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Over the last 6 years ten year treasuries are up only about 1.4% per year (with interest reinvested). I think we're due for a double digit pop upward this year or next. The last time we had a slump like this it lasted only 5 years from 1977 - 1981.
Be careful what you wish for. The only thing that will cause a "double digit pop" in Treasuries is a major stock market crash/financial crisis. That's not a good thing. It is better to hope for flat Treasury returns for the next 5 years, where the decrease in bond prices is matched by interest reinvestments. In the long term, this is what will make you happy.
Over the last 6 years ten year treasuries are up only about 1.4% per year (with interest reinvested). I think we're due for a double digit pop upward this year or next. The last time we had a slump like this it lasted only 5 years from 1977 - 1981.
rising rates will keep taking their toll . however 6 years ago what was the rate you were offered when you bought ? by the 10th year that is the rate you will end up with whether it is a bond or bond fund .
there is no magic with bonds , if you wait until maturity or if it is a high quality bond fund and wait for the duration value of the fund you will get pretty close to the deal you bought in to .
if it is a bond fund and to make things simple , lets say you bought in at 10 bucks and it pays 5% ... the fund duration is 5 years ....
so if rates rise 1% your nav falls to 9.50 but your are getting an extra 1% interest . that 1% extra interest over 5 years offsets the 5% drop in share price bringing you back to the rate you were offered the day you bought in .
of course you are still behind the curve because you got 5% in a 6% world but you did not lose money , you got the same 5% an individual bond would have paid at maturity in a 6% world
beginning to think bonds are lousy as an investment class, if you have to wait 10 years to recoup your investment then it is a long enough time period to ride out volatility in equities however getting many times the returns of bonds. And if you need short term then a 1 year CD or even savings is on par with a short term bond fund.
beginning to think bonds are lousy as an investment class, if you have to wait 10 years to recoup your investment then it is a long enough time period to ride out volatility in equities however getting many times the returns of bonds. And if you need short term then a 1 year CD or even savings is on par with a short term bond fund.
bonds rarely returned much more than the rate of inflation no matter what the rate since rates and inflation move together . you had to be lucky and buy them when rates were in a long decline . but even then over the long term they averaged a point or 2 above inflation . cd's returned zero real return or less historically ..
Last edited by mathjak107; 05-29-2018 at 01:07 PM..
Yup. During the 80s and 90s investors became accustomed to large real returns from bonds. Those days are over. Bonds are for quelling the overall volatility of the portfolio, and are useful for rebalancing with stocks because they tend to be anti-correlated in price.
indeed hikernut....today reinforced the value of bonds in my retirement portfolio. Stocks dropped but my weighting in bonds mitigated drop in account value. Given the recent drop in bond navs it was a good reminder why I have them in place, at their percentages. Credit given to Mathjack, you and others that sparked my interest in reading and researching the world of investing and finance. I actually perceive the world in a different way and understand better the connection between politics, human behavior and business.
thanks. today was a good bond day , and an example of why cd's are not proxies for bonds as they can fly no fighter cover . the 30 year was up over 2% in one session . .
If you think of stocks as acids,
Then high quality-bonds are bases.
And CDs are water.
If you mix a strong acid with an equal volume of water, it still is a strong acid. You'd need to mix it with a water volume 100,000x more to deactivate it.
But if you mix a strong acid with a strong base, they neutralize each other.
The portfolio is your beaker. There's only so much water you can hold in your beaker, and it won't do much for you.
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