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I sold all all of a HY bond fund I had 2 weeks ago. It has dropped 5% since then. Glad I got out. I put all the money into a small-value fund which is up 8%. That worked out well.
I added more high yield the other day after they fell quite a few % .
I had a long debate with some people about risk and HY. They made a pretty good case that all the risk should be on the equity side and only invest in the least risky bonds. In fact you can go through the risk analysis and the risk-adjusted total return is better with SCV + Treasuries than it is with TSM + any mix of bonds, including HY bonds. So that is why I bailed out of them and moved money to SCV.
my high yield fund has half the volatility (beta) of the s&p 500 . it has still returned double digit returns even after the drop vs stocks for me this year .
which sounds like the better deal to you ?
high yield was a great place to be all year . while it is not the deal it was I still believe it has a lot of life left with potential for stock like returns with lower volatility . I do not use them as part of my bonds . I use them as a less volatile proxy for some of my equity funds .
they were oversold the other day and had an amazing bounce back .
Last edited by mathjak107; 11-15-2016 at 12:46 PM..
my high yield fund has half the volatility (beta) of the s&p 500 . it has still returned double digit returns even after the drop vs stocks for me this year .
which sounds like the better deal to you ?
The better deal is the one with the best risk-adjusted return for the entire portfolio. I have a worse risk-adjusted portfolio return with HY. HY is playing with fire - VWEHX lost 60% of its value in 2008. I am trying to shed risk, hence getting rid of it.
never judge any bond bond by 2008 . 2008 was a fluke . i lost money in a money market.
conservative funds like fidelity ultra conservative bond fund got hammered .
basically funds were loading up on on derivative products like cdo's that were untested and were no different than the mortgage packages that funds always bought but these were marketed with a new twist to them that made them illiquid .
in my portfolio we reduced equity allocation by a bit and used high yield as a proxy . it reduced risk and volatility and worked out way better than the equivalent money in equity's even on a purely reward basis forgeting the fact the beta is 1/2 the s&p 500 .
Last edited by mathjak107; 11-15-2016 at 03:25 PM..
I would aver, that the appeal of high-yield bonds (or other bonds) is less about their own risk vs. return, as compared to stocks... but about correlation. In other words, if bonds rise while stocks decline, that's a good thing... even if bonds are more volatile than we'd like. What matters is the risk vs. return of the entire portfolio. And for the entire portfolio, that parameter might improve, by perhaps paradoxically using riskier (higher beta) assets than lower-risk ones.
The problem arises when supposedly uncorrelated (or negatively correlated) assets start moving in unison. The prototypical example is European stocks and American stocks. Maybe in the 1980s they were negatively correlated, but now they move essentially in lockstep... except that when things grow, the US stocks grow faster than European stocks, and when they decline, the European stocks decline faster.... so it's lose-lose.
high yield are more akin to stock . they tend to follow stocks more than not
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