Investing in bonds
Investing in bonds
Best way to invest in bonds in rising interest rate environment?
Re: Investing in bonds
Same as any environment. Total bond and chill.
Re: Investing in bonds
I agree with the "same as." Otherwise it seems the nature of bonds is that there are far more choices than there reasons to choose among them, which means identifying a "best" way probably doesn't make sense.
The general properties of bonds that determine outcomes are duration and credit quality and also the opportunity to get inflation indexing in the cases of TIPS and I bonds.
The general properties of bonds that determine outcomes are duration and credit quality and also the opportunity to get inflation indexing in the cases of TIPS and I bonds.
Re: Investing in bonds
It would depend on my life stage and when I expecting to need the money I'm investing, but in general it would be split between total bond and TIPS.
This post is for entertainment or information only, and should not be construed as professional financial advice. |
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Re: Investing in bonds
Gosh--this really is the topic of the moment on this board. It's as if no one is appreciating where the stock market is right now. I'm having no problem sticking to my asset allocation, including the bond portion of it.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
Re: Investing in bonds
"Rates gotta rise, bonds gotta crash! Augh!"
"Stocks are too high, they've gotta crash! Augh!"
"Inflation is high, cash gotta crash! Augh!"
"Stocks are too high, they've gotta crash! Augh!"
"Inflation is high, cash gotta crash! Augh!"
Meet my pet, Peeve, who loves to convert non-acronyms into acronyms: FED, ROTH, CASH, IVY, ...
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Re: Investing in bonds
Right. Look at the portfolio as a whole and not the individual components.
Re: Investing in bonds
Keep your duration short. Either T-bills or a short term etf like SHY. For bonds you want return of capital not return on capital.
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Re: Investing in bonds
That's what savings accounts used to be for. Return of capital. Maybe we will see decent savings interest rates in the next year or two. Or maybe if everything goes ballistic, we will see 13% 30 year treasuries again. I hope not.
Re: Investing in bonds
You might consider TIPS ( Treasury inflation protected securities).
Re: Investing in bonds
Buy a bond fund with a duration no longer than your time horizon.
If you buy a ten-year bond and hold it for ten years, you know how much money you will get when it matures. The price might decline next year if rates rise, but the increased rate and yield will make up the loss.
Similarly, if you buy Total Bond Market Index, which has a 7-year duration, and the yields on its bonds rise 1% over some time period, you will lose 7%, but make up 1% per year over seven years to get the same return. If you have to sell in less than seven years, you may get a lower return. (If you are investing for retirement, your time horizon is more than 7 years even if you are already retired. If you are 65 and will live to 85, you will be spending money every year for 20 years, so you have a 10-year horizon.)
Bond traders already know about the probability of rising rates. This is why long-term bonds are traded at yields significantly higher than short-term bonds; the buyers of long-term bonds expect enough benefit from the higher yield to make up for the expected loss from rising rates and the higher risk. The only reason to vary your own bond strategy is your personal needs, as noted above; Total Bond Market is inappropriate if you are going to use the money to buy a house next year.
If you buy a ten-year bond and hold it for ten years, you know how much money you will get when it matures. The price might decline next year if rates rise, but the increased rate and yield will make up the loss.
Similarly, if you buy Total Bond Market Index, which has a 7-year duration, and the yields on its bonds rise 1% over some time period, you will lose 7%, but make up 1% per year over seven years to get the same return. If you have to sell in less than seven years, you may get a lower return. (If you are investing for retirement, your time horizon is more than 7 years even if you are already retired. If you are 65 and will live to 85, you will be spending money every year for 20 years, so you have a 10-year horizon.)
Bond traders already know about the probability of rising rates. This is why long-term bonds are traded at yields significantly higher than short-term bonds; the buyers of long-term bonds expect enough benefit from the higher yield to make up for the expected loss from rising rates and the higher risk. The only reason to vary your own bond strategy is your personal needs, as noted above; Total Bond Market is inappropriate if you are going to use the money to buy a house next year.
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Re: Investing in bonds
Bogleheads love to obsess over bonds, yet bonds have very little impact on their total portfolio.
Re: Investing in bonds
I am using a bucket strategy, or call it time segmentation, whichever you prefer. I am using Vanguard's Total Bond Fund as a simple way to fund my first ten years or so of retirement (with a few years of cash reserves). I realize there is some risk to this over what I would expect using a more short term bond fund or bond ladder. Would people here consider that risk too high? Thanks.
Re: Investing in bonds
I don't think that is too risky. It is what I did for the first 10 years of my retirement as well, though I did it on the taxable side using VWIUX. Everything turned out okay and I only ended up spending down 1/2 of my bucket before SS started.gasdoc wrote: ↑Wed Nov 24, 2021 8:26 pmI am using a bucket strategy, or call it time segmentation, whichever you prefer. I am using Vanguard's Total Bond Fund as a simple way to fund my first ten years or so of retirement (with a few years of cash reserves). I realize there is some risk to this over what I would expect using a more short term bond fund or bond ladder. Would people here consider that risk too high? Thanks.
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Re: Investing in bonds
There is a lot of great advice above, OP. Based on how long you have until you need this money, and the reason for investing in bonds, you might consider holding money in a high yield savings account, I bonds, TIPs, or a bond market fund (choosing a duration that matches your anticipated duration of investment).
I prefer I bonds for my needs, but any of the things I listed above would be reasonable. If you wanted to reply with how long you plan to hold these bonds, what kind of account your money is in, and what you want bonds to do for you, we could give you more specific recommendations.
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Re: Investing in bonds
I am curious about what you will you do as you progress through the first decade of your retirement and after the first ten years is up? Will you continue to own some bonds or do you plan to allow your allocation to bonds drop to zero? I am not criticizing I am just trying to better understand your strategy.BolderBoy wrote: ↑Thu Nov 25, 2021 10:02 amI don't think that is too risky. It is what I did for the first 10 years of my retirement as well, though I did it on the taxable side using VWIUX. Everything turned out okay and I only ended up spending down 1/2 of my bucket before SS started.gasdoc wrote: ↑Wed Nov 24, 2021 8:26 pmI am using a bucket strategy, or call it time segmentation, whichever you prefer. I am using Vanguard's Total Bond Fund as a simple way to fund my first ten years or so of retirement (with a few years of cash reserves). I realize there is some risk to this over what I would expect using a more short term bond fund or bond ladder. Would people here consider that risk too high? Thanks.
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Re: Investing in bonds
I agree to disagree. Total Bond negative return so far this year confirms my theory that when bonds sell off bond holders lose.BitTooAggressive wrote: ↑Thu Nov 25, 2021 2:06 pmDisagree. Total Bond will be posting losses in a rising interest rate environment. I would not call that investing. If they need to have a bond portion, I think it is a no brainer to shorten your duration.
Re: Investing in bonds
BitTooAggressive, yes bonds would lose NAV when rates rise. What do you think stocks would not lose value in rising rate environment?BitTooAggressive wrote: ↑Thu Nov 25, 2021 2:06 pmDisagree. Total Bond will be posting losses in a rising interest rate environment. I would not call that investing. If they need to have a bond portion, I think it is a no brainer to shorten your duration.
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Re: Investing in bonds
It will post losses in a rising rate environment, but you don't know what environment we're in during the present. And if you hold bonds for the duration, you will not lose in a rising rate environment.BitTooAggressive wrote: ↑Thu Nov 25, 2021 2:06 pmDisagree. Total Bond will be posting losses in a rising interest rate environment. I would not call that investing. If they need to have a bond portion, I think it is a no brainer to shorten your duration.
Re: Investing in bonds
Unless perhaps short rates rise and longer rates don't.BitTooAggressive wrote: ↑Thu Nov 25, 2021 2:06 pmDisagree. Total Bond will be posting losses in a rising interest rate environment. I would not call that investing. If they need to have a bond portion, I think it is a no brainer to shorten your duration.
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Re: Investing in bonds
i opted for a bond ladder strategy for the fixed income part of my portfolio. Pros and cons a-plenty, but as my prior bonds mature, Pimco buys at the long end of my ladder (currently 12 years). Schwab fixed income seems to be pushing the ladder strategy as opportune for this environment. We shall see.
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Re: Investing in bonds
This is creeping up toward the top of the list of investing myths. It’s demonstrably false but widely believed. If you holds bonds that are duration-matched to your investment horizon you have neutralized interest rate risk. If rates go up, your bonds or bond fund will decline in paper value but the higher yields will bring you to break even at roughly the duration of the fund.BitTooAggressive wrote: ↑Thu Nov 25, 2021 2:03 pmBonds are a terrible investment in a rising rate environment.
This is driven by inherent bond mathematics. Don’t be drawn in by the short-term impact on the asset value. Unless you have inappropriate bond duration, you’re fine.
Same goes for the people advocating staying in very short bonds. That is terribly misguided advice resulting from the same misunderstanding.
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Re: Investing in bonds
I-bonds
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
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Re: Investing in bonds
Nominal bonds were a huge drag this year because of inflation, which helped cause stock heavy Wellington fund to do much better than Wellesley fund, for example. Sad to say, we don't know if next year will be any different.UpperNwGuy wrote: ↑Wed Nov 24, 2021 8:06 pm Bogleheads love to obsess over bonds, yet bonds have very little impact on their total portfolio.
Inflation Adjusted Return from Jan 2021 - Oct 2021
Wellington Fund, 66.51% stocks, +9.04%
Wellesley Income Fund, 39.34% stocks, +1.13%
link
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Re: Investing in bonds
I would expect stock-heavy Wellington to do better than bond-heavy Wellesley in most years.Robot Monster wrote: ↑Thu Nov 25, 2021 5:43 pmNominal bonds were a huge drag this year because of inflation, which helped cause stock heavy Wellington fund to do much better than Wellesley fund, for example. Sad to say, we don't know if next year will be any different.UpperNwGuy wrote: ↑Wed Nov 24, 2021 8:06 pm Bogleheads love to obsess over bonds, yet bonds have very little impact on their total portfolio.
Inflation Adjusted Return from Jan 2021 - Oct 2021
Wellington Fund, 66.51% stocks, +9.04%
Wellesley Income Fund, 39.34% stocks, +1.13%
link
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Re: Investing in bonds
Completely agree, so might as well spend it now.
But car prices are so high, so wait till they normalize. And real estate are at all time highs in many locations. And it's too late to catch the crypto craze, and if it a Ponzy scheme as many say, you'd be going in at the peak.
Nowhere to hide in this brave new world, so back to bonds it it.
I appreciate the stock market has gone up and had to rebalance, hence buy bonds. Also, I kept more cash around for the pandemic, which was the wrong thing to do, but glad to have it liquid, and now don't need it in cash, so that went to bonds too. Will consider all options, just haven't been convinced of a better one yet.
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Re: Investing in bonds
Yes agreed, but this year the difference was much more profound, no?UpperNwGuy wrote: ↑Thu Nov 25, 2021 5:50 pmI would expect stock-heavy Wellington to do better than bond-heavy Wellesley in most years.Robot Monster wrote: ↑Thu Nov 25, 2021 5:43 pmNominal bonds were a huge drag this year because of inflation, which helped cause stock heavy Wellington fund to do much better than Wellesley fund, for example. Sad to say, we don't know if next year will be any different.UpperNwGuy wrote: ↑Wed Nov 24, 2021 8:06 pm Bogleheads love to obsess over bonds, yet bonds have very little impact on their total portfolio.
Inflation Adjusted Return from Jan 2021 - Oct 2021
Wellington Fund, 66.51% stocks, +9.04%
Wellesley Income Fund, 39.34% stocks, +1.13%
link
Inflation Adjusted Return from Jan 2010 - Dec 2020
Wellington -- 8.1%
Wellesley -- 6.2%
vs
Inflation Adjusted Return from Jan 2021 - Oct 2021
Wellington -- 9.04%
Wellesley -- 1.13%
Re: Investing in bonds
Isn't part of the confusion/mistake here due to equivocation re: "bonds" vs (most) "bond funds"? Those bond funds with a rotating composition keep a duration out N years in the future, which make matching them to my horizon impossible, right?9-5 Suited wrote: ↑Thu Nov 25, 2021 4:41 pmThis is creeping up toward the top of the list of investing myths. It’s demonstrably false but widely believed. If you holds bonds that are duration-matched to your investment horizon you have neutralized interest rate risk. If rates go up, your bonds or bond fund will decline in paper value but the higher yields will bring you to break even at roughly the duration of the fund.BitTooAggressive wrote: ↑Thu Nov 25, 2021 2:03 pmBonds are a terrible investment in a rising rate environment.
This is driven by inherent bond mathematics. Don’t be drawn in by the short-term impact on the asset value. Unless you have inappropriate bond duration, you’re fine.
Same goes for the people advocating staying in very short bonds. That is terribly misguided advice resulting from the same misunderstanding.
Re: Investing in bonds
ObiQuiet wrote: ↑Thu Nov 25, 2021 6:19 pmIsn't part of the confusion/mistake here due to equivocation re: "bonds" vs (most) "bond funds"? Those bond funds with a rotating composition keep a duration out N years in the future, which make matching them to my horizon impossible... do I understand it right?9-5 Suited wrote: ↑Thu Nov 25, 2021 4:41 pmThis is creeping up toward the top of the list of investing myths. It’s demonstrably false but widely believed. If you holds bonds that are duration-matched to your investment horizon you have neutralized interest rate risk. If rates go up, your bonds or bond fund will decline in paper value but the higher yields will bring you to break even at roughly the duration of the fund.BitTooAggressive wrote: ↑Thu Nov 25, 2021 2:03 pmBonds are a terrible investment in a rising rate environment.
This is driven by inherent bond mathematics. Don’t be drawn in by the short-term impact on the asset value. Unless you have inappropriate bond duration, you’re fine.
Same goes for the people advocating staying in very short bonds. That is terribly misguided advice resulting from the same misunderstanding.
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Re: Investing in bonds
Good question. Funds are essentially similar as they are collections of individual bonds, but yes if you only own one single fund eventually its constantly resetting duration will outstrip your own. The most common advice to mimic individual bonds with funds is to own two funds (say one long and one short) and move money between them to match your desired time horizon.ObiQuiet wrote: ↑Thu Nov 25, 2021 6:19 pmIsn't part of the confusion/mistake here due to equivocation re: "bonds" vs (most) "bond funds"? Those bond funds with a rotating composition keep a duration out N years in the future, which make matching them to my horizon impossible, right?9-5 Suited wrote: ↑Thu Nov 25, 2021 4:41 pmThis is creeping up toward the top of the list of investing myths. It’s demonstrably false but widely believed. If you holds bonds that are duration-matched to your investment horizon you have neutralized interest rate risk. If rates go up, your bonds or bond fund will decline in paper value but the higher yields will bring you to break even at roughly the duration of the fund.BitTooAggressive wrote: ↑Thu Nov 25, 2021 2:03 pmBonds are a terrible investment in a rising rate environment.
This is driven by inherent bond mathematics. Don’t be drawn in by the short-term impact on the asset value. Unless you have inappropriate bond duration, you’re fine.
Same goes for the people advocating staying in very short bonds. That is terribly misguided advice resulting from the same misunderstanding.
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Re: Investing in bonds
That was not the original posters question. You can certainly certainly shorten the fund duration. If the rise in interest rates is accompanied or partially due to inflation tips can also mitigate the expected losses in bonds.Explorer wrote: ↑Thu Nov 25, 2021 4:04 pmBitTooAggressive, yes bonds would lose NAV when rates rise. What do you think stocks would not lose value in rising rate environment?BitTooAggressive wrote: ↑Thu Nov 25, 2021 2:06 pmDisagree. Total Bond will be posting losses in a rising interest rate environment. I would not call that investing. If they need to have a bond portion, I think it is a no brainer to shorten your duration.
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Re: Investing in bonds
I see nothing wrong with shortening the duration with rates rising and then lengthening the duration with stable or falling rates.9-5 Suited wrote: ↑Thu Nov 25, 2021 4:41 pmThis is creeping up toward the top of the list of investing myths. It’s demonstrably false but widely believed. If you holds bonds that are duration-matched to your investment horizon you have neutralized interest rate risk. If rates go up, your bonds or bond fund will decline in paper value but the higher yields will bring you to break even at roughly the duration of the fund.BitTooAggressive wrote: ↑Thu Nov 25, 2021 2:03 pmBonds are a terrible investment in a rising rate environment.
This is driven by inherent bond mathematics. Don’t be drawn in by the short-term impact on the asset value. Unless you have inappropriate bond duration, you’re fine.
Same goes for the people advocating staying in very short bonds. That is terribly misguided advice resulting from the same misunderstanding.
It’s funny that you refer to the loss bonds take during the rise in rates as paper value, but you are restored by the higher yields.
I assure you both the increase in yields and loss of principal are real.
If the rise in interest rates is coupled with a stock pullback and I wish to rebalance I am much better off having switched to the shorter duration. This is no myth.
Re: Investing in bonds
It makes sense to also be aware of the yield curve. At the moment this is relatively flat which means there is less premium from extending duration, or less penalty to going shorter. This does not always have to be the case and different parts of the yield curve can have different trends.
I personally don't tend to worry about duration or interest rate trends. I think the long term investor in stocks and bonds will do fine with intermediate term bond funds. People with a short term horizon should not pick durations that are too long, though.
I personally don't tend to worry about duration or interest rate trends. I think the long term investor in stocks and bonds will do fine with intermediate term bond funds. People with a short term horizon should not pick durations that are too long, though.
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Re: Investing in bonds
I agree but I think I can get a little more return by shortening the duration during rising rates. Once rates are maybe near the top go to intermediate or long. It’s not important to get it exactly correct. When you had the high interest rates in the early 80s and a President and Fed that was committed to fighting inflation those long bonds were great money, riding them all the way down with little risk.dbr wrote: ↑Fri Nov 26, 2021 8:37 am It makes sense to also be aware of the yield curve. At the moment this is relatively flat which means there is less premium from extending duration, or less penalty to going shorter. This does not always have to be the case and different parts of the yield curve can have different trends.
I personally don't tend to worry about duration or interest rate trends. I think the long term investor in stocks and bonds will do fine with intermediate term bond funds. People with a short term horizon should not pick durations that are too long, though.
My personal opinion is the bond market is very distorted because of government intervention.
Just refinanced my house at 30 years for 2.85 percent. That is a lot of risk for someone to incur. All there returns could be lost with one bad run of inflation.
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Re: Investing in bonds
First of all, the reference to “paper value” is simply shorthand for the marked to market loss a bond that you intend to hold to maturity (or to the duration of the fund) experiences. It’s a paper loss under that constraint as it will disappear as the bond matures. But of course if you sell before that point you will experience a real loss, hence the entire darn point of matching your bond durations to your intended holding period.BitTooAggressive wrote: ↑Fri Nov 26, 2021 5:38 amI see nothing wrong with shortening the duration with rates rising and then lengthening the duration with stable or falling rates.9-5 Suited wrote: ↑Thu Nov 25, 2021 4:41 pmThis is creeping up toward the top of the list of investing myths. It’s demonstrably false but widely believed. If you holds bonds that are duration-matched to your investment horizon you have neutralized interest rate risk. If rates go up, your bonds or bond fund will decline in paper value but the higher yields will bring you to break even at roughly the duration of the fund.BitTooAggressive wrote: ↑Thu Nov 25, 2021 2:03 pmBonds are a terrible investment in a rising rate environment.
This is driven by inherent bond mathematics. Don’t be drawn in by the short-term impact on the asset value. Unless you have inappropriate bond duration, you’re fine.
Same goes for the people advocating staying in very short bonds. That is terribly misguided advice resulting from the same misunderstanding.
It’s funny that you refer to the loss bonds take during the rise in rates as paper value, but you are restored by the higher yields.
I assure you both the increase in yields and loss of principal are real.
If the rise in interest rates is coupled with a stock pullback and I wish to rebalance I am much better off having switched to the shorter duration. This is no myth.
And the idea you describe of going short in bonds to wait for rates to rise is called market timing, a principal sin on this forum. It’s no different than saying I’m going to sell my equities and go to cash while waiting for valuations to improve. Market timing is a very bad idea wrought with behavioral bias, as true of bonds as it is stocks.
Don’t believe me? Look up posts on this very forum from 5 years ago discussing what is certain to be a rising rate environment and advocating going to short bonds. Oops! Sucks for those market timers who, shocker, can’t actually predict the bond market better than the rest of the market participants.
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Re: Investing in bonds
what rising interest rate environment?
the bond market rises and falls and rises and falls and so on and so forth (even over the course of one day this is true, see below):
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 |
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Re: Investing in bonds
The rising rates was a premise of the question.9-5 Suited wrote: ↑Sat Nov 27, 2021 10:34 amFirst of all, the reference to “paper value” is simply shorthand for the marked to market loss a bond that you intend to hold to maturity (or to the duration of the fund) experiences. It’s a paper loss under that constraint as it will disappear as the bond matures. But of course if you sell before that point you will experience a real loss, hence the entire darn point of matching your bond durations to your intended holding period.BitTooAggressive wrote: ↑Fri Nov 26, 2021 5:38 amI see nothing wrong with shortening the duration with rates rising and then lengthening the duration with stable or falling rates.9-5 Suited wrote: ↑Thu Nov 25, 2021 4:41 pmThis is creeping up toward the top of the list of investing myths. It’s demonstrably false but widely believed. If you holds bonds that are duration-matched to your investment horizon you have neutralized interest rate risk. If rates go up, your bonds or bond fund will decline in paper value but the higher yields will bring you to break even at roughly the duration of the fund.BitTooAggressive wrote: ↑Thu Nov 25, 2021 2:03 pmBonds are a terrible investment in a rising rate environment.
This is driven by inherent bond mathematics. Don’t be drawn in by the short-term impact on the asset value. Unless you have inappropriate bond duration, you’re fine.
Same goes for the people advocating staying in very short bonds. That is terribly misguided advice resulting from the same misunderstanding.
It’s funny that you refer to the loss bonds take during the rise in rates as paper value, but you are restored by the higher yields.
I assure you both the increase in yields and loss of principal are real.
If the rise in interest rates is coupled with a stock pullback and I wish to rebalance I am much better off having switched to the shorter duration. This is no myth.
And the idea you describe of going short in bonds to wait for rates to rise is called market timing, a principal sin on this forum. It’s no different than saying I’m going to sell my equities and go to cash while waiting for valuations to improve. Market timing is a very bad idea wrought with behavioral bias, as true of bonds as it is stocks.
Don’t believe me? Look up posts on this very forum from 5 years ago discussing what is certain to be a rising rate environment and advocating going to short bonds. Oops! Sucks for those market timers who, shocker, can’t actually predict the bond market better than the rest of the market participants.
Re: Investing in bonds
That is a great piece by Roger Aliaga-Diaz, Vanguard Chief Economist.
I used his quote below I once read somewhere as an epigraph to my IPS:
“It's difficult to make market calls above and beyond what the markets have already priced in. Not only do you have to be systematically correct, but everyone else has to be systematically wrong.”
If you torture the data long enough, it will confess to anything. ~Ronald Coase
Re: Investing in bonds
xyzzy
Last edited by mary1492 on Tue Oct 04, 2022 3:14 am, edited 1 time in total.
Re: Investing in bonds
I Bonds are great, but they pay 0% nominal. They only look really good right now because of the CPI adjustments. When we get back to 2-2.5% inflation, they won't look so good, though I do intend to keep buying them.
Re: Investing in bonds
xyzzy
Last edited by mary1492 on Tue Oct 04, 2022 3:13 am, edited 1 time in total.
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Re: Investing in bonds
Investing in bonds is straightforward. Predicting whether we will have a rising rate environment moving forward is not. What type of bond portfolio is appropriate for a given investor would be based on their life circumstances and what the rest of their portfolio looks like, and not on forecasting the future trajectory of interest rates.
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Re: Investing in bonds
Asking how to invest in bonds in a rising rate environment is like asking how to invest in stocks in a declining stock price environment. The question is fatally flawed because there is no such way to know you’re in that environment before it happens. Thus, you don’t invest in bonds differently today than you did a year ago.
Pick an AA you can stick with and match your bond duration to your investment horizon. That’s the answer to how to invest in bonds in a “rising rate environment”.
Re: Investing in bonds
My point was that people are going gaga over 7%, without taking into account that's the annualized rate, only good for six months, and certainly not guaranteed. Are the hypothetical "they" interested in I Bonds because they are paying 7% or because they feel that an inflation-protected, tax-deferred bond has a place in their portfolio?mary1492 wrote: ↑Sat Nov 27, 2021 3:53 pmYou shouldn't care what they pay nominally if you aren't able to present a better alternative...or one that's even close.exodusNH wrote: ↑Sat Nov 27, 2021 3:50 pmI Bonds are great, but they pay 0% nominal. They only look really good right now because of the CPI adjustments. When we get back to 2-2.5% inflation, they won't look so good, though I do intend to keep buying them.
If they are jumping on them because of the 7%, it's important to understand that they'll probably pay closer to 2% for the majority of the holding period. EE Bonds could be a better option if you can hold them for exactly 20 years.
Nominal bonds should adjust ahead of inflation in the long run.
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Re: Investing in bonds
I disagree. When interest rates are almost zero and you have inflation interest rates will be going higher.9-5 Suited wrote: ↑Sat Nov 27, 2021 10:34 pmAsking how to invest in bonds in a rising rate environment is like asking how to invest in stocks in a declining stock price environment. The question is fatally flawed because there is no such way to know you’re in that environment before it happens. Thus, you don’t invest in bonds differently today than you did a year ago.
Pick an AA you can stick with and match your bond duration to your investment horizon. That’s the answer to how to invest in bonds in a “rising rate environment”.