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Apparently I have invested differently than most here on CD. I buy individual stocks, usually in 100 share lots, but sometimes 50 shares. I have done well by sticking with large cap stocks for over 20 years (Microsoft, Apple, United Healthcare, MacDonalds, Walmart, Cisco, etc ) and made money on all of them.
If the PE ratio gets too high, for me usually above 30, I sell. I never sell short though, for tax reasons. As opposed to others, I like dividend stocks. I take the dividends into my cash account and usually let them collect in there until I am ready to buy something. No tax on dividends. I usually only hold 10-12 different stocks at once; that's enough to keep an eye on.
Occasionally I have held individual corporate bonds, but I never buy bond funds.
except for a few treasury bonds once i never buy individual bonds , only bond funds . evaluating bonds can be a professional game as well as mark ups can stink to individuals .
bond funds have a rising interest rate when rates rise unlike individual bonds which stay the same forever . the rising interest rate can offset any nav drop as long as you stay in for at least the duration value of the bond fund .
except for a few treasury bonds once i never buy individual bonds , only bond funds . evalue bonating bonds can be a professional game as well as mark ups can stink to individuals .
bond funds have a rising interest rate when rates rise unlike individual bonds which stay the same forever . the rising interest rate can offset any nav drop as long as you stay in for at least the duration value of the bond fund .
When interest rates are low, stashing some cash in a short term corporate bond is profitable. The problem I've had with bond funds is when other investors in the fund want out in droves when they think the market in general is tanking. The bond fund managers are forced to sell bonds before maturity, at a loss. When equity prices drop, you still own the same number of shares and can hold them through the recovery. Not so with bonds. Good for you if you've made money in bond funds; I sure didn't!
bond funds rarely hold to maturity if ever . that is why interest rates go up in bond funds as rates rise offsetting the drop in nav.
hypothetically take a treasury bond fund that sells for 10 bucks a share paying 5% with an average duration of 5 years .
if rates go up 1% nav falls 5% to 9.50 but rates increase 1% additional for 5 years .
that additional 5% interest offsets the 5% drop in nav giving you back your deal you got the day you bought . you got 5% total return over the 5 years . the same deal you would have had if you bought a bond paying 5% and held it.
whether an individual bond or a bond fund , getting 5% though in a 6% world will always have you behind the curve .
I haven't seen 6% interest rates for quite a while. But in any case, a short term corporate bond would hardly cause a significant loss if interest rates rose at the usual .25 rate. On another note, I simply find investing in equities more interesting as well as more profitable. Bonds in any form are kinda boring to me.
it is just an example how duration works . the rate can be anything and the math stays the same. a funds duration tells you how many years you need to stay in the fund to collect the higher rate to offset the nav drop .
bonds and equities perform different roles , especially in retirement or setting time frames for when the money is needed . they are not an either or situation . they work together .
intermediate term and longer term bonds have nothing to do with the fed's action in the short term and .25% increases . investors set rates not the fed . the longer bonds go out the less the fed's action matters and the more greed ,fear and inflation perception play a role .
in fact the last 40 years , every time the fed raised rates on the short end more than 1% , bond rates fell and bonds did well . only year that was the exception was 1994 .
long term and short term rates move very differently .
now because the bond market fears inflation from trumps plans ,as little as the fed moved short term rates , the last year , investors saw things differently on the longer ends as long term bonds have fallen 6% in one year and rates went up about 1% . TLT the long term bond fund has an average duration of 17.29 years so just like holding a bond until maturity you would have to stay in TLT and get 17 years of higher interest to offset the drop in value .
TLT
Bond Statistics
Detail Value
*As of 05/09/2017
Average Effective Duration (Years)* 17.29
Average Effective Maturity (Years)* 26.30
Average Credit Quality AAA
Average Weighted Coupon* 3.25
Last edited by mathjak107; 05-11-2017 at 02:37 PM..
I know all that and it doesn't apply, at least not to me. I only use bonds as a short term place to stash cash when bank rates (ie savings) are lower and there are no equities nagging at me. So if bankrates increase fractionally during that time I don't care. I can hold the bond to term and sell or renew. Equities and real estate are my main interests and I have no intention of going into bonds in any significant way even though I'm retired. When I get too senile for equities, I guess my son will take over more!
(One of the big problems with relying on advisors when it comes to investment portfolio management is that by the time you finally know enough to reliably tell the bad advisors from the good advisors, you know enough to pretty much do the job on your own. Before you reach that point, you're basically jumping into a shark tank and hoping the first shark you swim up to isn't hungry.)
I second all of this.
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