Bonds vs dividend funds
Bonds vs dividend funds
Hi All Brand bew to forum
Are dividend funds considered as a defensive moveI.e. replacement for bonds in your portfolio
I am rebalancing from a 90/10 portfolio and struggling with idea of buying bonds when interest rates are so low
I am planning for retirement in 8 to 10 years spouse will have modest pension which is why I have been staying aggressive
Are dividend funds considered as a defensive moveI.e. replacement for bonds in your portfolio
I am rebalancing from a 90/10 portfolio and struggling with idea of buying bonds when interest rates are so low
I am planning for retirement in 8 to 10 years spouse will have modest pension which is why I have been staying aggressive
Re: Bonds vs dividend funds
No, dividend funds are still stocks. You need something like total bond fund.
Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Bonds vs dividend funds
Yes, by some - but their thinking is flawed.
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Re: Bonds vs dividend funds
Just look at the performance of a dividend fund during market down turns. You will see that some suffer just as bad at the S&P 500, even the ones that did better than the S&P 500 in 2008 still lost close to 30%. Compare that to a total bond market fund, which in 2008 gained money while the market dropped 37%...
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Re: Bonds vs dividend funds
Dividend paying stocks are still stocks, so are real estate stock funds and utility funds. They are all stocks and currently, they are overvalued because people think they are "bond like" and pilling in, which makes them overvalued. The search for yield has pushed people into these types of funds/etfs. They will tank if and when the stock market tanks and give you no protection.
Re: Bonds vs dividend funds
Okay that makes sense to me now. Here is my real dilemma that I am trying to wrap wrap my head around. It’s hard for mr to justify buying bonds with interest rates so low and projected bond returns are quite low and today I read total bond funds are buying negative interest bonds
Bottom line wouldn’t it be better to just build up cash getting over 1.5% interest?
I am asking these type questions because almost every I have read and researched says I should be 70/30 bonds or even 60/40 just hard for me to put that big of chunk of my portfolio in an investment that has forecasted such low returns as bonds but I also know I am pretty much a beginner so I am looking for sound advice and reasoning as to why I should move toward a safer position than I am now
Bottom line wouldn’t it be better to just build up cash getting over 1.5% interest?
I am asking these type questions because almost every I have read and researched says I should be 70/30 bonds or even 60/40 just hard for me to put that big of chunk of my portfolio in an investment that has forecasted such low returns as bonds but I also know I am pretty much a beginner so I am looking for sound advice and reasoning as to why I should move toward a safer position than I am now
Re: Bonds vs dividend funds
Possibly. Also notice that cash IS bonds. Bonds with 0% yield, zero residual maturity, and no credit risk, to be accurate.Petesake wrote: ↑Thu Feb 20, 2020 7:45 pm Okay that makes sense to me now. Here is my real dilemma that I am trying to wrap wrap my head around. It’s hard for mr to justify buying bonds with interest rates so low and projected bond returns are quite low and today I read total bond funds are buying negative interest bonds
Bottom line wouldn’t it be better to just build up cash getting over 1.5% interest?
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Re: Bonds vs dividend funds
you should try to research how often people have been saying something of the order of "Interest rates can't possibly go any lower!!" over the past decade.Petesake wrote: ↑Thu Feb 20, 2020 7:45 pm Okay that makes sense to me now. Here is my real dilemma that I am trying to wrap wrap my head around. It’s hard for mr to justify buying bonds with interest rates so low and projected bond returns are quite low and today I read total bond funds are buying negative interest bonds
Bottom line wouldn’t it be better to just build up cash getting over 1.5% interest?
I am asking these type questions because almost every I have read and researched says I should be 70/30 bonds or even 60/40 just hard for me to put that big of chunk of my portfolio in an investment that has forecasted such low returns as bonds but I also know I am pretty much a beginner so I am looking for sound advice and reasoning as to why I should move toward a safer position than I am now
Last year the total bond market index fund (admiral) went up 8.71%. Don't take my word for it, see for yourself at morningstar:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
been up 43% over the past 10 years:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
interest rates can move in both directions. bonds aren't for making money. They're for keeping the money you've made relatively safe.
bonds never made much money, after inflation. Some newbies learn how much interest were paid on bonds in the 80s (double digits). Sounds great, right? Until you realize, so too was inflation (in the double digits).
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Bonds vs dividend funds
It's much more difficult to invest in bonds at about 0% real than it was at 3% or 4% real, even for Bogleheads. But a lot of the stock/bond discussion came about when bonds both paid more than cash and offered seemingly greater possibility of appreciation (due to falling rates) than they seem to now. So call it bonds or fixed income or whatever, it's not risk free or necessarily "safer" in some respects, since it carries the risk of inflation. It's just a different risk than stocks.Petesake wrote: ↑Thu Feb 20, 2020 7:45 pm Okay that makes sense to me now. Here is my real dilemma that I am trying to wrap wrap my head around. It’s hard for mr to justify buying bonds with interest rates so low and projected bond returns are quite low and today I read total bond funds are buying negative interest bonds
Bottom line wouldn’t it be better to just build up cash getting over 1.5% interest?
I am asking these type questions because almost every I have read and researched says I should be 70/30 bonds or even 60/40 just hard for me to put that big of chunk of my portfolio in an investment that has forecasted such low returns as bonds but I also know I am pretty much a beginner so I am looking for sound advice and reasoning as to why I should move toward a safer position than I am now
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Re: Bonds vs dividend funds
Dividend stocks are not a replacement for bonds. When the market does pull back most bonds (excluding high yield bonds) will provide ballast and dry powder.Petesake wrote: ↑Thu Feb 20, 2020 10:14 am Hi All Brand bew to forum
Are dividend funds considered as a defensive moveI.e. replacement for bonds in your portfolio
I am rebalancing from a 90/10 portfolio and struggling with idea of buying bonds when interest rates are so low
I am planning for retirement in 8 to 10 years spouse will have modest pension which is why I have been staying aggressive
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Bonds vs dividend funds
If you still have a mortgage then pay it off instead of holding bonds.Petesake wrote: ↑Thu Feb 20, 2020 7:45 pm Okay that makes sense to me now. Here is my real dilemma that I am trying to wrap wrap my head around. It’s hard for mr to justify buying bonds with interest rates so low and projected bond returns are quite low and today I read total bond funds are buying negative interest bonds
Bottom line wouldn’t it be better to just build up cash getting over 1.5% interest?
I am asking these type questions because almost every I have read and researched says I should be 70/30 bonds or even 60/40 just hard for me to put that big of chunk of my portfolio in an investment that has forecasted such low returns as bonds but I also know I am pretty much a beginner so I am looking for sound advice and reasoning as to why I should move toward a safer position than I am now
Re: Bonds vs dividend funds
Bonds yielding 1.5% start to look really good when stocks are declining by double digits.
From the wiki:
Need to take risk is determined by the rate of return required to achieve financial objectives. Any investor deciding to take more risk because of perceived "need" should do so keeping in mind that taking extra risk could well backfire and lead to lower returns.
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Re: Bonds vs dividend funds
Bank term deposits (CDs) are a valid alternative to bonds - typically for up to 5 years term but one could "ladder" out to say 10 years.Petesake wrote: ↑Thu Feb 20, 2020 7:45 pm Okay that makes sense to me now. Here is my real dilemma that I am trying to wrap wrap my head around. It’s hard for mr to justify buying bonds with interest rates so low and projected bond returns are quite low and today I read total bond funds are buying negative interest bonds
Bottom line wouldn’t it be better to just build up cash getting over 1.5% interest?
I am asking these type questions because almost every I have read and researched says I should be 70/30 bonds or even 60/40 just hard for me to put that big of chunk of my portfolio in an investment that has forecasted such low returns as bonds but I also know I am pretty much a beginner so I am looking for sound advice and reasoning as to why I should move toward a safer position than I am now
Be sure to stay within FDIC limits. Too Big to Fail reminds us that nothing is too big to fail. Or rather banks like JP Morgan *are* but the solution of a workout of a financial institution of that size will be painful (think RBS but cubed).
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Re: Bonds vs dividend funds
Lower your expectations. There's nothing wrong with a 60/40 portfolio — it just has a lower total return than an 80/20 portfolio. With that lower yield, however, comes greater security. Bonds are your friend.Petesake wrote: ↑Thu Feb 20, 2020 7:45 pm Okay that makes sense to me now. Here is my real dilemma that I am trying to wrap wrap my head around. It’s hard for mr to justify buying bonds with interest rates so low and projected bond returns are quite low and today I read total bond funds are buying negative interest bonds
Bottom line wouldn’t it be better to just build up cash getting over 1.5% interest?
I am asking these type questions because almost every I have read and researched says I should be 70/30 bonds or even 60/40 just hard for me to put that big of chunk of my portfolio in an investment that has forecasted such low returns as bonds but I also know I am pretty much a beginner so I am looking for sound advice and reasoning as to why I should move toward a safer position than I am now
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Re: Bonds vs dividend funds
Dividend funds, real estate funds, and utility funds are still stock funds despite their higher yields, they offer very little to no downside protection when the market tanks because they are still stocks and not "bond like" investments. If you want downside protection when the stock market goes down, bonds are the answer since they are a different asset class.Petesake wrote: ↑Thu Feb 20, 2020 7:45 pm Okay that makes sense to me now. Here is my real dilemma that I am trying to wrap wrap my head around. It’s hard for mr to justify buying bonds with interest rates so low and projected bond returns are quite low and today I read total bond funds are buying negative interest bonds
Bottom line wouldn’t it be better to just build up cash getting over 1.5% interest?
I am asking these type questions because almost every I have read and researched says I should be 70/30 bonds or even 60/40 just hard for me to put that big of chunk of my portfolio in an investment that has forecasted such low returns as bonds but I also know I am pretty much a beginner so I am looking for sound advice and reasoning as to why I should move toward a safer position than I am now
Re: Bonds vs dividend funds
I appreciate all the feedback I agree if I use dividend stocks and reits they have to be considered in my stock allocation of portfolio. Still think there is a small place for them within stock portfolio as a defensive measure Getting back to bonds I am considering to 70% stock and 30 “fixed income”
Within that maybe 20% bond 5% cd 5% money market
If I go with something like that on the bonds should I do some international and rest total bond market.? If so what is good low fee international bond fund?
Within that maybe 20% bond 5% cd 5% money market
If I go with something like that on the bonds should I do some international and rest total bond market.? If so what is good low fee international bond fund?
Re: Bonds vs dividend funds
It's often discussed whether to use an international bond fund. E.g., viewtopic.php?t=274094. Reasonable people can reasonably disagree about it. Its main benefit is some degree of diversification over domestic bonds, but that doesn't seem worth it to me.Petesake wrote: ↑Sat Feb 22, 2020 10:36 am I appreciate all the feedback I agree if I use dividend stocks and reits they have to be considered in my stock allocation of portfolio. Still think there is a small place for them within stock portfolio as a defensive measure Getting back to bonds I am considering to 70% stock and 30 “fixed income”
Within that maybe 20% bond 5% cd 5% money market
If I go with something like that on the bonds should I do some international and rest total bond market.? If so what is good low fee international bond fund?
If you're interested, Vanguard has a good one: Total International Bond Fund at 0.11% expense ratio.
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Re: Bonds vs dividend funds
+1abuss368 wrote: ↑Thu Feb 20, 2020 8:33 pmDividend stocks are not a replacement for bonds. When the market does pull back most bonds (excluding high yield bonds) will provide ballast and dry powder.Petesake wrote: ↑Thu Feb 20, 2020 10:14 am Hi All Brand bew to forum
Are dividend funds considered as a defensive moveI.e. replacement for bonds in your portfolio
I am rebalancing from a 90/10 portfolio and struggling with idea of buying bonds when interest rates are so low
I am planning for retirement in 8 to 10 years spouse will have modest pension which is why I have been staying aggressive
OP: What you are seeking are things with a "different" correlation to market (equities) movement. (not not correlated).
Also note that volatility changes as you move from one end to another as far as fund types. Equities to Bonds, etc.
j
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Re: Bonds vs dividend funds
Yes.Petesake wrote: ↑Sat Feb 22, 2020 10:36 am I appreciate all the feedback I agree if I use dividend stocks and reits they have to be considered in my stock allocation of portfolio. Still think there is a small place for them within stock portfolio as a defensive measure Getting back to bonds I am considering to 70% stock and 30 “fixed income”
Within that maybe 20% bond 5% cd 5% money market
If I go with something like that on the bonds should I do some international and rest total bond market.? If so what is good low fee international bond fund?
Once you have settled on the allocations to "fixed" (bonds or bond like) / "equities" (stock like), then there's the decision on the "sub allocations" to underlying funds. This tweaks returns and volatility, etc.
Some folks don't include CD's, Money Market, etc, in the calculation of the "fixed" side of the portfolio. Some do.
Realize that once a 2 fund portfolio is established, IE: Total Stock 70% / Total Bond 30%, varying the underlying funds changes volatility vs security vs returns. So, there's no free ride.
j
Re: Bonds vs dividend funds
This is a valid question.Petesake wrote: ↑Thu Feb 20, 2020 7:45 pm Okay that makes sense to me now. Here is my real dilemma that I am trying to wrap wrap my head around. It’s hard for mr to justify buying bonds with interest rates so low and projected bond returns are quite low and today I read total bond funds are buying negative interest bonds
Bottom line wouldn’t it be better to just build up cash getting over 1.5% interest?
Here are Vanguard's 10 year forecast for fixed income:
Fixed income
U.S. bonds 2.0%–3.0%
U.S. Treasury bonds 1.5%–2.5%
U.S. credit bonds 2.5%–3.5%
U.S. high-yield corporate bonds 3.0%–4.0%
U.S. Treasury inflation-protected securities 1.0%–2.0%
U.S. cash 1.5%–2.5%
Global bonds ex-U.S. (hedged) 1.5%–2.5%
Based on the lack of spread between the less-risky assets (cash, Treasuries, TIPS), vs the riskier ones, allocating some portion of fixed income to cash is not unreasonable.
If you look at my signature, you can see that we have cash as part of our AA.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
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Re: Bonds vs dividend funds
Very true. The utility index actually increased dividendsanon_investor wrote: ↑Thu Feb 20, 2020 11:51 am Just look at the performance of a dividend fund during market down turns. You will see that some suffer just as bad at the S&P 500, even the ones that did better than the S&P 500 in 2008 still lost close to 30%. Compare that to a total bond market fund, which in 2008 gained money while the market dropped 37%...
paid during the 2008 collapse and thereafter. Finished the
decade with a TR competitive with the market portfolio.
Other dividend indexes reduced dividends and eventually
raised dividends again as time went on and as corporate dividends
increased. Based on that observation a utility index, which is
a domestic necessity, would be my choice for a "bond like" tilt.
Otherwise the old bond ladder is still there for a multi-year crash
and resulting lack of equity returns until the market and the indexes
shake out companies that are no longer blue chip, investment grade,
index quality companies. A very boring low return period may be
ahead.
age in bonds, buy-and-hold, 10 year business cycle
Re: Bonds vs dividend funds
I am retired and am considering creating a TIPs bond ladder to help create a stable income floor until I reach 90. I wish I had started earlier to consider such a strategy. I like the TIPS ladder over a bond fund for the inflation protection.Petesake wrote: ↑Thu Feb 20, 2020 10:14 am Hi All Brand bew to forum
Are dividend funds considered as a defensive moveI.e. replacement for bonds in your portfolio
I am rebalancing from a 90/10 portfolio and struggling with idea of buying bonds when interest rates are so low
I am planning for retirement in 8 to 10 years spouse will have modest pension which is why I have been staying aggressive
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Re: Bonds vs dividend funds
Do you have access to a good stable value fund? Might make a good bond substitute. From Investopedia: "A stable value fund is a portfolio of bonds that are insured to protect the investor against a decline in yield or a loss of capital. The owner of a stable value fund will continue to receive the agreed-upon interest payments regardless of the state of the economy."Petesake wrote: ↑Thu Feb 20, 2020 7:45 pm Okay that makes sense to me now. Here is my real dilemma that I am trying to wrap wrap my head around. It’s hard for mr to justify buying bonds with interest rates so low and projected bond returns are quite low and today I read total bond funds are buying negative interest bonds
Bottom line wouldn’t it be better to just build up cash getting over 1.5% interest?
I am asking these type questions because almost every I have read and researched says I should be 70/30 bonds or even 60/40 just hard for me to put that big of chunk of my portfolio in an investment that has forecasted such low returns as bonds but I also know I am pretty much a beginner so I am looking for sound advice and reasoning as to why I should move toward a safer position than I am now
Re: Bonds vs dividend funds
Where does one find a stable value fund? I am not familiar with this product
Re: Bonds vs dividend funds
Sounds like an Annuity which would mean high fees ?
Re: Bonds vs dividend funds
Take a look at https://www.bogleheads.org/wiki/Stable_value_fund for more info.
Basically you'd find them in a 401k for example. You won't find them in a mutual fund house or brokerage.
Some stable value funds are a good deal, others may have returns closer to that of a typical total bond funds. Some provide worse than a typical bond fund and may not be worth it.
Re: Bonds vs dividend funds
And some have lost principal, permanently locking up funds until lawsuits were settled.sycamore wrote: ↑Sat Feb 22, 2020 4:42 pmTake a look at https://www.bogleheads.org/wiki/Stable_value_fund for more info.
Basically you'd find them in a 401k for example. You won't find them in a mutual fund house or brokerage.
Some stable value funds are a good deal, others may have returns closer to that of a typical total bond funds. Some provide worse than a typical bond fund and may not be worth it.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
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Re: Bonds vs dividend funds
Here's some more information on stable value funds. Some employers make them a choice in their 401K plans. That's one of the few places you can find them. Also employees of the federal government have something similar, but not exactly like a stable value fund. It's called the G fund. https://www.investopedia.com/articles/m ... -funds.asp
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Re: Bonds vs dividend funds
Interested to know what do you think about it now, especially that your post came just one month before the March 2020 big crash?Petesake wrote: ↑Thu Feb 20, 2020 10:14 am Hi All Brand bew to forum
Are dividend funds considered as a defensive moveI.e. replacement for bonds in your portfolio
I am rebalancing from a 90/10 portfolio and struggling with idea of buying bonds when interest rates are so low
I am planning for retirement in 8 to 10 years spouse will have modest pension which is why I have been staying aggressive
60% VWRD 40% AGGG until further notice
Re: Bonds vs dividend funds
Nothing wrong with dividends, but you "poke the bear" by mentioning dividends on this forum. Make up your own mind and do what you feel is comfortable for your investing style. I'm with you - no point in investing in bonds at today's ridiculously low rates.
You may be interested in this post: Dividend Portfolio (SCHD) vs Stock-Bond (VTI-BND) Portfolio viewtopic.php?f=10&t=346777
You may be interested in this post: Dividend Portfolio (SCHD) vs Stock-Bond (VTI-BND) Portfolio viewtopic.php?f=10&t=346777
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Re: Bonds vs dividend funds
I once thought that way, and in the early 2000s invested in defense contractors like Lockheed Martin and Raytheon as a buffer assuming they would be really stable in a downturn.
2007-2008 taught me otherwise.
Re: Bonds vs dividend funds
This one is certain. A 10-year Treasury currently yields 1.63%, and a 10-year zero yields 1.71%, so you can be guaranteed to earn exactly that amount for a 10-year holding period. (The conventional Treasury yields less because some of the value is from coupon payments.)
U.S. credit bonds 2.5%–3.5%
U.S. high-yield corporate bonds 3.0%–4.0%
U.S. Treasury inflation-protected securities 1.0%–2.0%[/quote]
The ten-year TIPS is yielding -0.85%, so this assumes inflation of 1.85%-2.85%. It is reasonable for TIPS to have lower expected returns than nominal bonds, as they eliminate a risk.
This is hard to believe, Cash provides most of the inflation protection of TIPS, since interest rates will rise when expected inflation rises. And it has no interest-rate risk.U.S. cash 1.5%–2.5%
Which bonds are intended here? I would expect similar returns for US and hedged foreign bonds of similar risk, and this is Vanguard's basis for including both in its all-in-one funds. Thus I would expect the same 2%-3% range for a global fund including both government and corporate bonds.Global bonds ex-U.S. (hedged) 1.5%–2.5%