Rick Van Ness is a successful private investor and retired executive who provides investor education using online videos, short books, and workshops. Rick has an MBA in Finance and is a valuable contributor to our forum and our wiki. Below are excerpts from his latest book, Why Bother With Bonds:
Thank you, Rick!"Dedication:
To John C. Bogle, champion of ordinary investors, who points out the common sense amid all teh noise and confusion. You helped me see the difference between investing and speculating, and the genius in common sense.
To all Bogleheads. I learn from each of you. And more than anything, you've been excellent role models--generously sharing your wisdom, often anonymously."
"While education can be expensive, ignorance is generally far more costly, especially in the investment world." (From the Forward by Larry Swedroe)
"Bonds are a key ingredient in all good investment portfolios, and the part that assures great investor behavior."
"Bonds are simple interest-only loans."
"Although the stock market often commands more media attention, the bond market is bigger."
"Your allocation between stocks and bonds is your most important investment decision."
"Do you realize that stocks can lose in one day what bonds might lose in a year?"
"Saving part of every paycheck is your most important habit.
"Financial success starts with living below your means."
The Bogleheads site is arguably the internet's best discussion board and wiki for personal investing advice."
"People that don't develop a plan and commit to it are the ones most likely to make costly investment mistakes."
"For young investors, savings rate is more important than all the other investing advice we talk about.
"Here's a good rule of thumb: Stocks could lose 50% or more of their value in any year."
"You can get into trouble by chasing after high-yield bonds from companies with low credit ratings."
"Choose a fund of high-quality bonds that will add stability to your investment portfolio when the stock market plummets."
"A useful rule of thumb is that everyone should own between 20% and 80% bonds."
"Your overall ratio of stocks to bonds is the primary lever that controls volatility"
"U.S. Treasury bond returns have almost no correlation with stock returns--adding valuable stability to an investment portfolio."
"A money market fund is an ideal place to park your money temporarily."
"A bond price (not yield) always changes in the opposite direction as interest rates."
"Bond markets are extremely efficient (no free lunch)"
"Using past returns for bond funds is particularly dangerous and usually misleading."
"In addition to default risk, junk bonds tend to go south when the stock market tanks, exactly the wrong time!"
"Bond ladders are a collection of individual bonds; a self-managed fund."
"Should you own individual bonds or a bond fund? For most of us, a bond fund is the easy answer."
"Nearly all the risk from owning bonds is driven by two factors: the time to maturity and the credit quality of the issuer."
"The 30-day SEC Yield is the best way to compare bond funds."
"Never forget: With higher yield comes higher risk."
"Total return is ultimately what we care about--and we want this to be larger than inflation."
"The duration of a bond, or bond fund, is a measure of its price sensitivity to interest rate changes."
"There are currently a lot of people that think rates are so low that there is nowhere to move but up. They have thought this for six years now."
"Hold short or intermediate-term high-quality bonds based on when you need the money--avoid speculating on future interest rate changes."
"TIPS are special bonds where the principal adjusts with the consumer price index; TIPS investors win if inflation is higher than expected."
"Nominal interest rates are not inflation adjusted. Real interest rates have inflation subtracted out from them."
"If you are not choosing a Treasuries fund, or a total bond market fund, then you need to look a little closer about what you are investing in."
"Treasury instruments with a maturity of two to ten years are called notes; and maturities beyond ten years are called bonds."
"It is better to take risks in the stock market and use (high-quality) bonds to anchor the portfolio."
"It is tempting to think that deciding which fund to own will betermine your success, but it is very minor compared to your big decisions."
"Retirement is so costly it should be a primary focus for everybody. Any plan is better than no plan."
"There are significant advantages to begin saving for retirement as early as possible."
"Wave warning flags at yourself if you own investments earning less than your auto loan or credit card interest."
"A 4% draw from your investments can usually cover inflation-adjusted expenses for 30 years. Much more sophisticated models don't add more certainty."
"Each of us individually, must determine how much risk to take and how that translates to stocks and bonds."
"Key point: Treat your entire portfolio as a whole (including spouse)."
"Avoid judging yourself as having more ability or willingness to take stock market risk than you actually have, and then do a panic sell to get out of a plunging stock market."
"Caution: There are no guarantees that by choosing higher risk you'll achieve a higher return."
"Focusing on the long-term is far superior to focusing on the short term. It is a lesson too few investors have learned." (Bogle quote)
"Bear in mind that investing isn't science. Returns, correlations, and standard deviations vary over different time periods. Don't get bogged down in this or other investing models. Keep it simple."
"Choose a balance of stocks and bonds according to your unique circumstances--your investment objectives, your time horizon, your level of comfort with risk, and your financial resources. Then stick to your plan!"
John C. Bogle suggests a good starting point is to consider owning 'your age in bonds'."
"The loser's game is to be dazzled by the excitement and the chance to win big by hiring the right fund manager, actively trading stocks, and choosing the next winning mutual funds."
"Don't try to time the market. Buy what you need now. As hard as it is to time the stock market, it's even harder to time the bond market. Avoid speculating in interest rates."
"The pros and cons of international bonds seem to cancel each other. So when in doubt, choose simplicity. Stick with U.S. bonds."
"Use index funds for liquidity, low cost and diversification."
"If your transactions are long-term and infrequent, then you can consider an ETF fund if you don't have good low-cost mutual fund choices."
"If you are willing to put in the time and effort, you can actively mine long-term CDs with above-market yields and attractive withdrawal penalties."
"Start early to build a tax-advantaged account so that you'll have room to hold bonds there when you'll need it."
"Roth IRAs and Roth 401k's are ideal for young adults because you can withdraw the principal contributed without a penalty if you need to, making it an Emergency Fund."
"Investing doesn't require high IQ; It requires discipline."
"Start early. Keep it simple. Stick with your plan. And live life fully."
"Owning individual stocks is accepting additional risk that is uncompensated by the stock market."
"If your 401k only has poor fund choices, use it to get the company match, then use an IRA of your own. Later, roll your bad 401k to a self-managed IRA after you leave the company."
"You get to keep what you don't have to pay in fees."
"It is difficult for investors to let wisdom in and keep the noise out. The noise comes from people who have something to sell."
"The same base instincts that drive people to lottery tickets also drive them to buy books about how to beat the market."
"Develop radar for recognizing conflicts of interest. Go ahead and ask how they get compensated for selling you particular products."
"Go read about active investing. The vast weight of evidence is against this . Identify all your costs. Ultimately passive investing with index funds prevails. It's because of the lower cost."
"A total U.S. market index fund contains thousands of stocks/bonds weighted to their market capitalization."
"Cheapness uses price as a bottom line; frugality uses value as a bottom line."
"The marginal enjoyment from the bigger car, the bigger boat, the newest gadgets, has diminishing return. It keeps you from saving and investing adequately to eventually achieve financial freedom."
"The Bogleheads' forum is a wonderful resources. Ask any and all questions. This forum is loaded with some pretty astute individuals with no motive other than to help others succeed financially. It's one of the gems of the internet."
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