Resources to understand bonds

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Resources to understand bonds

Post by Dawg11 » Wed Mar 25, 2020 9:53 am

I am a novice investor who’d always been under the presumption that bonds were a way to “smooth the ride” (in the words of JL Collins) in an economic downturn. With the recent events, I’m not so sure that this is the case.

What books out there would one recommend to help one gain a thorough understanding of diff types of bonds, treasuries, etc.?

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Re: Resources to understand bonds

Post by bloom2708 » Wed Mar 25, 2020 1:29 pm

Have you read the Wiki on bonds?

Start there before a book.

Even if certain bonds don't behave exactly the same when under stress, they are less risky than stocks. Not zero risk.

Municipal bonds have been highlighted recently. Some funds have been down 8% or more. Bad (for bonds), but not like ~25-30% down for stocks.
Last edited by bloom2708 on Wed Mar 25, 2020 2:13 pm, edited 1 time in total.
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Re: Resources to understand bonds

Post by alex_686 » Wed Mar 25, 2020 1:51 pm

The Handbook of Fixed Income Securities by Frank Fabozzi is the book on the subject.

On a more serious note - how deep do you want to dig? The above book is great but it is 1,700 pages long. Maybe not what you are looking for.

And yes, people here at Bogleheads says it is to smooth the ride. I don't like that particular over-simplification.

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Re: Resources to understand bonds

Post by dratkinson » Wed Mar 25, 2020 2:37 pm

--Read Wiki on bonds.
--Read several Wiki-recommended bond books (+ Thau's "The Bond Book", if it's missing from listing).

These books will teach you to avoid bad bonds. But you still must decide which of the other more acceptable bonds are "within reason" for your situation.

Total return investing. In "total return" investing (capital gains + distributions (dividends + internal CGs), dividends are the major component of bond fund total return. Meaning: if you are not selling, then you don't care about bond prices, because, month to month, you just record bond dividends.

During a crash,
--Stocks can lose 50-90% of their value.
--Bonds can lose 5-15% of their value. (Don't sweat owning good bonds.)
--Stock/bond crashes are not typically coincidental.

Bottom line.
--Bonds are for safety, but their principal is not guaranteed. (Buy CDs for insured principal protection.)
--Treasury bonds are the safest, but they are very low yield. On the other hand, their prices typically move opposite to stocks during a "stock crash". But all bets are off during an "economy crash".
--If you reach for yield in bonds, you must expect volatility. If you own acceptable bonds and are not selling, then don't worry about price. Just keep recording the monthly dividends.

I checked and see that
--The treasury bonds I'm following are in the upper half of their 52wk range. (Expected.)
--The muni bonds I'm following are in the lower quarter of their 52wk range.
--I'm not tracking any corporate bonds, but expect HY is doing the worst. (Expected.)

Disclosure. Within reason, I reach from more bond yield, and expect volatility. Since I'm not selling bonds, I don't really care about the price, and look forward to the monthly dividends.

However, I have TLHed (tax-loss harvested) my bonds when given the opportunity. But bought back into the same bonds afterwards.

Suggestion. In the first forum section, use the sticky "Asking Portfolio Questions" to submit your situation to the forum for review.
--If your bonds and AA (asset allocation) are acceptable, we'll tell you, and talk you off the ledge.
--If your bonds or AA are not acceptable, then now would be a good time to TLH them and buy something more suitable, or increase your allocation to bonds.

The best time to make needed changes to our AA is during a market downturn. Why? Because we are less likely to owe additional taxes to make the changes. May even get a TLH.

This too shall pass.

d.r.a., not dr.a. | I'm a novice investor, you are forewarned.

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Re: Resources to understand bonds

Post by lgs88 » Wed Mar 25, 2020 2:38 pm


For a humorous take on it, there's an old article floating around entitled "How (Not) To Explain The Bond Market To Your Wife" by Sidney Homer. Believe it came out in 1968. You ought to be able to find it if you Google around a bit.

merely an interested amateur

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