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You are making a market timing prediction/opinion....you may be right or wrong but you are just guessing.
I would rather take the advice of people like John Bogle and Warren Buffet over someone named "icicles"...lol
Having a "feeling" means nothing and has no basis just like a monkey throwing a dart at a dart board....
I use VBMFX as one of my bond funds. Obviously you are saying there was a 90% drop in the 1970's and you are lumping in all bond investments as you try to prove a point (which I think you are incorrect)
Can you backtest this fund and advise what the returns would've been for the 1970's...I'd like to hear you back up your statement.
If five years from now the 30 year rate went back to its previous high of 15.21% (also early 1980’s), the $1,000 30 year bond bought earlier would be worth less than $253.00, a decline of 74.70%. (Yes, if you hold to maturity, you would get the face value back, but I have never seen an investor that would have the patience or would be able to stomach watching their portfolio drop 74% in five years.)
It was actually 74% not 90% on a 30 yr bond.
typically when anything swings higher or lower to a side, the next move will move in that direction to counteract that previous momentum.
we are seeing larger and larger swings in all asset classes. the dow to gold ratio at 44:1 was the largest bubble in stocks in history. The largest percent in terms of interest rates in the early 1980's resulted in the lowest interest rates in the history. I am willing to bet that rate will go to almost nothing (could be where we are at now) and the swing to the upside will be nasty. I am sure they will print too much money and the move will be very large.
I also think the dow to gold ratio at some point will have gold at multiples of the dow. 1:2 or something or .5:1.
Obviously I am not a predictor of prices. I am not claiming to be. I am simply describing my position and my reasoning behind it. I am perfectly fine with others disagreeing and I like to read about their viewpoints and possibly learn a flaw in my logic and adjust my investments differently.
If five years from now the 30 year rate went back to its previous high of 15.21% (also early 1980’s), the $1,000 30 year bond bought earlier would be worth less than $253.00, a decline of 74.70%. (Yes, if you hold to maturity, you would get the face value back, but I have never seen an investor that would have the patience or would be able to stomach watching their portfolio drop 74% in five years.)
It was actually 74% not 90% on a 30 yr bond.
typically when anything swings higher or lower to a side, the next move will move in that direction to counteract that previous momentum.
we are seeing larger and larger swings in all asset classes. the dow to gold ratio at 44:1 was the largest bubble in stocks in history. The largest percent in terms of interest rates in the early 1980's resulted in the lowest interest rates in the history. I am willing to bet that rate will go to almost nothing (could be where we are at now) and the swing to the upside will be nasty. I am sure they will print too much money and the move will be very large.
I also think the dow to gold ratio at some point will have gold at multiples of the dow. 1:2 or something or .5:1.
Obviously I am not a predictor of prices. I am not claiming to be. I am simply describing my position and my reasoning behind it. I am perfectly fine with others disagreeing and I like to read about their viewpoints and possibly learn a flaw in my logic and adjust my investments differently.
You didn't answer my question (about if you backtested THAT fund (which is a total market fund, what would've the % drop had been), but the stock market took about 3 1/2 years to recover from its previous high after a 60% drop. It was a great thing for younger people who continued their savings contributions during the drop. Also, as I've said many times, if you were diversified, your other asset classes should've smoothed out the rides......
I'm not a predictor either, but I understand diversification, my puker factor, and investing for the long term.
Cyprus set the precedent in terms of direct monetary confiscation. Don't think they will try that will bank accounts in the US, but the future could very well hold a blanket tax (really confiscation dressed up nicely) on retirement savings accounts. Don't count that one out. Personally, I would have VERY limited holdings in US stocks and VERY little exposure to the bond markets. Both are primed for failure.
You may very well be right. If something of that magnitude happens, though, I really don't think there will be a way out. The best way out is to minimize one's dependence on the money system. That is very difficult to do, but we may be forced into it.
The Apple 10 year bond sold a few weeks back for 100 cents on the dollar, yielding 2.4%, now trades with a 10% loss. That kind of thing is what prompted the "M" word from me.
Yes, the "M" word was a bit too much hyperbole: again, well more than 50% of US capital markets is bonds of one form or another, from treasuries to mortgage-backed to munis to corporates investment and speculative grade; more than half the US economy - the most successful in human history - cannot be wrong all the time.
I agree, I too would not touch stuff like the Apple issue that you mentioned, nor most US government bonds, not since like 2004 or so, maybe some i-bonds for asset/liability matching.
But still some very steady high yield bonds and bond funds yield in the neighborhood of 5%-7%, municipals tax-free 5%-6%, floating-rate senior bank loans also 5%-6% (more credit seniority than bonds), and also the private corporate loan market around 8%. At that yield, what counts is default or not, unless the "risk-free" interest rate sky rockets to 5% and more, but at that point the "risk-free" would become attractive again.
Anyway, again today many bond funds rebounded more strongly than the main equity indices, but even more so real estate.
Best is to have a combination of all three, really.
I manage a dividend-paying equity portfolio along the lines that you suggested, combine it with options, and have been yielding the annual equivalent of around 10% lately. Still, there are risks of loss there as well, it could go either way month to month, but on balance I manage it in a rather conservative way and enhance yield, risking at worst medium/long-term ownership of some of the steadiest stocks.
Hats off to you if you have the cojones to risk 15%-30% returns year-in, year-out, I can't stomach more than 5%-6% on average.
You may very well be right. If something of that magnitude happens, though, I really don't think there will be a way out. The best way out is to minimize one's dependence on the money system. That is very difficult to do, but we may be forced into it.
I once planted tomatoes in my backyard and suffered heat stroke, once eggplant and almost broke my back. I don't know how to shoot a gun.
I'll cook my own meals from scratch though, buying the ingredients from the local supermarket (local produce when available).
I thank my lucky stars to be one of the billions of undeserving heirs of men who invented things like the internal combustion engine, the tractor and other motor vehicles on land, sea, air and outer space, electricity, refridgeration and air-conditioning, computers, telecommunications, antiobiotics and the internet, and to be the beneficiary of all those who manage to bring these tremendous conveniences efficiently to billions of people, while doing my humble part to add some modest value to the economy.
If the US economic and monetary systems fail, I'd probably be one of the first to die of starvation in the attendant chaos, and not be too concerned about it either.
In the meantime, I'll hold the bonds that I've got and maybe buy some more on dips as I get older and cheerfully face the inevitable.
well i would have been a happy little moron for over 35 years as bonds beat equities over almost every time frame so i certainly would not say bonds are for morons.
the last 13 years bonds have made more money for investors than anything else. capital gains were amazing.
no one can predict what is a head but for the next few years they still may end up being the investment of choice if things do not improve out there..
So how much of that history does a current buyer of bonds get? Zero, zip, zilch, nada, nothing. If you bought the 30 year treasury recently at 3%, your total return upside is 3% unless rates go lower over your holding period. Your total downside is huge, as any rise in rates above 3% produces a capital loss over your holding period.
Bonds had a 30 year roaring bull market as rates fell from above 15% to below 3% (long-term treasuries.) Bond's total-return history cannot repeat unless bond interest rates keep falling and go below zero.
What is a 3% bond worth in a 7% world? The unfortunate answer may be what today's bond bulls are going to learn the hard way.
Bottom line: you've been a genius to believe in bonds and catch the end of the decades-long bull run even when many (including me) dismissed your position. Times change, and the arithmetic could turn genius into something else.
noooooooo your upside potential is far from 3%, in fact that is the downside potential.
How much potential does a buyer get today? Perhaps another 30% if we have another SHORT TERM flight to safety and long term rates fall just 1%.
like I said it is just a short term speculation we will get worse before we get better. if I had to pick gold or long term treasuries for my speculation my pick is treasuries for now..
keep in mind we are only taking those who want to speculate . buy and hold of bonds now would be silly. I still own quite a lot of various bond funds but we have been dynamically getting out and shifting gears lately.
the problem with bonds is they have had a poor run up this year and have no cushion, in fact most are negative for the year with the worst being international and emerging market bond funds..
equities are still up quite a bit. my equity funds can lose 10-12% and first hit the point the bond funds are at this year. the bond mix I run is down about 3% overall. the growth and income mix is up 6.5 % and the growth model up 10.5%
Last edited by mathjak107; 06-28-2013 at 08:02 AM..
Are you still reading, OP?? mathjak has just answered your question, and he and I are in total agreement.
Yes, I am still reading. I am a Happy Moron that is hoping to not get slaughtered. I have learned a lot from this thread!!!
I reviewed all my statements last night from the past five years. I have made a lot from my bond funds, so this minor downfall is nothing compared to the gains I have made. I am not going to panic and sell but I am going to be better diversified going forward.
we are slowly shifting out. I think once this over reaction is done the weakness in the world economies will not leave bonds in negative land for long.
I think we can still squeak out a little more in gains but at these interest rate levels eventually the hand writing is on the wall.
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