Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Yup. For some reason, everyone is obsessed here with default risk. In a bond fund, even if a few holdings default, the aggregate won't be much affected. But interest rates... well, that was the rude awakening. 2022 was unprecedented. No such thing happened in 2008, or (I'm guessing here - didn't look it up) in 1982, 1973 or even 1929-1932. The mantra, "bonds may be slow and inferior to stocks in the CAGR, but they're safe, solid and downright boring"... was obliterated by 2022.
As for holding period etc., yes, presumably an intermediate-term bond fund will recover in... intermediate term; so that if my self-declared holding period is infinite, it shouldn't matter in infinite time. This is true. But I'm not holding bond funds with objective of maximum return over infinite time. Were that to have been the case, I'd have zero bond fund holdings, instead being 100% in stocks, maybe leavened by something in private equity or other exotics. The purpose of bond funds is to tamp-down on volatility (standard deviation). Thus again, 2022 was a rude awakening.
What about individual bonds? I admit no knowledge of them, or even how to buy them. Can one call Fidelity/Vanguard/Schwab, asking the kind gentleman or lady fielding the call, to place an order? If not, I'm lost.
all my bond funds have one objective . ..income ….
but i do keep in mind that i do need to create spending money every year …so i stagger durations of my bond funds so i can rebalance at a certain point and refill cash without worrying about them being down …
they will be pretty close to had i laddered individual bonds over the same time frames… i keep all durations no greater then 3-1/2 years
I have excessive cash in a money market, but was advised to move some of it to CDs or my bonds to lock in months to years yields, before June, when most are thinking the Fed will lower rates.
I'll do it, but watch inflation shoot up in a surprise
Guessing where interest rates are going is pretty tough work. So many were wrong (for years) about rates heading higher once the Great Recession was over.
I put most of my bond allocation into a fairly long ladder last fall. It's long enough that it will last for most or all of our retirement. We'll spend the ladder as it matures.
I chose TIPS as the vehicle, so both the income and principal will grow based on the CPI-U. Sure, that metric has its flaws and won't track my own personal spending, but investors face that dilemma with any financial instrument IMO.
Real yields were 2.1%-2.4% (depending on the maturity) when I bought that ladder. So far it looks like that was a good choice, but I'll say again that guessing future rates is tough work. Only a few years ago I was thinking I'd never own bonds again. I sold my bond funds in 2020 when the yields were so pitiful.
But interest rates... well, that was the rude awakening. 2022 was unprecedented. No such thing happened in 2008, or (I'm guessing here - didn't look it up) in 1982, 1973 or even 1929-1932. The mantra, "bonds may be slow and inferior to stocks in the CAGR, but they're safe, solid and downright boring"... was obliterated by 2022.
Aswath Damodaran, from the Stern School of Business at NYU, reports calendar year returns for the 10-year T-note, which seems like a good vehicle to discuss rather than some random fund.
Subject to the limitations of calendar year boundaries, the recent bond bear market does eclipse all prior bears. During 2021-2022 the 10-year note's return was a cumulative -21.5%. The next closest bear was the year 2009 which came in at -11.1%, and prior to the 1990s the worst bear was approximately -5%.
Quote:
Originally Posted by ohio_peasant
What about individual bonds? I admit no knowledge of them, or even how to buy them. Can one call Fidelity/Vanguard/Schwab, asking the kind gentleman or lady fielding the call, to place an order? If not, I'm lost.
I've only purchased Treasuries and Agency bonds online at Fidelity, which I've found to be pretty straightforward. There's no explicit commission for buying/selling Treasuries online either at issue or on the secondary market. Most other types of debt have no explicit commission for online purchase of new issues.
If delving beyond the Treasury market be aware that it can be more difficult to sell, and the bid-ask spread will be higher. I don't have any personal experience with this, but other folks who are posting here seem to have experience with corporates and munis.
Yup. For some reason, everyone is obsessed here with default risk. In a bond fund, even if a few holdings default, the aggregate won't be much affected. But interest rates... well, that was the rude awakening. 2022 was unprecedented. No such thing happened in 2008, or (I'm guessing here - didn't look it up) in 1982, 1973 or even 1929-1932. The mantra, "bonds may be slow and inferior to stocks in the CAGR, but they're safe, solid and downright boring"... was obliterated by 2022.
As for holding period etc., yes, presumably an intermediate-term bond fund will recover in... intermediate term; so that if my self-declared holding period is infinite, it shouldn't matter in infinite time. This is true. But I'm not holding bond funds with objective of maximum return over infinite time. Were that to have been the case, I'd have zero bond fund holdings, instead being 100% in stocks, maybe leavened by something in private equity or other exotics. The purpose of bond funds is to tamp-down on volatility (standard deviation). Thus again, 2022 was a rude awakening.
What about individual bonds? I admit no knowledge of them, or even how to buy them. Can one call Fidelity/Vanguard/Schwab, asking the kind gentleman or lady fielding the call, to place an order? If not, I'm lost.
Fidelity’s bond desk will build a ladder for you. They also have build your own ladder tools for bonds and CDs.
All good points, folks. But let me share some background....
Around a decade ago, the good people at one of the major brokerage houses performed one of those free portfolio analyses. Their conclusion: given my neurosis and loss-aversion, relatively large ratio of portfolio to annual salary, and expectation to not rely on the money in retirement - instead hunting caribou in Manitoba, or whatever, supplemented by cans of pork-and-beans... well, given all of that, it would be silly to have an equity-centric portfolio. Instead it should be something like 60-40, with the sixty in bond funds and the forty in the good old Essen Pea. Why? Nothing to do with generating income. Or SORR. Or bond-tent. Nothing whatsoever! Instead, the gal says, "Peasant, you don't need the money, so why do you need the worry? Fixed-income, and chill. And because long-term bond funds behave too much like stocks, just go intermediate-term. And hey, if you're so obsessed with taxes, go intermediate-term tax-exempt. Done."
Fortunately, I didn't take her advice. At least not fully.
If you are going to hold individual bonds, you must ladder. Going all in using one type, one duration is not smart. There was a really great time to lock in yield, that time has past, but you still have an opportunity to lock in a pretty good yield, but some still won’t act.
All good points, folks. But let me share some background....
Around a decade ago, the good people at one of the major brokerage houses performed one of those free portfolio analyses. Their conclusion: given my neurosis and loss-aversion, relatively large ratio of portfolio to annual salary, and expectation to not rely on the money in retirement - instead hunting caribou in Manitoba, or whatever, supplemented by cans of pork-and-beans... well, given all of that, it would be silly to have an equity-centric portfolio. Instead it should be something like 60-40, with the sixty in bond funds and the forty in the good old Essen Pea. Why? Nothing to do with generating income. Or SORR. Or bond-tent. Nothing whatsoever! Instead, the gal says, "Peasant, you don't need the money, so why do you need the worry? Fixed-income, and chill. And because long-term bond funds behave too much like stocks, just go intermediate-term. And hey, if you're so obsessed with taxes, go intermediate-term tax-exempt. Done."
Fortunately, I didn't take her advice. At least not fully.
Given that description I'd be inclined to use Warren Buffett's instructions for investing his wife's eventual inheritance...
Quote:
My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.
I have an almost perfect record trading in bonds for 25 years. Unfortunately except for around the dot com bubble I have not had a lot of net worth in them. I was sitting in GNMAs earning 9% when the dot com crashed. That really mattered that time because I was all in GNMAs and all out of the market before the crash. I was buying junk bonds in the 2008-2009 bubble when everyone was misinterpreting the bail outs. By then all that QE was just supporting asset prices to fix the books on the banks. None of it was going into the economy. "Hyperinflation" was the word and I got some cheap junk bonds at the time. I road them down from 8% to 4% yields, sold, and then bought back again during covid at 7% yields and road it down to 3%. However was not really a large chunk of net worth. The reason why I sold at 3% was simple. What is the upside of a 3% junk bond?
Now I pretty much have little use for bonds, even good junk at the moment. Maybe I might consider a short term bond index if I think they will shut off the money markets with rate drops, but honestly I prefer covered call ETFs for income, precious metals, cash in mm funds , and solid dividend stocks. I have matching indexes to protect the upside. If it trades sideways, I win on the ETFs. If everything falls , that is what the cash is for , and there will still be some cash flow from dividends and the covered call ETFs. QYLD crushed bonds over the last 10 years. Lot of people compare it to the index itself mistakenly. Its simply a way to make money without relying on the market going up. Even going down and staying down also OK. Its volatility that will kill covered calls. Having cash to buy into it is the best defense for volatility.
If your net worth is 20 million then sure who cares? Why not just have 5 mil in treasuries ? All else fails you have income. In that case there is no utility for risk Though ya never know so that is why another 5 mil would be in something that does not depend on $USD.
I haven't directly invested in Private Debt firms, but I'm thinking about it. My preliminary research shows it is quite promising.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
