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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.
LT Treasuries and junk bonds hedge each other. The former is a hedge against credit risk and the latter is a hedge against interest rate risk.
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)
In the past interest rates were declining, now they are increasing. I think you will find that your idea does not work.
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)
Quote:
Originally Posted by want money now
That is market timing! Maybe 2017 prices are high over 2016 but I am talking risk and reward for the next 30 years.
OP the answer is no. You will get stability but no growth in comparison to equities. If you have a choice find a passive managed index fund. For a 30 year time frame you are going to be smoked over that time frame. There is absolutely no scenario where you will find bonds out performing the market over any 30 year period.
you know the vision the inexperienced have .
they are going to sit in bonds , watch the market crumble and then when they ring the bell we are at the bottom , they buy up all their equities .
i wish a had a dollar for everyone who tried that more than once and did not get it to play out that way .
how many thought when we fell 2000 points in 2008-2009 that was low . we fell 4000 more and most ended up bailing out who did this when they got scared and lost money
I like actively managed high yield funds- there will always be struggling co.s that will pay higher interest rates- providing defaults remain minimal then these funds offer great income.
I like actively managed high yield funds- there will always be struggling co.s that will pay higher interest rates- providing defaults remain minimal then these funds offer great income.
I would like to point out from one of America's most successful investors has said. If you get a passively managed index fund you will be out an actively managed fund hands down if the strategy is buy and hold.
This is the key point here. Most actively managed funds do not perform at peak every year. Year in and year out most fall short of the mark. For a buy and hold strategy finding a good mixed passively managed fund (one that doesn't buy and sell stocks and bonds like day traders) will out perform for the individual investor over 99% of the managed funds.
actually morningstar looked at the 25% lowest expense actively managed funds and found most beat their index's long term .
it is just what i have repeated here over and over. follow the investor money . the money generally creates the largest funds and the largest funds usually have lower expenses most of the time .
there are many good stock pickers out there but they are small funds with high expenses . the expenses do them in even though they can beat the market stock picking wise . so they are on top one year and the bottom the next .
but morningstar found the lowest expense managed funds tended to outperformed their index's over most time frames where they could compare.
i don't think inexing is a bad way to go . while most of my portfolio has been in actively managed fidelity funds for 30 years and beat a total market fund , i still own an s&p index fund
I agree that following the money as you suggests does work. And Morningstar does provide great data. The rank and file investor isn't that savvy. The rank and file guys that really need good advice get that advice after the money has already hit that hot target and they are getting in just before those investment savvy guys pull and re-invest in the next hot fund. Then that person getting in is at the mercy of a fund no longer in favor.
A better approach is a passively managed fund. That doesn't mean the fund isn't managed, because it is. It means that the fund manager isn't making knee jerk moves every time a bubble burst on the scene. It means he is buying and selling based on the index itself and is doing that because new money is coming in. When cash reserves are such that it is time to buy equities the manager can look ahead and project out which stocks will rise and which will not and buy accordingly. He is just not selling because IBM's stock value drops 35 points. A good savvy manager is going to buy IBM shares if it drops 30 points in a single day, because he knows that it will be up in the next few days. He makes money for his clients.
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