bonds in a retirement portfolio may be hurting your success (beach, social security)
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As far as zero equities that can change at any point. Right now there are opportunities around the world in fixed income that have excellent rewards vs risk as well as opportunities here.
These areas are not areas though i would ever do on my own and fidelitys excellent fund managers and analysts have done a good job in these areas.
Some of our bond funds can be very volatile as far as bonds go but far less than equities go.
Basically our portfolio is a go anywhere mix but equites tend to stay under 30%
I guess the problem I have with zero equities is I don't understand the logic/analysis behind the position. It sounds like a gut call to me as opposed to a technical or similarly disciplined approach.
FWIW - I don't share your enthusiasm for funds or funds managers. Or accept your notion that all (or perhaps even most) bond funds are less volatile than equities. Fidelity New Markets Income made a big splash when it came out in 1993-94. By being down about 30% at the worst in 1994 IIRC. Even today - its top 10 ten holdings are basically in Russia and Venezuela. I have a peculiar notion of investing. I don't care to invest anywhere where I wouldn't care to go on vacation. And Russia and Venezuela are pretty far down on my list when it comes to vacation spots. YMMV. Robyn
Gotta laugh Robin as I was excluding brokerage accounts and anything at all complex and just saying many folks need a simple I put my money in and down the road I get a lot more back. That is the limit of their ability to manage. Unfortunately there are many who haven't yet mastered the I put money in part. Have you seen Californias new private employer state run retirement account proposal? Calif. creates state-run private retirement plan - Yahoo! News
I have seen the California plan (although I have not examined all the details). And what it sounds like to me is something run by the state - where the state can borrow out of it if it needs money for other stuff (which of course it will). Guess you can tell that I don't exactly trust it. Robyn
I guess the problem I have with zero equities is I don't understand the logic/analysis behind the position. It sounds like a gut call to me as opposed to a technical or similarly disciplined approach.
FWIW - I don't share your enthusiasm for funds or funds managers. Or accept your notion that all (odr perhaps even most) bond funds are less volatile than equities. Fidelity New Markets Income made a big splash when it came out in 1993-94. By being down about 30% at the worst in 1994 IIRC. Even todray - its top 10 ten holdings are basically in Russia and Venezuela. I have a peculiar notion of investing. I don't care to invest anywhere where I wouldn't care to go on vacation. And Russia and Venezuela are pretty far down on my list when it comes to vacation spots. YMMV. Robyn
I never mix vacations and investing.
In fact if i bet on the countries i would vacation in i would be quite broke right now just like they are.
I have done very well through the years in places i have no interest in going to .
Its been an excellent fund since its inception.
It had a couple of hicups but shrugged them off and continued on barely shaken.
Its returned over 13% a year the last decade and 11% the last 5 years.
For the last 15 years its returned almost a 11% a year and the rolling 1 year as of now is up 21%.
The fund never seems to run out of breath and with emerging markets and emerging emerging markets looking better then the old guard overseas the prospect of it still doing well look quite good.
It has been one of my favorite funds since the 1990's.
I thought the hicup with russia would have hurt it but it wasnt even a blip in its long term performance.
Its more a proxy for equities then bonds . For the most part its alot less volatile .
Its done a great job providing a mix of income and growth .
John carlson has been at the helm since 1995 and has certainly done a fine job.
He also runs fidelity global high yield and co runs total emerging markets.
John carlson has alot on his plate but if i was forced to bet the ranch with one fund manager he would be high on my list of choices.
The fund meshes very well with the mix of bond and income funds it shares company with right now and with overall little volatility compared to equities not only has the income been decent but the capital gains have been a kicker too .we are up around 8.5% ytd.
The portfolio changes every so ofton so it may add more equities at a latter date.
Last edited by mathjak107; 09-29-2012 at 07:04 PM..
actually i disagree. with us slowing down again and the world getting worse and worse more and more for the short term i think they are the best investment .
what else guarantees you a 2.5% minimum and has the potential to jump up 30% with even a 1 point drop in long term rates.
i think for the next year or two those may very well be the place to be .
in fact i may buy some 30 year zero coupon for even a bigger bang for the buck.
after the next year or two all bets are off as far as where they go from there so i rate them a short term hold as a decent speculation..
The stampede into bonds is the biggest stampede in financial history--and it will end like all the rest of them--badly (my opinion.) 30 year zeroes? I think you face a huge risk, the possible loss of 50-70% of your capital, with a typical cyclical rise in rates.
not at all , if rates rise you sell before there is much damage. the odds are the interest rate difference alone wil cover any decline early on and still leave you ahead.
thats the part folks dont get. things still have time before we see much change. the additional interest and potential capital gains until it happens will still leave you ahead if you sell at the beginning..
even if you didnt and stayed in them if they are individual bonds then you wont lose a penny ,you just may be locked into less then market rates. but even then you can invest the interest at higher rates.
if they are treasury bond funds and you stay the course then the rising rates in the fund will eventually offeset any capital loses in the fund .
the funds interest rate increases over time if rates rise as they are always buying and selling.
you just have to stay long enough to let the extra interest do its thing. thats the funds duration number that tells you your break even.
folks have made that mistake with cd'd too.
an example would go someting like this .
if you could buy a 1 year cd at 1 % or a 2 year cd at 2 % and you thought rates would rise you buy the 1 year so you wont lose anything next year if rates go up.
well you were right and rates soar and a 1 year is now 2-1/2%. good thing you waited.
no bad thing you waited. the two year would have given you a 4% total over the 2 years. the one year at 1% and the 1 year at 2.5% only = 3.5%.
my opinion is that for the next year or 2 the odds of long term rates being bid up very high are really slim as we are still the best house in the worst neighborhood out there.
if feds start to raise short term rates that will have little effect on the longer end. historically that has had the longer maturities go up not down when rates turn the corner as the inflation outlook improves with higher short term rates.
so let me ask you this ? what choices do you have?
sit in cash and have a guaranteed loss after taxes and inflation?
take a chance the equities market will hold up with large risks?
take a chance you may get a 30% capital gain with a downside of 2-1/2% with all your interest reinvested at higher rates?
to me if i was risk averse and needed to take some risk i know what i would choose at this point in time.
Last edited by mathjak107; 10-01-2012 at 03:15 AM..
not at all , if rates rise you sell before there is much damage. the odds are the interest rate difference alone wil cover any decline early on and still leave you ahead.
thats the part folks dont get. things still have time before we see much change. the additional interest and potential capital gains until it happens will still leave you ahead if you sell at the beginning..
even if you didnt and stayed in them if they are individual bonds then you wont lose a penny ,you just may be locked into less then market rates. but even then you can invest the interest at higher rates.
if they are treasury bond funds and you stay the course then the rising rates in the fund will eventually offeset any capital loses in the fund .
the funds interest rate increases over time if rates rise as they are always buying and selling.
you just have to stay long enough to let the extra interest do its thing. thats the funds duration number that tells you your break even.
folks have made that mistake with cd'd too.
an example would go someting like this .
if you could buy a 1 year cd at 1 % or a 2 year cd at 2 % and you thought rates would rise you buy the 1 year so you wont lose anything next year if rates go up.
well you were right and rates soar and a 1 year is now 2-1/2%. good thing you waited.
no bad thing you waited. the two year would have given you a 4% total over the 2 years. the one year at 1% and the 1 year at 2.5% only = 3.5%.
my opinion is that for the next year or 2 the odds of long term rates being bid up very high are really slim as we are still the best house in the worst neighborhood out there.
if feds start to raise short term rates that will have little effect on the longer end. historically that has had the longer maturities go up not down when rates turn the corner as the inflation outlook improves with higher short term rates.
so let me ask you this ? what choices do you have?
sit in cash and have a guaranteed loss after taxes and inflation?
take a chance the equities market will hold up with large risks?
take a chance you may get a 30% capital gain with a downside of 2-1/2% with all your interest reinvested at higher rates?
to me if i was risk averse and needed to take some risk i know what i would choose at this point in time.
First off - one has to be a disciplined trader - with a trading strategy - to "sell before there is much damage". This is easier said than done. Note that I don't trade that often (although often enough that I am a Fidelity "active trader") - and I'm not a particularly terrific trader IMO (decent but not very good or great) - which is why I say "easier said than done".
I hold zero coupon bonds in various maturities (all intermediate at this point). And I position trade them pretty long term. About the only time I sell when they're still on a "buy" is when they start to yield < 1% (assuming I can get more than 1% on my money - which I still can now). Wouldn't be buying them today unless I thought I was a really terrific short term trader (which I know I'm not). OTOH - if I thought I was a really terrific short term trader - I'd be doing options on bond futures (the 5 year has moved 20%+ in the last 30 days).
Note that your CD example doesn't make much sense in general (your assumptions don't assume any realistic yield curve IMO).
"You just have to stay long enough"... How long is that? Remember that this is the Retirement Forum. So most of us aren't spring chickens. Note that I will buy 30 year bonds (mostly munis) at the right price/yield. But they're buy and hold for income - not trading vehicles.
"A man has to know his limitations" (women too). I know mine based on prior experience. Do you know yours (rhetorical question - and the answer is probably no because I doubt you've ever been an active trader)? I think trading is very interesting - it makes me look at my charts every day and pay attention to lots of things going on in the financial world. And if I weren't making at least some money doing it - I wouldn't be doing it. Still - it is easier to talk a good game than to make money trading (I've witnessed that a lot on financial chat boards I used to frequent). Robyn
The stampede into bonds is the biggest stampede in financial history--and it will end like all the rest of them--badly (my opinion.) 30 year zeroes? I think you face a huge risk, the possible loss of 50-70% of your capital, with a typical cyclical rise in rates.
It's always possible to lose a large % of capital in most investments. Doesn't mean one should avoid investing. Just that people should have a least a basic understanding of what they're buying - and the possible upsides and downsides. Robyn
Im a stock dabbler,thats what i would call the extent of my trading. I do alot of hit and runs especially with long term bond funds and gold funds.
Your taking my cd analogy to literally .its only an example of the thinking process many folks use and they miss the boat.
Its like i have 2 friends who retired from the ny board of ed.
They both worked about the same amount of years and while joe invested everything into equity funds in their retirement plan aaron didnt.
Having no interest in financial things aaron just assumed he didnt need the risk and since they both worked the same years and contributed around the same they would all retire with about the same amount.
Well i was with the 2 of them a few years ago and aaron bragged about how he wasnt down and still had his 200k.
We laughed as joe was down around 30% and still had 700k .
Sometimes we are so afraid of losing that the amount we give up by not thinking things through is many times even the worst loss.
Many folks just sat in cash because they were afraid of going into intermediate bond funds for fear if rates rose they may lose money.
The reality is by not acting they gave up so much in gains and interest that even if things fell 5% before they got out they gave up many times that.
Last edited by mathjak107; 10-02-2012 at 04:31 PM..
Note that I have probably spent a lot more time in terms of tax planning over the decades than doing stuff like the stuff mentioned in your post. Because a dollar saved in taxes is as good as a dollar earned. And tax planning is easier than most other stuff.
Robyn,
Would you recommend a good reading on tax planning for personal use, retirement age, please.
I always try to think long term. But in the short term, you may be very well right. It's the inflation/deflation/interest-rate question. Interest rates could even go negative at some point, in which case bonds would do very well indeed. However, I can't imagine that we will avoid fairly stiff inflation over the long term. Someone who holds long-term bonds may, or may not, get out in time when this begins, although everyone thinks that he will. I don't want to take the chance, personally, as I am not that good at timing things.
Over the years we accumulated quite a large wad of I-bonds and EEs with an interest floor under them, the classic dullard's investment of the day (which have turned out to be a good compliment to our stock portfolio), and as the man said annuities, so I don't need or want any more fixed-income components. I also belong to a credit union that actually provides meaningful interest rates to depositors. New money goes into more stocks, which I hope will provide a legacy some day, although I am sure it will be a bumpy ride!
What's to drive inflation?
Global population of those with current median global income or higher will be in negative growth soon. Broad Brush - Only those with very little spending power are still fecund. Only exceptions to this are the small percentage of Mormons, Muslims and Catholics who are wealthy and still like large families. But that is very uncommon now. Meanwhile, the old broad source of fecundity, the Middle Class, is being decimated most especially in the advanced countries. In parallel with all this automation and leaning out of enterprises is making for less and less overall demand for workers. At one point, 30 or so years ago, there was a meme that resources running out would inflate. But with sustainability and renewables rising, that looks less and less likely. As I see it, deflation is here and may last several decades if not centuries.
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