I completely agree that depending on the situation either one could be correct. What is important is for each person to examine this question and to determine the rationale that applies to him/her. I posted an example above, for instance, where a person's failure to examine this question would lead to absurd results and would cost you money down the road, all while subjecting the person to greater downside risk.KlangFool wrote: ↑Thu Apr 15, 2021 2:06 pmUALflyer,UALflyer wrote: ↑Thu Apr 15, 2021 1:45 pm
So, if you put aside liquidity and rebalancing considerations, the question is whether it makes sense for people to be collecting $10 in interest on their bonds while paying out $13 in interest on their mortgage? The answer will depend on the situation, but you do need to examine this question.
Why does it makes sense for you to think of it this way?
A) The money borrowed from the mortgage is invested ONLY in the bond portion of the portfolio
B) The money borrowed from the mortgage is invested in the WHOLE 60/40 portfolio.
(A) could be right. But, (B) is not wrong either.
As I've mentioned above, what you are saying here is also the primary reason that people tend to object to this term. In reality, there's no such assumption or implication, and all the posters in this thread who've used the term have explained this exact thing.That is my problem with the term, "negative bond". It assumes that only (A) is correct. I disagreed with that.
Again, regardless of the terminology, the point here is to encourage people to examine their rationale for holding bonds and to determine if there are better ways for them to achieve the same goals. In a lot of cases, the answer will be "no," but it's an important question to ask, as it'll be "yes" for lots of other people.
All that you're saying here is that you are using leverage for your investments. There's nothing wrong with that, but what is the purpose of the bonds in your asset allocation? It's to dampen volatility, correct?Why does it makes sense for me to pay off a 3.49% mortgage when my 60/40 portfolio returns a lot more than that? That would be my question back to you.
If you can sell the bond portion of that portfolio and pay off (not just pay down, but pay off) the mortgage, wouldn't you increase your net returns, while decreasing your downside risk and reducing your cashflow requirements? If, on the other hand, you don't have enough bonds to pay off the mortgage, then that's a totally different situation, as paying down the mortgage reduces your liquidity while keeping the cashflow requirements the same.