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Old 10-23-2017, 10:42 AM
 
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I have been thinking about ways that my portfolio a can get good returns but still be relatively safe. I see that while high yield bond funds have more ups and downs than conservative bond funds/ETF's, like AGG and BND, they usually don't drop as much as a total stock market fund in bear markets.


For example, during the dead period for stocks from 2000-2009, stocks lost money, but a high yield fund like HYG, went up for the ten year period. VTI (Total stock market) lost 55% from top to bottom in the 2007-2009 bear market, and took four years to recover, HYG (a junk bond ETF) only dropped 30% and took less time to recover.


Maybe it would be time to put part of my stock assets into high yield bond to get both growth and income.


(I am looking at the long term here)
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Old 10-23-2017, 10:47 AM
 
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the time to do that was last year when all that low hanging fruit was around waiting to be picked . high yield ended up returning 19% with 1/2 the risk of the s&p 500.

today high yield is more over valued than stocks are priced .
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Old 10-23-2017, 11:14 AM
 
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Originally Posted by mathjak107 View Post
the time to do that was last year when all that low hanging fruit was around waiting to be picked . high yield ended up returning 19% with 1/2 the risk of the s&p 500.

today high yield is more over valued than stocks are priced .

That is market timing! Maybe 2017 prices are high over 2016 but I am talking risk and reward for the next 30 years.
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Old 10-23-2017, 11:29 AM
 
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Originally Posted by mathjak107 View Post
the time to do that was last year when all that low hanging fruit was around waiting to be picked . high yield ended up returning 19% with 1/2 the risk of the s&p 500.

today high yield is more over valued than stocks are priced .
Even if fruit is higher in the tree isn't it still fruit? Perhaps the capital gains aren't there but if a reader is seeking a higher interest rate than corporate bonds your recommendation on would be?
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Old 10-23-2017, 11:42 AM
 
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there really is not enough of a spread today for a big position in high yield . i can see a small percentage as part of a bond portfolio but not in place of stocks . , i do , but certainly not the 20-25% i had last year and even then it did not replace stocks .

fidelity high yield is paying an sec yield of 4.55% . bnd is 2.41% . but there is a lot of volatility and risk in high yield as compared to the s&p since high yield behaves more like stocks than bonds . the high yield fund is 69% as risky as the s&p 500 for 4.99% today . worth swapping stocks for high yield which is what the op is saying ? not in my book not when it has a beta of .69 today ..

i can see it as 10% of the bond portfolio , even 15% . instead of equities ? nope!

Last edited by mathjak107; 10-23-2017 at 11:54 AM..
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Old 10-23-2017, 12:07 PM
 
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Originally Posted by mathjak107 View Post
but there is a lot of volatility and risk in high yield as compared to the s&p since high yield behaves more like stocks than bonds .
But I believe that's what the OP is saying. HYBs are more like stocks and therefore if they are included, they should be counted in the equity allocation, not the bond allocation of the portfolio. An all-bond portfolio would contain an allocation to HYB to hedge against interest-rate risk.
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Old 10-23-2017, 12:09 PM
 
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it depends how much he is talking . like i said i can see 10% of the portfolio at this point ,even 15% . but what makes little sense is treating them as an equal to equities at these levels and dropping equities levels down to far in exchange for something 70% as volatile anyway . .

on a risk vs reward basis high yield is not a good deal today . when we bought them as a proxy for stocks a year ago the high yield market was priced like 1/2 the oil companies were going out of business . yields were insane and even if 1/3 defaulted the chances of capital gains were very very high . that is why we made 19% on them and they actually beat stocks last year .

very different story today on them and they are way above fully priced . i think with rates potentially rising on bonds stocks are likely still the better choice since p/e's have come down since profits are so good .
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Old 10-23-2017, 12:11 PM
 
Location: Gilbert, AZ
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Originally Posted by want money now View Post
That is market timing! Maybe 2017 prices are high over 2016 but I am talking risk and reward for the next 30 years.
IMO, the only time to buy junk bonds is when the yield spread is at least 5%-6% over Treasuries (and stocks are usually an even bigger bargain at those times, so one should just do bargain shopping in the stock market). If you buy when the spread is low, most or even all of the extra yield will get eaten up by losses from defaults, and no amount of time will "fix" that problem.

William Bernstein has written some really good articles on junk bonds, which you should be able to find with a web search. He goes into the historical default rates and loss rates on various grades of bonds, which is pretty informative.

Last edited by hikernut; 10-23-2017 at 12:29 PM..
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Old 10-23-2017, 12:17 PM
 
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i agree , that is a spread worth taking on . but like i said , if the op stuck to 10-15% or so i would say do it . but nothing more than that .whatever is good for high yield now will be better for stocks . rising bond rates can be a drag on the high yield more than the stocks

Last edited by mathjak107; 10-23-2017 at 12:54 PM..
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Old 10-23-2017, 02:34 PM
 
Location: Texas
5,856 posts, read 6,908,700 times
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Originally Posted by want money now View Post
I have been thinking about ways that my portfolio a can get good returns but still be relatively safe. I see that while high yield bond funds have more ups and downs than conservative bond funds/ETF's, like AGG and BND, they usually don't drop as much as a total stock market fund in bear markets.


For example, during the dead period for stocks from 2000-2009, stocks lost money, but a high yield fund like HYG, went up for the ten year period. VTI (Total stock market) lost 55% from top to bottom in the 2007-2009 bear market, and took four years to recover, HYG (a junk bond ETF) only dropped 30% and took less time to recover.


Maybe it would be time to put part of my stock assets into high yield bond to get both growth and income.


(I am looking at the long term here)
I think for a short term allocation that strategy will work. Long term and High Yield (junk bonds) should never be in the same sentence, especially in a rising rate environment. Most junk bonds have short maturities (less than 10 yrs) and that is why in a rising rate environment are not as sensitive.

So for a short to medium term play I would think it would be ok in an overall portfolio allocation, but as mentioned not overly allocated.
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