For those with bond heavy AAs...how you feeling?
For those with bond heavy AAs...how you feeling?
With the current climate of yields inching up, and now Powell saying they’ll keep rates low...
If you have a portfolio heavy in bonds, how are you feeling right now? What’s your opinion for 1 year? 3 years? 5 years etc?
I have one portfolio that is 70% bonds so I’m intrigued what others thoughts are.
If you have a portfolio heavy in bonds, how are you feeling right now? What’s your opinion for 1 year? 3 years? 5 years etc?
I have one portfolio that is 70% bonds so I’m intrigued what others thoughts are.
Re: For those with bond heavy AAs...how you feeling?
Rates go up and down. Prices go up and down. They move in a much smaller range than stocks do.
Hopefully everyone is out golfing or walking or biking or hiking or <insert your favorite activity> and not worrying too much about daily moves.
Hopefully everyone is out golfing or walking or biking or hiking or <insert your favorite activity> and not worrying too much about daily moves.
Re: For those with bond heavy AAs...how you feeling?
This!
I’m at 35/65 overall and bonds are doing what they are supposed to do in my portfolio which is add stability.
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
Re: For those with bond heavy AAs...how you feeling?
TexasBorn,
I'm 100% fixed.
I ignore all predictions and talk on interest rates.
When a fixed income product expires, I look for and take the best available.
I plan to try and match bond durations with when I plan to spend the proceeds.
Of course, I'm always looking for a better deal, if it's AAA/AA/A quality and low expense.
I'm 100% fixed.
I ignore all predictions and talk on interest rates.
When a fixed income product expires, I look for and take the best available.
I plan to try and match bond durations with when I plan to spend the proceeds.
Of course, I'm always looking for a better deal, if it's AAA/AA/A quality and low expense.
Re: For those with bond heavy AAs...how you feeling?
Feeling better than those with stock heavy AAs.
VTI 48%, VXUS 12%, BND 40%
Re: For those with bond heavy AAs...how you feeling?
I'm 60/40 stocks/bonds right now and I'm going to try to hold it there. Since the GFC I've fluctuated between say 50/50 and sometimes even going down as low as 45% in my equities allocation. I've bumped it up a few percent over the past couple of years not so much that interest rates on fixed income have gone down, but more because of life changes--spouse got a more secure job, mortgage is substantially paid down (but not paid off yet), kids are older and getting through college, the total portfolio is larger.
I think most of us are best served (i.e. protected from the worst behavioral errors) with a portfolio anywhere between 40/60 and 60/40. I don't think I would ever want to go below 40% equities but who knows.
I don't think the low interest rates are a good justification to substantially increase equity risk, all other things being equal. Maybe 5-10%, which is essentially where I've ended up anyway.
March 2020 reminded me that I really really didn't like stock market crashes. At the time, in the moment, even though intellectually I "knew" that was supposedly when we were supposed to be loading up on equities, I was happy to have a good amount of fixed income and wished I'd had more. (Please refer to my signature.)
I think most of us are best served (i.e. protected from the worst behavioral errors) with a portfolio anywhere between 40/60 and 60/40. I don't think I would ever want to go below 40% equities but who knows.
I don't think the low interest rates are a good justification to substantially increase equity risk, all other things being equal. Maybe 5-10%, which is essentially where I've ended up anyway.
March 2020 reminded me that I really really didn't like stock market crashes. At the time, in the moment, even though intellectually I "knew" that was supposedly when we were supposed to be loading up on equities, I was happy to have a good amount of fixed income and wished I'd had more. (Please refer to my signature.)
"Be fearful when others are greedy, be even MORE fearful when others are fearful."
Re: For those with bond heavy AAs...how you feeling?
I'm feeling fine. If rates stay the same (or go down), I'll have maintained a good store of value (in nominal terms for nominal bonds). If rates go up, I'll have more yield which will eventually make up for the decline in principal after a while.
Re: For those with bond heavy AAs...how you feeling?
This is what my gut has been telling me, of course hindsight is 100% and I missed a lot of potential gain in 2020. But I also slept like a baby when the sky was "falling" in spring to summer.
Last edited by TexasBorn on Fri Mar 05, 2021 4:42 pm, edited 1 time in total.
Re: For those with bond heavy AAs...how you feeling?
Stocks are up 1.3% YTD, an annualized 7.8% before dividends. Why are people (e.g. me) with heavy stock loadings supposed to feel bad about that? A typical bond fund is down .35% in the same time frame. Not as bad as some suggest, but certainly nothing to feel superior about. And of course, we stock heavy folk made about 18% last year.
70% Global Stocks / 30% Bonds
Re: For those with bond heavy AAs...how you feeling?
I am 60/40 and first time I have experienced the current situation with bonds (only began investing in them a couple of years ago). Some challenge that I have not found a solid alternative for myself that I feel is a much better setup than current (BND (80%) and BNDX (20%). However, new monies are going into Stable Value in my 401k (~2%) for the moment. Ultimately, like others, I feel good that the bonds are serving their primary purpose in providing a cushion vs the volatility in stocks.
Re: For those with bond heavy AAs...how you feeling?
The markets go up, the markets go down. It’s all part of the fun.
"I started with nothing and I still have most of it left."
- ruralavalon
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Re: For those with bond heavy AAs...how you feeling?
Age 75, retired 10 years, asset allocation is 50/50, and I am feeling pretty good.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: For those with bond heavy AAs...how you feeling?
Sure, you can pick nearly any time frame and show that stocks outperform bonds. I inferred that OP was asking how you feeling LATELY. VTI is down 3.57% for the week so far, while BND is down 0.75%.z3r0c00l wrote: ↑Fri Mar 05, 2021 10:56 amStocks are up 1.3% YTD, an annualized 7.8% before dividends. Why are people (e.g. me) with heavy stock loadings supposed to feel bad about that? A typical bond fund is down .35% in the same time frame. Not as bad as some suggest, but certainly nothing to feel superior about. And of course, we stock heavy folk made about 18% last year.
VTI 48%, VXUS 12%, BND 40%
Re: For those with bond heavy AAs...how you feeling?
Re: For those with bond heavy AAs...how you feeling?
OP, rising interest rates are no big deal for intermediate bond funds.
Yes, the value of the bond fund will drop, but the problem is self-correcting. With rising yields, bond funds will start paying out more and in a few years, we'll be back to even, and in a better situation with higher yields.
Investing is long-term. Try not to worry about short-term swings.
Oh, and I've been 50/50 for most the past 10 years..
I love 50/50 because I'm not bond heavy or stock heavy. I'm never wrong, and I'm always happy.
Yes, the value of the bond fund will drop, but the problem is self-correcting. With rising yields, bond funds will start paying out more and in a few years, we'll be back to even, and in a better situation with higher yields.
Investing is long-term. Try not to worry about short-term swings.
Oh, and I've been 50/50 for most the past 10 years..
I love 50/50 because I'm not bond heavy or stock heavy. I'm never wrong, and I'm always happy.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: For those with bond heavy AAs...how you feeling?
Exactly.. Great post.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
- ruralavalon
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Re: For those with bond heavy AAs...how you feeling?
Year to date is just 2 months, an almost meaningless period for comparison.z3r0c00l wrote: ↑Fri Mar 05, 2021 10:56 amStocks are up 1.3% YTD, an annualized 7.8% before dividends. Why are people (e.g. me) with heavy stock loadings supposed to feel bad about that? A typical bond fund is down .35% in the same time frame. Not as bad as some suggest, but certainly nothing to feel superior about. And of course, we stock heavy folk made about 18% last year.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: For those with bond heavy AAs...how you feeling?
gwe67 wrote: ↑Fri Mar 05, 2021 11:09 amSure, you can pick nearly any time frame and show that stocks outperform bonds. I inferred that OP was asking how you feeling LATELY. VTI is down 3.57% for the week so far, while BND is down 0.75%.z3r0c00l wrote: ↑Fri Mar 05, 2021 10:56 amStocks are up 1.3% YTD, an annualized 7.8% before dividends. Why are people (e.g. me) with heavy stock loadings supposed to feel bad about that? A typical bond fund is down .35% in the same time frame. Not as bad as some suggest, but certainly nothing to feel superior about. And of course, we stock heavy folk made about 18% last year.
It seems I am simultaneously looking at too long a time-frame and too short, or there is some really special pleading going on to make bonds look good.ruralavalon wrote: ↑Fri Mar 05, 2021 11:18 am Year to date is just 2 months, an almost meaningless period for comparison.
Last edited by z3r0c00l on Fri Mar 05, 2021 11:36 am, edited 3 times in total.
70% Global Stocks / 30% Bonds
Re: For those with bond heavy AAs...how you feeling?
I wish I recalled who said it (I first saw it here in BH), but:
But if we were 100/0, no way would I feel comfortable seeing decades of savings wiped out, and no way would I even remotely consider retiring early in a down market. And I've realized that my employment may not be on my time line, so I don't want to be dependent on my employer keeping me around. (Or being forced to find another job when we nearing the point that wouldn't be needed.)
For us, this is a clear tradeoff. We might have "more money" with a more aggressive AA (especially with Bonds paying so little). But we are on track to have "enough" (and more would only go to charity/heirs anyway). So it's more important to us to "protect what we have", and set ourselves up for the most flexibility and predictability for an early retirement, which means holding a comfortable amount of bonds.
We are 60/40 still in accumulation, but getting very close to our number and plan on "retiring" within 10 years. If the stock market implodes, we'll still have "enough" in Bonds to stick to our plans (although "one more year" might be a powerful call to invest more in a down market). We can live off fixed income for many years if needed...Stocks get you rich, bonds keep you rich
But if we were 100/0, no way would I feel comfortable seeing decades of savings wiped out, and no way would I even remotely consider retiring early in a down market. And I've realized that my employment may not be on my time line, so I don't want to be dependent on my employer keeping me around. (Or being forced to find another job when we nearing the point that wouldn't be needed.)
For us, this is a clear tradeoff. We might have "more money" with a more aggressive AA (especially with Bonds paying so little). But we are on track to have "enough" (and more would only go to charity/heirs anyway). So it's more important to us to "protect what we have", and set ourselves up for the most flexibility and predictability for an early retirement, which means holding a comfortable amount of bonds.
- ruralavalon
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Re: For those with bond heavy AAs...how you feeling?
The OP's question was "how are you feeling right now?" My answer is "I am feeling pretty good."z3r0c00l wrote: ↑Fri Mar 05, 2021 11:23 amgwe67 wrote: ↑Fri Mar 05, 2021 11:09 amSure, you can pick nearly any time frame and show that stocks outperform bonds. I inferred that OP was asking how you feeling LATELY. VTI is down 3.57% for the week so far, while BND is down 0.75%.z3r0c00l wrote: ↑Fri Mar 05, 2021 10:56 amStocks are up 1.3% YTD, an annualized 7.8% before dividends. Why are people (e.g. me) with heavy stock loadings supposed to feel bad about that? A typical bond fund is down .35% in the same time frame. Not as bad as some suggest, but certainly nothing to feel superior about. And of course, we stock heavy folk made about 18% last year.It seems I am simultaneously looking at too long a time-frame and too short, or there is some really special pleading going on to make bonds look good.ruralavalon wrote: ↑Fri Mar 05, 2021 11:18 am Year to date is just 2 months, an almost meaningless period for comparison.
Both 2 months and 1 week are almost meaningless periods for comparison of stocks to bonds. No special pleading going on here at all, just advocacy for taking a long-term view.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: For those with bond heavy AAs...how you feeling?
^^ This.
Friar1610 |
50-ish/50-ish - a satisficer, not a maximizer
Re: For those with bond heavy AAs...how you feeling?
Bonds don't look good. Not this week or hardly ever. But they're less bad than stocks this week.ruralavalon wrote: ↑Fri Mar 05, 2021 11:40 amThe OP's question was "how are you feeling right now?" My answer is "I am feeling pretty good."z3r0c00l wrote: ↑Fri Mar 05, 2021 11:23 amgwe67 wrote: ↑Fri Mar 05, 2021 11:09 amSure, you can pick nearly any time frame and show that stocks outperform bonds. I inferred that OP was asking how you feeling LATELY. VTI is down 3.57% for the week so far, while BND is down 0.75%.z3r0c00l wrote: ↑Fri Mar 05, 2021 10:56 amStocks are up 1.3% YTD, an annualized 7.8% before dividends. Why are people (e.g. me) with heavy stock loadings supposed to feel bad about that? A typical bond fund is down .35% in the same time frame. Not as bad as some suggest, but certainly nothing to feel superior about. And of course, we stock heavy folk made about 18% last year.It seems I am simultaneously looking at too long a time-frame and too short, or there is some really special pleading going on to make bonds look good.ruralavalon wrote: ↑Fri Mar 05, 2021 11:18 am Year to date is just 2 months, an almost meaningless period for comparison.
Both 2 months and 1 week are almost meaningless periods for comparison of stocks to bonds. No special pleading going on here at all, just advocacy for taking a long-term view.
If I had to pick an AA (and stick with it) from day one, I would have (in hindsight of course) chosen 100% stock.
I'm into bonds for preservation of capital, not for gains.
VTI 48%, VXUS 12%, BND 40%
Re: For those with bond heavy AAs...how you feeling?
Just to clarify the OP question, here is a line from his post: "What’s your opinion for 1 year? 3 years? 5 years etc?" I don't think he is just talking today, he is also thinking long term. Stocks are ahead 1, 3, 5 years, and YTD. Monday to date, okay bonds win there.gwe67 wrote: ↑Fri Mar 05, 2021 11:48 amBonds don't look good. Not this week or hardly ever. But they're less bad than stocks this week.ruralavalon wrote: ↑Fri Mar 05, 2021 11:40 amThe OP's question was "how are you feeling right now?" My answer is "I am feeling pretty good."z3r0c00l wrote: ↑Fri Mar 05, 2021 11:23 amgwe67 wrote: ↑Fri Mar 05, 2021 11:09 amSure, you can pick nearly any time frame and show that stocks outperform bonds. I inferred that OP was asking how you feeling LATELY. VTI is down 3.57% for the week so far, while BND is down 0.75%.z3r0c00l wrote: ↑Fri Mar 05, 2021 10:56 am
Stocks are up 1.3% YTD, an annualized 7.8% before dividends. Why are people (e.g. me) with heavy stock loadings supposed to feel bad about that? A typical bond fund is down .35% in the same time frame. Not as bad as some suggest, but certainly nothing to feel superior about. And of course, we stock heavy folk made about 18% last year.It seems I am simultaneously looking at too long a time-frame and too short, or there is some really special pleading going on to make bonds look good.ruralavalon wrote: ↑Fri Mar 05, 2021 11:18 am Year to date is just 2 months, an almost meaningless period for comparison.
Both 2 months and 1 week are almost meaningless periods for comparison of stocks to bonds. No special pleading going on here at all, just advocacy for taking a long-term view.
If I had to pick an AA (and stick with it) from day one, I would have (in hindsight of course) chosen 100% stock.
I'm into bonds for preservation of capital, not for gains.
70% Global Stocks / 30% Bonds
Re: For those with bond heavy AAs...how you feeling?
Correct, I am curious about how people are feeling about their bond heavy portfolios considering the talk/chatter in the news about where bonds are going now, and expected to be in the next few years even.
It's fruitless to discuss or compare bonds to last year. That's over. I'm curious where people think things will go.
I personally feel the preservation of my capital will be intact still and has the ability catch up now a bit in the coming months and few years.
It's fruitless to discuss or compare bonds to last year. That's over. I'm curious where people think things will go.
I personally feel the preservation of my capital will be intact still and has the ability catch up now a bit in the coming months and few years.
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Re: For those with bond heavy AAs...how you feeling?
You should feel exactly the same that I feel when people talk about their tesla, zoom and bitcoin heavy portfolio against my S&P500 heavy portfolioTexasBorn wrote: ↑Fri Mar 05, 2021 12:44 pm Correct, I am curious about how people are feeling about their bond heavy portfolios considering the talk/chatter in the news about where bonds are going now, and expected to be in the next few years even.
It's fruitless to discuss or compare bonds to last year. That's over. I'm curious where people think things will go.
I personally feel the preservation of my capital will be intact still and has the ability catch up now a bit in the coming months and few years.
Re: For those with bond heavy AAs...how you feeling?
I wish I could be like you but when the market is going bananas on the upside I have to be all-in.HomerJ wrote: ↑Fri Mar 05, 2021 11:15 am OP, rising interest rates are no big deal for intermediate bond funds.
Yes, the value of the bond fund will drop, but the problem is self-correcting. With rising yields, bond funds will start paying out more and in a few years, we'll be back to even, and in a better situation with higher yields.
Investing is long-term. Try not to worry about short-term swings.
Oh, and I've been 50/50 for most the past 10 years..
I love 50/50 because I'm not bond heavy or stock heavy. I'm never wrong, and I'm always happy.
Re: For those with bond heavy AAs...how you feeling?
Problem is, at some point it goes the other way... And no one's crystal ball tells them in time.Nicolas wrote: ↑Fri Mar 05, 2021 1:59 pmI wish I could be like you but when the market is going bananas on the upside I have to be all-in.HomerJ wrote: ↑Fri Mar 05, 2021 11:15 am OP, rising interest rates are no big deal for intermediate bond funds.
Yes, the value of the bond fund will drop, but the problem is self-correcting. With rising yields, bond funds will start paying out more and in a few years, we'll be back to even, and in a better situation with higher yields.
Investing is long-term. Try not to worry about short-term swings.
Oh, and I've been 50/50 for most the past 10 years..
I love 50/50 because I'm not bond heavy or stock heavy. I'm never wrong, and I'm always happy.
Re: For those with bond heavy AAs...how you feeling?
I was playing with the Flexible Retirement Planner tool and was pleasently surprised that the results confirmed my approach of being bond heavy. Granted, I'm late in my accumulation phase with nearly enough already saved, but it showed a more bond heavy AA resulted in the higher annual withdrawal, least amount of new savings, and thus smallest initial portfolio size.
I posted more details here if anyone is interested:
viewtopic.php?t=342221
I posted more details here if anyone is interested:
viewtopic.php?t=342221
Re: For those with bond heavy AAs...how you feeling?
OP,
I recently asked the forum a similar question, and am happy to see your post has received thoughtful responses. I guess I chose the wrong words, I guess, because there are some pretty rude folks out there who had trouble expressing themselves without a degree of vitriol.
Anyway, my AA is 57% bonds (TBM, TIPS, Tax exempt) and I'll make no changes. Hanging in there through rising yields.
I recently asked the forum a similar question, and am happy to see your post has received thoughtful responses. I guess I chose the wrong words, I guess, because there are some pretty rude folks out there who had trouble expressing themselves without a degree of vitriol.
Anyway, my AA is 57% bonds (TBM, TIPS, Tax exempt) and I'll make no changes. Hanging in there through rising yields.
- willthrill81
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Re: For those with bond heavy AAs...how you feeling?
Speak for yourself. I've had greater gains in the last quarter than bonds are likely to have in the next decade and feel really great.
The Sensible Steward
Re: For those with bond heavy AAs...how you feeling?
This stock heavy pronouncement didn't even last the day. The market is now just 2.4% away from all time highs, that's a good day or two.willthrill81 wrote: ↑Sat Mar 06, 2021 3:58 pmSpeak for yourself. I've had greater gains in the last quarter than bonds are likely to have in the next decade and feel really great.
70% Global Stocks / 30% Bonds
Re: For those with bond heavy AAs...how you feeling?
+1
“The only freedom that is of enduring importance is freedom of intelligence…” John Dewey
Re: For those with bond heavy AAs...how you feeling?
What are you talking about? Yield going up is good.TexasBorn wrote: ↑Fri Mar 05, 2021 10:22 am With the current climate of yields inching up, and now Powell saying they’ll keep rates low...
If you have a portfolio heavy in bonds, how are you feeling right now? What’s your opinion for 1 year? 3 years? 5 years etc?
I have one portfolio that is 70% bonds so I’m intrigued what others thoughts are.
Then ’tis like the breath of an unfee’d lawyer.
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Re: For those with bond heavy AAs...how you feeling?
Yields going up means that future returns are expected to be higher, but rising yields depress the value of existing bond principal.Dude2 wrote: ↑Sat Mar 06, 2021 6:15 pmWhat are you talking about? Yield going up is good.TexasBorn wrote: ↑Fri Mar 05, 2021 10:22 am With the current climate of yields inching up, and now Powell saying they’ll keep rates low...
If you have a portfolio heavy in bonds, how are you feeling right now? What’s your opinion for 1 year? 3 years? 5 years etc?
I have one portfolio that is 70% bonds so I’m intrigued what others thoughts are.
The Sensible Steward
Re: For those with bond heavy AAs...how you feeling?
Thanks, I’m glad for the feedback I’ve received.Offshore wrote: ↑Sat Mar 06, 2021 3:54 pm OP,
I recently asked the forum a similar question, and am happy to see your post has received thoughtful responses. I guess I chose the wrong words, I guess, because there are some pretty rude folks out there who had trouble expressing themselves without a degree of vitriol.
Anyway, my AA is 57% bonds (TBM, TIPS, Tax exempt) and I'll make no changes. Hanging in there through rising yields.
My question was to involve those who are more invested in bonds, not to compare bonds as a contest to compare against stocks.. I was hopeful to get responses from those in the same general AA.
My feelings on holding 70% bonds right now is that I feel more so now the ability to beat inflation in the next few years while I continue to preserve the capital I’ll inevitably need to spend over the next several years.
Yes I could have put money in stocks and rocketed to the moon, but I chose to rather preserve the money at least over the risk of reaping any gains. And now with yields climbing some, I feel like I might have a chance to grow that capital a bit.
Re: For those with bond heavy AAs...how you feeling?
What do you mean "I have one portfolio"?
Do you not consider all your money to be one big portfolio? Do you do mental accounting and have different portfolios for different purposes?
Yules
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Re: For those with bond heavy AAs...how you feeling?
And yet .......ruralavalon wrote: ↑Fri Mar 05, 2021 11:18 amYear to date is just 2 months, an almost meaningless period for comparison.z3r0c00l wrote: ↑Fri Mar 05, 2021 10:56 amStocks are up 1.3% YTD, an annualized 7.8% before dividends. Why are people (e.g. me) with heavy stock loadings supposed to feel bad about that? A typical bond fund is down .35% in the same time frame. Not as bad as some suggest, but certainly nothing to feel superior about. And of course, we stock heavy folk made about 18% last year.
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Re: For those with bond heavy AAs...how you feeling?
Why are you 100% fixed vs. something like 20/80 (AA of Lifestrategy Income) or 30/70 (AA of Target Retirement Income)?hudson wrote: ↑Fri Mar 05, 2021 10:34 am TexasBorn,
I'm 100% fixed.
I ignore all predictions and talk on interest rates.
When a fixed income product expires, I look for and take the best available.
I plan to try and match bond durations with when I plan to spend the proceeds.
Of course, I'm always looking for a better deal, if it's AAA/AA/A quality and low expense.
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Re: For those with bond heavy AAs...how you feeling?
67 y/o, retired. Asset allocation 30/70. We'd all like to see higher yields on fixed income, but increasing my allocation to risky assets is not the solution for me. Nor is jumping through hoops for a few extra basis points.
In broken mathematics, We estimate our prize, --Emily Dickinson
Re: For those with bond heavy AAs...how you feeling?
We have two portfolios that have and serve different purposes. One is ours. Another is one inherited to be used for the children.
So we kept the monies separate as a means to ensure decision making doesn’t overlap. A single AA to live with wasn’t a philosophy I believed works in that situation. It’s been easier to keep it separate.
Re: For those with bond heavy AAs...how you feeling?
Beware hindsight bias. Knowing what we know now--that everything (up until now) "worked out allright", sure, 100% stocks.gwe67 wrote: ↑Fri Mar 05, 2021 11:48 amBonds don't look good. Not this week or hardly ever. But they're less bad than stocks this week.ruralavalon wrote: ↑Fri Mar 05, 2021 11:40 amThe OP's question was "how are you feeling right now?" My answer is "I am feeling pretty good."z3r0c00l wrote: ↑Fri Mar 05, 2021 11:23 amgwe67 wrote: ↑Fri Mar 05, 2021 11:09 amSure, you can pick nearly any time frame and show that stocks outperform bonds. I inferred that OP was asking how you feeling LATELY. VTI is down 3.57% for the week so far, while BND is down 0.75%.z3r0c00l wrote: ↑Fri Mar 05, 2021 10:56 am
Stocks are up 1.3% YTD, an annualized 7.8% before dividends. Why are people (e.g. me) with heavy stock loadings supposed to feel bad about that? A typical bond fund is down .35% in the same time frame. Not as bad as some suggest, but certainly nothing to feel superior about. And of course, we stock heavy folk made about 18% last year.It seems I am simultaneously looking at too long a time-frame and too short, or there is some really special pleading going on to make bonds look good.ruralavalon wrote: ↑Fri Mar 05, 2021 11:18 am Year to date is just 2 months, an almost meaningless period for comparison.
Both 2 months and 1 week are almost meaningless periods for comparison of stocks to bonds. No special pleading going on here at all, just advocacy for taking a long-term view.
If I had to pick an AA (and stick with it) from day one, I would have (in hindsight of course) chosen 100% stock.
I'm into bonds for preservation of capital, not for gains.
But you're also assuming you know how you would have reacted with a 100% stock portfolio in the depths of a crisis rather than say 60/40. And that nothing would have happened to cause you to need to draw down out of that portfolio during the depths of the crisis.
I felt pretty bad in March 2020 even with a 60/40 portfolio going into it. And even though intellectually I knew it was a possible great opportunity (which I didn't take advantage of because it could have turned out worse). I was feeling a lot of regret that my portfolio was too equity-heavy.
I don't think I would have "cracked" with a 100/0 portfolio back then, and let's say sold out at the bottom or made similar behavioral mistakes. But I can't guarantee that I wouldn't have "cracked."
Also, maybe there is a job loss at the wrong time or some other unexpected situation which causes you to need to draw down the portfolio during the crisis. I feel that's always a possibility so the risk isn't just psychological. The risk of other stuff happening at exactly the wrong time and causing you to have to draw down your portfolio during a crisis is real and to me ever-present.
So I don't think having regrets about not having more equities when you already know the outcome is being fair to yourself, because of the hindsight bias. You already KNOW the outcome, it's like playing poker when you already know everyone's cards. It's a lot easier game under those circumstances.
We have to play this game and make our bets without knowing what cards the dealer is going to turn up.
That's a completely different game, don't confuse the two.
"Be fearful when others are greedy, be even MORE fearful when others are fearful."
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Re: For those with bond heavy AAs...how you feeling?
I am "bond heavy" - but all of my bonds are high quality and short-intermediate term. I am feeling fine.TexasBorn wrote: ↑Fri Mar 05, 2021 10:22 am With the current climate of yields inching up, and now Powell saying they’ll keep rates low...
If you have a portfolio heavy in bonds, how are you feeling right now? What’s your opinion for 1 year? 3 years? 5 years etc?
I have one portfolio that is 70% bonds so I’m intrigued what others thoughts are.
My opinion (since you asked for it) is don't try to predict the trajectory of interest rates. You should be investing strategically. If you want a low risk portfolio, that means lots of safe fixed-income. That fact does not change with interest rates.
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Re: For those with bond heavy AAs...how you feeling?
OP, my allocation to fixed income is a bit north of 60%. So I think I'm in a similar boat to you.TexasBorn wrote: ↑Sat Mar 06, 2021 7:57 pmThanks, I’m glad for the feedback I’ve received.Offshore wrote: ↑Sat Mar 06, 2021 3:54 pm OP,
I recently asked the forum a similar question, and am happy to see your post has received thoughtful responses. I guess I chose the wrong words, I guess, because there are some pretty rude folks out there who had trouble expressing themselves without a degree of vitriol.
Anyway, my AA is 57% bonds (TBM, TIPS, Tax exempt) and I'll make no changes. Hanging in there through rising yields.
My question was to involve those who are more invested in bonds, not to compare bonds as a contest to compare against stocks.. I was hopeful to get responses from those in the same general AA.
My feelings on holding 70% bonds right now is that I feel more so now the ability to beat inflation in the next few years while I continue to preserve the capital I’ll inevitably need to spend over the next several years.
Yes I could have put money in stocks and rocketed to the moon, but I chose to rather preserve the money at least over the risk of reaping any gains. And now with yields climbing some, I feel like I might have a chance to grow that capital a bit.
How am I feeling? I'd rather yields be higher than they are. It is exceedingly difficult to find yield anymore.
Having said that, the vast majority of my fixed income was purchased years ago at prices much more compelling than today. Also, the single largest allocation within my fixed income is to individual Muni bonds. Yields can rise all they want, but that will not affect the yield I am getting on those bonds. The second largest slug of my fixed income is in CD's. Same there.
My bond funds are the area with the greatest risk as bonds mature and new bonds are purchased. Of course the same issue exists as my Muni bonds get called (I've got two being called in the next 30 days unfortunately). However, I do have two add-on CD's with a PA credit union and I am able to redirect those proceeds to those CD's. This will be bigger issue for me when they mature (some in ~8 months and some in ~20 months). I am kind of hoping yields will be more attractive at that time (as I think the economy is strengthening and this usually leads to higher yields). We will see...
At the end of the day, each 100bps in lower yield is really not materially affecting our financial situation. After all, it's only $10K per million. Even for someone with $10 million inf fixed income it's only $100K per year (per 100bps) in lower yield. Really not rolling their socks up and down. It's more of a psychological impact. If we have to ride out lower yields for a few years, it really won't have a big financial impact in the overall scheme of things.
Real Knowledge Comes Only From Experience
Re: For those with bond heavy AAs...how you feeling?
I think that maybe our thoughts on this need to be qualified a bit. It is true that yields going up is a good thing -- that people who want to borrow your money are willing to pay you more for your trouble. However, was reading an article today (paywall: Flood of New Debt Tests Bond Market) which tries to paint a picture in which the yield is being driven up by market forces that are essentially saying that there is too much government debt out there, so I'm not willing to pay as much for it -- therefore, if you want to sell me that instrument, you have to make it more attractive to me, offer it at a lower price, therefore the yield seems to be increasing. It's an artificial construct. The real time, forward-looking values that the market places on things and the coupon on the bonds are certainly different things. Coupons are probably not changing, but the values people place on them and what they are willing to trade for are changing. I guess in this way markets are able to drive what seems to be interest rates up or down when the underlying coupon rates of the bonds do not really change.willthrill81 wrote: ↑Sat Mar 06, 2021 6:16 pmYields going up means that future returns are expected to be higher, but rising yields depress the value of existing bond principal.Dude2 wrote: ↑Sat Mar 06, 2021 6:15 pmWhat are you talking about? Yield going up is good.TexasBorn wrote: ↑Fri Mar 05, 2021 10:22 am With the current climate of yields inching up, and now Powell saying they’ll keep rates low...
If you have a portfolio heavy in bonds, how are you feeling right now? What’s your opinion for 1 year? 3 years? 5 years etc?
I have one portfolio that is 70% bonds so I’m intrigued what others thoughts are.
Therefore, I think maybe the hype/hysteria in the media that probably drove the OP to make the post could have something behind it. Certainly it is possible for markets to become irrational and cause deleterious effects for investors. On the other hand, my let it ride philosophy is not easily shaken by media hype. Interested in any thoughts.
Then ’tis like the breath of an unfee’d lawyer.
Re: For those with bond heavy AAs...how you feeling?
What's a GFC?
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. |
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Re: For those with bond heavy AAs...how you feeling?
Great Financial Crisis, i.e. the 2008-2009 debacle which lead to the "lost decade for stocks".
Then ’tis like the breath of an unfee’d lawyer.
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Re: For those with bond heavy AAs...how you feeling?
I'm feeling fine. I'm not kidding about that, and that's not whistling past the graveyard. It seems to me that lately people have been going nuts with recency and short-term thinking.
Recall that the Total Bond fund has a duration of 6.6 years, and that Vanguard says that it "may be appropriate for investors with medium-term investment horizons (4 to 10 years)." Let's round those and say "five years."
Recall that because of the pull to maturity, with bonds, not only is it true that what goes up must come down, it is also true that what goes down must go up... and it does it on schedule. This is a result of the fundamental nature of bonds as contracts to pay specific numbers of dollars on specific days--not any somewhat-vague "tendency to mean reversion."
With that in mind, I expected and I expect my bond funds to do three things.
a) to make money
b) to make more money than a money market mutual fund or a fully-liquid bank account*
c) to have ups and downs lasting a few years, yet to be very stable and reliable over holding periods of five years or so
So let's put on "five-year glasses." This is Vanguard Total Bond in blue, and a money market fund in orange.
Source
I see a general upward loft, corresponding to the general level of the ten-year interest rate. I see it bending down--but not leveling--corresponding to the general decline in interest rates. And I see superimposed on that ups and downs. Those ups and downs aren't negligible, the curve is very different from the zero-volatility money market fund (orange line). But they only last a couple of years and they are small compared with the general rise of the fund. Waves on a rising tide, and the tide is rising more slowly but is still rising.
I also see that for the last couple of years the fund has sort of outperformed a smoothed line, there's been a bulge upward. But I call it "undeserved" because it's a departure from general expectation. It happens to be a smallish upward excursion, and there have been similar upward and downward excursions all along. I rather imagined that I'd have to give some of it back, and at this point I don't interpret it as anything else.
Since inception, there has never been a five-year period over which Total Bond failed to make money, and the last five years is no exception. Over the last five years, every $10,000 I had in Total Bond made $1,800 compared to $550 in a money market fund, three times as much. Bank accounts were better, I don't want to bother to get an actual number but "money in the bank" would have averaged perhaps 1.5%-2% per year or very roughly $750-$1,000.
And course the money I had in stocks has made fabulously more.
The point is that everything has been behaving pretty much as expected. I look at the totals on my Vanguard statement for my Total Bond fund and as long as I'm not looking, you know, day by day or month by month or year-to-date (when the appropriate period is about five years) I don't see anything alarming.
My other fund, Vanguard Inflation-Protected Securities--pretty much the same. Definitely rougher-edged, though, and not quite as convincing in terms of seeing a smooth curve underneath the ripples.
*It is possible that bank CDs could be superior in the sense of "less risk, almost as much return."
Recall that the Total Bond fund has a duration of 6.6 years, and that Vanguard says that it "may be appropriate for investors with medium-term investment horizons (4 to 10 years)." Let's round those and say "five years."
Recall that because of the pull to maturity, with bonds, not only is it true that what goes up must come down, it is also true that what goes down must go up... and it does it on schedule. This is a result of the fundamental nature of bonds as contracts to pay specific numbers of dollars on specific days--not any somewhat-vague "tendency to mean reversion."
With that in mind, I expected and I expect my bond funds to do three things.
a) to make money
b) to make more money than a money market mutual fund or a fully-liquid bank account*
c) to have ups and downs lasting a few years, yet to be very stable and reliable over holding periods of five years or so
So let's put on "five-year glasses." This is Vanguard Total Bond in blue, and a money market fund in orange.
Source
I see a general upward loft, corresponding to the general level of the ten-year interest rate. I see it bending down--but not leveling--corresponding to the general decline in interest rates. And I see superimposed on that ups and downs. Those ups and downs aren't negligible, the curve is very different from the zero-volatility money market fund (orange line). But they only last a couple of years and they are small compared with the general rise of the fund. Waves on a rising tide, and the tide is rising more slowly but is still rising.
I also see that for the last couple of years the fund has sort of outperformed a smoothed line, there's been a bulge upward. But I call it "undeserved" because it's a departure from general expectation. It happens to be a smallish upward excursion, and there have been similar upward and downward excursions all along. I rather imagined that I'd have to give some of it back, and at this point I don't interpret it as anything else.
Since inception, there has never been a five-year period over which Total Bond failed to make money, and the last five years is no exception. Over the last five years, every $10,000 I had in Total Bond made $1,800 compared to $550 in a money market fund, three times as much. Bank accounts were better, I don't want to bother to get an actual number but "money in the bank" would have averaged perhaps 1.5%-2% per year or very roughly $750-$1,000.
And course the money I had in stocks has made fabulously more.
The point is that everything has been behaving pretty much as expected. I look at the totals on my Vanguard statement for my Total Bond fund and as long as I'm not looking, you know, day by day or month by month or year-to-date (when the appropriate period is about five years) I don't see anything alarming.
My other fund, Vanguard Inflation-Protected Securities--pretty much the same. Definitely rougher-edged, though, and not quite as convincing in terms of seeing a smooth curve underneath the ripples.
*It is possible that bank CDs could be superior in the sense of "less risk, almost as much return."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.