today's rotten yields for the length of the current duration (unlikely) Worst case you've locked them in for a decade or more--during which time you have to pray that inflation stays at whatever your bond fund is yielding this week.

There really is a reason all these experts are warning people that bonds are not the safe haven they have been for the past 30 years.

gerrym51
Posts: 1679
Joined: Sat Apr 27, 2013 1:44 pm

Re: Buffett on bonds

Post by gerrym51 » Sat May 18, 2013 12:44 pm

Scooter57 wrote:Gerrym51,

I take it your astrologer's prediction is the basis of your certainty about how interest rates will rise, since no one else, including the Fed governors themselves have this information.

The issue that Buffett and everyone else is pointing to is that the problem with bonds is structural. Unlike markets which go up and down randomly, bond prices follow strict rules. The probability that interest rates will rise is very high. What happens when they start to rise is unknown, but it's safe to say that the people who are in bonds now because they are telling themselves "I will get out when rates start to rise" will dump their bonds when they do. And when that happens it's anyone's guess what happens. It will affect the liquidity of bonds and it will have a strong affect on the prices of Bond Funds which have to sell bonds to pay for redemptions.

There's no rule that says that bond prices have to adhere to the duration rule. Prices respond to demand. If the demand for bonds drops, then the funds will have to sell their bonds at whatever they can get, which might be less than the current NAV suggests--resulting in dramatic drops in NAV.

Perhaps very slow changes in interest rates will slow this process, but they won't stop it, and as long as rates keep dropping your fund NAV will be below current levels. New bonds will replace old ones, more slowly than has been the case over the past 30 years when bonds got called a lot, since companies don't call bonds when rates are rising. But if rates continue to rise, their prices continue to drop, too. Best case you have locked in today's rotten yields for the length of the current duration (unlikely) Worst case you've locked them in for a decade or more--during which time you have to pray that inflation stays at whatever your bond fund is yielding this week.

There really is a reason all these experts are warning people that bonds are not the safe haven they have been for the past 30 years.

YES.

now that i've said that i also said i was diversified. that is why they say diversify. my prediction is as good as anybody else's.(it's also as bad as anyone else.r we don't know. since you and i have had dueling e-mails for the past several weeks we both have our ideas. if i new for sure whats going to happen i'd have it all in whatever it is.

can you tell me what is going to happen for sure. the way i see it on gnma as opposed to direct treasuries if interests rates start to go up-mortgages also go up. refinancing s to lower rates go down. that is why i have no direct investments in bond fund of treasuries.(although i do have target date funds that do)

ps -i'm beginning to think you lie in wait for my posts so you can tear them to shreds :mrgreen:

another thing while i'm at it. what credit union in mass gave you the 2 percent cd's

Frank2012
Posts: 73
Joined: Fri Jan 25, 2013 7:16 pm

Re: Buffett on bonds

Post by Frank2012 » Sat May 18, 2013 1:02 pm

Yes, it is obvious to everyone for a decade plus that interest rates will rise and cream bond funds. What would help immensely, however, is if we knew exactly when rates would rise so we could time the market and make a bundle. Since I'm not good at guessing, I'm content to follow my asset allocation, rebalance every so often, and not try to time the bond market, stock market or interest rates.

User avatar
danwhite77
Posts: 416
Joined: Thu Mar 08, 2012 9:21 am

Re: Buffett on bonds

Post by danwhite77 » Sat May 18, 2013 1:05 pm

Buffett's one-liner on bonds is usually something along the lines of:

When you factor in inflation, instead of risk-free return, bonds are usually return-free risk.
"While some mutual fund founders chose to make billions, he chose to make a difference." - Dedication to Jack Bogle in 'The Bogleheads' Guide to Investing'.

Calm Man
Posts: 2917
Joined: Wed Sep 19, 2012 9:35 am

Re: Buffett on bonds

Post by Calm Man » Sat May 18, 2013 1:13 pm

I am frankly delighted he said all of this and it makes me more comfortable holding my IPS in bonds. First the guy's insurance companies hold plenty of bonds so he's not exactly telling the whole truth. Second, anything he says has to be viewed in that he is a CEO of a company so cannot say anything not compatible with the company message. But more important, if he and his ilk really have a whole bunch of $ sitting in cash instead of bonds, that leaves a whole bunch of money that could be invested in bonds in the future. It is not like this gentleman can predict the future of interest rates any better than anybody else, including any of us.

Calm Man
Posts: 2917
Joined: Wed Sep 19, 2012 9:35 am

Re: Buffett on bonds

Post by Calm Man » Sat May 18, 2013 1:16 pm

stemikger wrote:
dbr wrote:It's going to be very interesting to see the conversation when the stock market has its next downtrend.
Very true. That is when Staying the Course will surely be tested.
Indeed. At that point we will all applaud ourselves for sticking to our IPS plan for bonds as we always knew that bonds were more for safety than return. Now, those who question this are riding an incredible rise in the stock market. I too am experiencing it but am 60 and have seen these things go up and come all the way back down. So I would ignore all noise, including anything said by Buffet or anybody else, and stick to the IPS.

User avatar
LadyGeek
Site Admin
Posts: 55053
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Buffet says no to bonds - recommends equities and cash

Post by LadyGeek » Sat May 18, 2013 1:34 pm

FYI - I merged this thread into an older thread, which discusses the same topic and has the same Yahoo Finance link: Buffett: Bonds Are 'Terrible Investment' Now (from May 6).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
rmelvey
Posts: 802
Joined: Sat Sep 18, 2010 5:17 pm
Contact:

Re: Buffet says no to bonds - recommends equities and cash

Post by rmelvey » Sat May 18, 2013 1:39 pm

Has Buffet ever publicly recommended bonds?

Clive
Posts: 1951
Joined: Sat Jun 13, 2009 5:49 am

Re: Buffett on bonds

Post by Clive » Sat May 18, 2013 2:29 pm

Scooter57 wrote:What happens when they start to rise is unknown
Same as usual. High inflation, high yields, modest taxation of nominal 'gains' .... sustained for a number of years and bond holders in net real terms lose -50% to -80%.

1960 - 1981 UK, basic tax rate gilt (treasury) bond holders lost -80% in real terms.

Yet the Debt Management Office proudly proclaim "The Government has never failed to make interest or principal payments on gilts as they fall due".

User avatar
LadyGeek
Site Admin
Posts: 55053
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Buffet says no to bonds - recommends equities and cash

Post by LadyGeek » Sat May 18, 2013 2:58 pm

Scooter57 wrote:Gerrym51,

...I'm reading the same new posts as you are, and since I know that people posting aren't reading all or even in many cases any of the previous posts, I'm making points people need to understand to invest safely.
There are some exceptions. :wink: It's most helpful when everyone can focus on the same topic, i.e. Buffet and bonds.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
LadyGeek
Site Admin
Posts: 55053
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Buffet says no to bonds - recommends equities and cash

Post by LadyGeek » Sat May 18, 2013 3:27 pm

^^^ Update: I removed a few off-topic posts which were discussing CDs.

Please stay on-topic.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

gerrym51
Posts: 1679
Joined: Sat Apr 27, 2013 1:44 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by gerrym51 » Sat May 18, 2013 3:35 pm

LadyGeek wrote:^^^ Update: I removed a few off-topic posts which were discussing CDs.

Please stay on-topic.
ok

User avatar
Qtman
Posts: 414
Joined: Sun Jun 29, 2008 8:00 pm
Location: Town with no name

Re: Buffet says no to bonds - recommends equities and cash

Post by Qtman » Sat May 18, 2013 3:42 pm

Would that we were all as smart as Mr. Buffett. I hold many individual bonds and will continue to, Dr. Zvi Bodie might have another outlook.
Don’t wear yourself out trying to get rich; be wise enough to control yourself. | Wealth can vanish in the wink of an eye. It can seem to grow wings and fly away | like an eagle. - King Solomon

z3r0c00l
Posts: 1412
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC
Contact:

Re: Buffett on bonds

Post by z3r0c00l » Sat May 18, 2013 6:08 pm

stemikger wrote: I think it's a safe bet that interest rates will not stay this low for much longer. It's hard to disagree with the greatest investor in the world.
Check out '96 to 2012:

http://www.tradingeconomics.com/japan/interest-rate

For the investing needs of normal people, there is no best. He is great at buying large portions of companies. I still don't see how that translates to advice for us. Buffet never has to worry about things like emergency funds and reducing volatility to ensure a safe retirement. It seems to me that much of his job is picking stocks that are undervalued and buying them. Should we do the same?

User avatar
jupiter_man
Posts: 63
Joined: Fri May 03, 2013 8:02 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by jupiter_man » Sat May 18, 2013 7:02 pm

Due to the recent rise in stocks , my bond % was getting lower that my target allocation, i see this as a good opportunity to buy Bonds to keep up my target allocation. So for this months investment allocation I placed a order to buy V Limited Term Tax Exempt in my Taxable Account.

We will see what happens 5 years down the road :happy

User avatar
WolfpackFan
Posts: 378
Joined: Mon Mar 08, 2010 2:18 pm

Re: Buffett on bonds

Post by WolfpackFan » Fri May 24, 2013 10:38 pm

danwhite77 wrote:Buffett's one-liner on bonds is usually something along the lines of:

When you factor in inflation, instead of risk-free return, bonds are usually return-free risk.
lol that's funny. and sad too :(

sdelear
Posts: 5
Joined: Wed May 22, 2013 1:35 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by sdelear » Sat May 25, 2013 1:54 am

What rate did Berkshire get on the bonds it holds? If it needs to hold bonds for regulatory purposes, and those bonds are paying 5-7+%, then I expect brk will hold on to them.

Just remember, the historical average for inflation is 3.5%. This argues strongly for long term bonds being a bad investment at current rates.

User avatar
Topic Author
William Million
Posts: 585
Joined: Wed May 05, 2010 4:41 am
Location: A Deep Mountain

Re: Buffet says no to bonds - recommends equities and cash

Post by William Million » Sat May 25, 2013 9:17 am

sdelear wrote:What rate did Berkshire get on the bonds it holds? If it needs to hold bonds for regulatory purposes, and those bonds are paying 5-7+%, then I expect brk will hold on to them.

Just remember, the historical average for inflation is 3.5%. This argues strongly for long term bonds being a bad investment at current rates.
A bad investment in real terms. But for someone like me nearing retirement, I really have no responsible option but to hold about 50% fixed income. Can't just shift to 100% stocks and sustain a 2/3 drop. The question is, and the one I raised in the original post, what are the best fixed income options right now?

User avatar
Kevin M
Posts: 10885
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Buffet says no to bonds - recommends equities and cash

Post by Kevin M » Sat May 25, 2013 6:42 pm

William Million wrote: A bad investment in real terms. But for someone like me nearing retirement, I really have no responsible option but to hold about 50% fixed income. Can't just shift to 100% stocks and sustain a 2/3 drop. The question is, and the one I raised in the original post, what are the best fixed income options right now?
Apparently posts on CDs are considered off-topic in this thread, even though you mentioned CDs in your OP. So I guess I can't tell you my answer to your question here. You could start a new thread and just ask this question directly, but there are already plenty of posts discussing this topic.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

Howard Donnelly
Posts: 528
Joined: Tue Dec 14, 2010 3:19 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by Howard Donnelly » Wed Jul 10, 2019 9:01 am

This article and thread are from 2013. What do you think of Warren Buffett's comments now, in hindsight? What is the current thinking on this subject?

Vanguard Fan 1367
Posts: 978
Joined: Wed Feb 08, 2017 3:09 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by Vanguard Fan 1367 » Wed Jul 10, 2019 4:07 pm

Howard Donnelly wrote:
Wed Jul 10, 2019 9:01 am
This article and thread are from 2013. What do you think of Warren Buffett's comments now, in hindsight? What is the current thinking on this subject?
In hindsight had you listened to the advice in 2013 till today you would be smelling like a rose! I listened to things like this and decided to buy Vanguard's High Dividend Yield ETF for a substitute for some of my bond allocation and did fabulously well with that fund from 2014 till today.

Brudha
Posts: 7
Joined: Wed Oct 29, 2014 6:36 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by Brudha » Wed Jul 10, 2019 4:27 pm

Good pull from the archive.

For those who were allocated at 40 - 60% bonds for this duration, what are your true feelings on what could have been? Do you still plan on staying the course even though bonds are likely to continue to be dismal for the foreseeable future?

User avatar
FIREchief
Posts: 3215
Joined: Fri Aug 19, 2016 6:40 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by FIREchief » Wed Jul 10, 2019 7:26 pm

Brudha wrote:
Wed Jul 10, 2019 4:27 pm
Good pull from the archive.

For those who were allocated at 40 - 60% bonds for this duration, what are your true feelings on what could have been? Do you still plan on staying the course even though bonds are likely to continue to be dismal for the foreseeable future?
Dismal real return? Sure. Dismal for purposes other than real growth? Not so much... Hard to put a price tag on six years of sleeping well (if you can afford it).
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

EddyB
Posts: 812
Joined: Fri May 24, 2013 3:43 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by EddyB » Wed Jul 10, 2019 7:45 pm

FIREchief wrote:
Wed Jul 10, 2019 7:26 pm
Brudha wrote:
Wed Jul 10, 2019 4:27 pm
Good pull from the archive.

For those who were allocated at 40 - 60% bonds for this duration, what are your true feelings on what could have been? Do you still plan on staying the course even though bonds are likely to continue to be dismal for the foreseeable future?
Dismal real return? Sure. Dismal for purposes other than real growth? Not so much... Hard to put a price tag on six years of sleeping well (if you can afford it).
Perhaps, but if we're doing the "what could have been" game, many investors probably would have slept better for some later portion of those six years if they'd had the larger portfolios that would have come from being heavier in equities. Not that I'm sure what one does with that after-the-fact realization, but I don't think investors should delude themselves about how they've done, either.

Ferdinand2014
Posts: 426
Joined: Mon Dec 17, 2018 6:49 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by Ferdinand2014 » Wed Jul 10, 2019 7:49 pm

My IPS is enough cash (T-Bills) to sleep well and everything else in low cost S&P 500 index funds bought over time. It is simple, effective and works for me. Lots of cash keeps me from selling equities and the simple allocation keeps me from making behavioral mistakes and fiddling constantly. Is it the most diversified or risk adjusted? nope. Will it offer the best returns over time? probably not.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

User avatar
JoMoney
Posts: 7142
Joined: Tue Jul 23, 2013 5:31 am

Re: Buffet says no to bonds - recommends equities and cash

Post by JoMoney » Wed Jul 10, 2019 7:58 pm

Howard Donnelly wrote:
Wed Jul 10, 2019 9:01 am
This article and thread are from 2013. What do you think of Warren Buffett's comments now, in hindsight? What is the current thinking on this subject?
I had a comment in a different thread from relatively the same time period
viewtopic.php?f=10&t=129239#p1899513
... I happen to agree with his opinion on bonds. Even today, I don't consider bond yields rewarding enough to justify a position for my money that I expect to leave invested for decades. For someone with near term needs of the money the situation is different, he's not advocating people invest money they may need in a few years time. ...
I have pretty much the same thoughts now as I did then.

From this clip (less than a year ago) Buffett's opinion on bonds hasn't changed much either:
https://youtu.be/dmNgk0dAeH0
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

longinvest
Posts: 3650
Joined: Sat Aug 11, 2012 8:44 am

Re: Buffet says no to bonds - recommends equities and cash

Post by longinvest » Wed Jul 10, 2019 8:14 pm

Brudha wrote:
Wed Jul 10, 2019 4:27 pm
For those who were allocated at 40 - 60% bonds for this duration, what are your true feelings on what could have been? Do you still plan on staying the course even though bonds are likely to continue to be dismal for the foreseeable future?
Portfolio Visualizer tells us that from May 2013 to June 2019 Vanguard's LifeStategy Moderate Growth Fund (VSMGX), a globally-diversified balanced index fund with a 60/40 stocks/bonds allocation, has earned a respectable 5.22% real return (that's the annual return adjusted to inflation).

Over the same period, Vanguard's Total World Stock ETF (VT) has earned a 6.51% real return, but with almost double the volatility.

I'd say that the performance of the stocks-only portfolio was relatively disappointing, given its much higher volatility.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

dbr
Posts: 29547
Joined: Sun Mar 04, 2007 9:50 am

Re: Buffet says no to bonds - recommends equities and cash

Post by dbr » Wed Jul 10, 2019 8:27 pm

Brudha wrote:
Wed Jul 10, 2019 4:27 pm
Good pull from the archive.

For those who were allocated at 40 - 60% bonds for this duration, what are your true feelings on what could have been? Do you still plan on staying the course even though bonds are likely to continue to be dismal for the foreseeable future?
My true feelings are that one can say anything after one has gained hindsight. It is common to confuse outcome with strategy. I would also say that if one thinks 90% stocks is the right allocation for them, the performance of the stock market over that period of time is not a reason to think one has the right allocation.
Last edited by dbr on Wed Jul 10, 2019 8:41 pm, edited 1 time in total.

User avatar
Elric
Posts: 170
Joined: Sat Dec 08, 2018 12:23 am
Location: Virginia
Contact:

Re: Buffet says no to bonds - recommends equities and cash

Post by Elric » Wed Jul 10, 2019 8:39 pm

JoMoney wrote:
Wed Jul 10, 2019 7:58 pm
I had a comment in a different thread from relatively the same time period
viewtopic.php?f=10&t=129239#p1899513
... I happen to agree with his opinion on bonds. Even today, I don't consider bond yields rewarding enough to justify a position for my money that I expect to leave invested for decades. For someone with near term needs of the money the situation is different, he's not advocating people invest money they may need in a few years time. ...
I have pretty much the same thoughts now as I did then.

From this clip (less than a year ago) Buffett's opinion on bonds hasn't changed much either:
https://youtu.be/dmNgk0dAeH0
As you say, the key there is long-term, 30 year returns. I watched the Buffet clip you mention. He says that over a 30 year period, stocks will outperform bonds. No argument there. But he wasn't discussing the appropriate asset allocation for most of us.
Vanguard Fan 1367 wrote:
Wed Jul 10, 2019 4:07 pm
Howard Donnelly wrote:
Wed Jul 10, 2019 9:01 am
This article and thread are from 2013. What do you think of Warren Buffett's comments now, in hindsight? What is the current thinking on this subject?
In hindsight had you listened to the advice in 2013 till today you would be smelling like a rose!
Not sure I agree. Sure if you're talking return of 100% stocks v. 100% bonds, but per Portfolio Visualizer, from January 2014 through today, Vanguard's Intermediate Term Corporate Bond ETF (VCIT) had a CAGR of 4.92%, which I don't consider bad for a bond fund during these years. For that same time period, average inflation was around 1.6% per year.
"No man is free who works for a living." | Illya Kuryakin

Vanguard Fan 1367
Posts: 978
Joined: Wed Feb 08, 2017 3:09 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by Vanguard Fan 1367 » Thu Jul 11, 2019 10:01 am

Elric wrote:
Wed Jul 10, 2019 8:39 pm
JoMoney wrote:
Wed Jul 10, 2019 7:58 pm
I had a comment in a different thread from relatively the same time period
viewtopic.php?f=10&t=129239#p1899513
... I happen to agree with his opinion on bonds. Even today, I don't consider bond yields rewarding enough to justify a position for my money that I expect to leave invested for decades. For someone with near term needs of the money the situation is different, he's not advocating people invest money they may need in a few years time. ...
I have pretty much the same thoughts now as I did then.

From this clip (less than a year ago) Buffett's opinion on bonds hasn't changed much either:
https://youtu.be/dmNgk0dAeH0
As you say, the key there is long-term, 30 year returns. I watched the Buffet clip you mention. He says that over a 30 year period, stocks will outperform bonds. No argument there. But he wasn't discussing the appropriate asset allocation for most of us.
Vanguard Fan 1367 wrote:
Wed Jul 10, 2019 4:07 pm
Howard Donnelly wrote:
Wed Jul 10, 2019 9:01 am
This article and thread are from 2013. What do you think of Warren Buffett's comments now, in hindsight? What is the current thinking on this subject?
In hindsight had you listened to the advice in 2013 till today you would be smelling like a rose!
Not sure I agree. Sure if you're talking return of 100% stocks v. 100% bonds, but per Portfolio Visualizer, from January 2014 through today, Vanguard's Intermediate Term Corporate Bond ETF (VCIT) had a CAGR of 4.92%, which I don't consider bad for a bond fund during these years. For that same time period, average inflation was around 1.6% per year.
Interesting post. I have some VCLT for the extra return. It seems like many of my Boglehead friends prefer Vanguard's Total Bond Market Fund.

Whakamole
Posts: 986
Joined: Wed Jan 13, 2016 9:59 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by Whakamole » Thu Jul 11, 2019 10:24 am

Vanguard Fan 1367 wrote:
Thu Jul 11, 2019 10:01 am
Elric wrote:
Wed Jul 10, 2019 8:39 pm
JoMoney wrote:
Wed Jul 10, 2019 7:58 pm
I had a comment in a different thread from relatively the same time period
viewtopic.php?f=10&t=129239#p1899513
... I happen to agree with his opinion on bonds. Even today, I don't consider bond yields rewarding enough to justify a position for my money that I expect to leave invested for decades. For someone with near term needs of the money the situation is different, he's not advocating people invest money they may need in a few years time. ...
I have pretty much the same thoughts now as I did then.

From this clip (less than a year ago) Buffett's opinion on bonds hasn't changed much either:
https://youtu.be/dmNgk0dAeH0
As you say, the key there is long-term, 30 year returns. I watched the Buffet clip you mention. He says that over a 30 year period, stocks will outperform bonds. No argument there. But he wasn't discussing the appropriate asset allocation for most of us.
Vanguard Fan 1367 wrote:
Wed Jul 10, 2019 4:07 pm
Howard Donnelly wrote:
Wed Jul 10, 2019 9:01 am
This article and thread are from 2013. What do you think of Warren Buffett's comments now, in hindsight? What is the current thinking on this subject?
In hindsight had you listened to the advice in 2013 till today you would be smelling like a rose!
Not sure I agree. Sure if you're talking return of 100% stocks v. 100% bonds, but per Portfolio Visualizer, from January 2014 through today, Vanguard's Intermediate Term Corporate Bond ETF (VCIT) had a CAGR of 4.92%, which I don't consider bad for a bond fund during these years. For that same time period, average inflation was around 1.6% per year.
Interesting post. I have some VCLT for the extra return. It seems like many of my Boglehead friends prefer Vanguard's Total Bond Market Fund.
There's also the "bonds are for safety" contingent, which tends to invest primarily in government bonds.

User avatar
Elric
Posts: 170
Joined: Sat Dec 08, 2018 12:23 am
Location: Virginia
Contact:

Re: Buffet says no to bonds - recommends equities and cash

Post by Elric » Thu Jul 11, 2019 12:42 pm

Whakamole wrote:
Thu Jul 11, 2019 10:24 am
There's also the "bonds are for safety" contingent, which tends to invest primarily in government bonds.
The OP stated "Buffett Says No to Corp Bonds," So I figured VCIT, as a corporate bond fund, was a better apples to apples comparison than total bond, which is dominated by government bonds. No relative value judgement implied. "Horses for courses."
"No man is free who works for a living." | Illya Kuryakin

Whakamole
Posts: 986
Joined: Wed Jan 13, 2016 9:59 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by Whakamole » Thu Jul 11, 2019 1:50 pm

Elric wrote:
Thu Jul 11, 2019 12:42 pm
Whakamole wrote:
Thu Jul 11, 2019 10:24 am
There's also the "bonds are for safety" contingent, which tends to invest primarily in government bonds.
The OP stated "Buffett Says No to Corp Bonds," So I figured VCIT, as a corporate bond fund, was a better apples to apples comparison than total bond, which is dominated by government bonds. No relative value judgement implied. "Horses for courses."
Buffett says a lot. He also talks about how he wants his wife to invest in the S&P 500/bonds but doesn't do so himself of course.

Broken Man 1999
Posts: 2755
Joined: Wed Apr 08, 2015 11:31 am

Re: Buffet says no to bonds - recommends equities and cash

Post by Broken Man 1999 » Thu Jul 11, 2019 2:20 pm

Not sure what Mr Buffett does is all that relevant to the other 99.99999% of the rest of us.

He could probably have his wife in beanie babies or sports trading cards and she could live very comfortably.

Mr Buffett is not a stockbuyer, he is a company buyer, either outright, or owning enough to greatly influence the management of the company.

Neither route is available to the rest of us.

So, honestly, I've never thought knowing what Mr Buffett does is all that useful.

Same with even Mr Bogle's investments, or Mr Gates, or any other HNW individual.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

Vanguard Fan 1367
Posts: 978
Joined: Wed Feb 08, 2017 3:09 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by Vanguard Fan 1367 » Thu Jul 11, 2019 3:40 pm

Broken Man 1999 wrote:
Thu Jul 11, 2019 2:20 pm
Not sure what Mr Buffett does is all that relevant to the other 99.99999% of the rest of us.

He could probably have his wife in beanie babies or sports trading cards and she could live very comfortably.

Mr Buffett is not a stockbuyer, he is a company buyer, either outright, or owning enough to greatly influence the management of the company.

Neither route is available to the rest of us.

So, honestly, I've never thought knowing what Mr Buffett does is all that useful.

Same with even Mr Bogle's investments, or Mr Gates, or any other HNW individual.

Broken Man 1999
If Bogle says it I believe it and that settles it for me. He says in his investments he is a little high on the stocks with his asset allocation and that is what my wife prefers and I go along with her and Bogle. I also avoid international as does Bogle.

TBillT
Posts: 696
Joined: Sat Sep 17, 2011 1:43 pm

Re: Buffet says no to bonds - recommends equities and cash

Post by TBillT » Fri Jul 12, 2019 11:06 am

On bonds I follow A. Gary Shilling who is again bullish re: TBonds
I (a scaredy-cat) finally started a small TLT position yesterday.

Dave55
Posts: 457
Joined: Tue Sep 03, 2013 2:51 pm
Location: Colorado

Re: Buffet says no to bonds - recommends equities and cash

Post by Dave55 » Fri Jul 12, 2019 11:49 am

If Warren is Buffet is so against "bonds", why is he holding $112 Billion in cash? How is he holding that cash, in short term T-Bills? Money Market? Buffet may be a brilliant "stock picker", or "business investor", but I don't pay attention to his "portfolio allocation" advice which is inappropriate for most investors.

Dave

dbr
Posts: 29547
Joined: Sun Mar 04, 2007 9:50 am

Re: Buffet says no to bonds - recommends equities and cash

Post by dbr » Fri Jul 12, 2019 12:00 pm

It seems very clear to me that Buffett did/does intend his advice for "ordinary investors" and that he thinks bonds are a lousy deal and that he has tremendous faith in American business to reward those who invest in it, which would be all of us. That just has to be taken as one will.

Buffett himself runs a business of finding companies that promise to be well run and can be bought at a good price. When those opportunities can't be found at any point in time he retains the cash. As an owner of whole businesses with his hand at the management table Buffett is not really a stock investor in the sense he tells us to be when he says put 90% into an S&P 500 mutual fund at Vanguard.

njinvestor2019
Posts: 17
Joined: Sat Jun 29, 2019 10:18 am

Re: Buffet says no to bonds - recommends equities and cash

Post by njinvestor2019 » Fri Jul 12, 2019 12:03 pm

If I want to take his advice. What equities do you guys recommend to buy and what exactly is a equity?

dbr
Posts: 29547
Joined: Sun Mar 04, 2007 9:50 am

Re: Buffet says no to bonds - recommends equities and cash

Post by dbr » Fri Jul 12, 2019 12:08 pm

njinvestor2019 wrote:
Fri Jul 12, 2019 12:03 pm
If I want to take his advice. What equities do you guys recommend to buy and what exactly is a equity?
Equities means shares of ownership in businesses. For people like us that means common stocks sold on major exchanges such as the New York Stock Exchange. It also means owning collections of stocks in the form of mutual funds.

Buffett's specific advice is to buy the Vanguard S&P 500 mutual fund VFIAX.

That doesn't mean poster on this forum are not going to suggest all sorts of varieties of stock mutual funds one can own, but that is the fund Buffett has specifically mentioned.

Post Reply