I agree. I'm not sure why, but many people on this thread seem to be talking about bonds as if they are 100% of most peoples' portfolio. I'm happy to continue holding bonds at my current allocation.TexasBorn wrote: ↑Sat Jan 15, 2022 8:10 am My 4 fund 30/70 portfolio returned 7.4% in 2021. I never lost a nights sleep when inflation was climbing.
My 4 fund retirement 90/10 portfolio returned 17.4%. I thought occasionally about it cratering, but my timeline is so far out, that gave me comfort.
I feel like this thread is for people who choose to be 100% bonds, right? Otherwise, isn’t the point of curbing inflation & protecting your money a product of your AA…?
I say bring on the bonds! I like sleeping.
Bonds: What Are They Doing? Are They Doing Things?? Let's Find Out!
Re: Bonds in free fall
Re: Bonds in free fall
It sure seems like it. I am always tempted to comment on bond threads that in the unlikeley event the only asset someone owns is bonds then . . . whatever special concern might apply. It goes to the mystery of why someone with a portfolio that meets their needs is so obsessed with the performance in isolation of one asset. I think it goes back to basically not understanding what holding a portfolio of assets is all about.dml130 wrote: ↑Mon Jan 17, 2022 10:26 amI agree. I'm not sure why, but many people on this thread seem to be talking about bonds as if they are 100% of most peoples' portfolio. I'm happy to continue holding bonds at my current allocation.TexasBorn wrote: ↑Sat Jan 15, 2022 8:10 am My 4 fund 30/70 portfolio returned 7.4% in 2021. I never lost a nights sleep when inflation was climbing.
My 4 fund retirement 90/10 portfolio returned 17.4%. I thought occasionally about it cratering, but my timeline is so far out, that gave me comfort.
I feel like this thread is for people who choose to be 100% bonds, right? Otherwise, isn’t the point of curbing inflation & protecting your money a product of your AA…?
I say bring on the bonds! I like sleeping.
Re: Bonds in free fall
I would buy LT US bonds when the long bond is at 4%+ and the US dollar index is 80, basically a return to the mid-2000s setup.
Amateur Self-Taught Senior Macro Strategist
Re: Bonds in free fall
Ten year TIPS yield now up to -.59%PVolker wrote: ↑Fri Jan 14, 2022 6:58 pmMagic 8 ball now says "unlikely." However, we are up to -.66%.PVolker wrote: ↑Fri Jan 07, 2022 4:42 pm I have a rung of ten year TIPS maturing on 1/15, with the January auction scheduled for 1/20. I've been expecting another -1% real yield, but Mr. Market is giving us signs of hope. The ten year real yield has risen .32% since the end of 2021 and now stands at -.72%. Will that go to 0% in the next 12 days? One can only hope!
https://www.treasury.gov/resource-cente ... =realyield
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
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Re: Bonds in free fall
I officially lost all the gains the last 2 years as of today.
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Re: Bonds in free fall
Looking forward to the auction this Thursday!Zardoz wrote: ↑Tue Jan 18, 2022 10:08 pmTen year TIPS yield now up to -.59%PVolker wrote: ↑Fri Jan 14, 2022 6:58 pmMagic 8 ball now says "unlikely." However, we are up to -.66%.PVolker wrote: ↑Fri Jan 07, 2022 4:42 pm I have a rung of ten year TIPS maturing on 1/15, with the January auction scheduled for 1/20. I've been expecting another -1% real yield, but Mr. Market is giving us signs of hope. The ten year real yield has risen .32% since the end of 2021 and now stands at -.72%. Will that go to 0% in the next 12 days? One can only hope!
https://www.treasury.gov/resource-cente ... =realyield
Re: Bonds in free fall
Me too but I'm buying a 52 week T-Bill.
(The T-bill announcement is Thursday, the auction next week. Tuesday? Ten year TIPS auction is Thursday.)
https://home.treasury.gov/system/files/ ... Q42021.pdf
Given the 3, 4, 5 (?) expected rate hikes over the next year, a 52 week T-bill gives me enough inflation protection for a year or so.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
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Re: Bonds in free fall
Maybe the nominal bond losses have finally been staunched.
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Re: Bonds in free fall
Back down a bit today, but it sure beats -1.0-%. I think it was -.98% in last January's ten year TIPS auction.Zardoz wrote: ↑Tue Jan 18, 2022 10:08 pmTen year TIPS yield now up to -.59%PVolker wrote: ↑Fri Jan 14, 2022 6:58 pmMagic 8 ball now says "unlikely." However, we are up to -.66%.PVolker wrote: ↑Fri Jan 07, 2022 4:42 pm I have a rung of ten year TIPS maturing on 1/15, with the January auction scheduled for 1/20. I've been expecting another -1% real yield, but Mr. Market is giving us signs of hope. The ten year real yield has risen .32% since the end of 2021 and now stands at -.72%. Will that go to 0% in the next 12 days? One can only hope!
https://www.treasury.gov/resource-cente ... =realyield
ETA: I spoke too soon. Closed at -.57%. Fun times!
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Re: Bonds in free fall
Well I increased duration again today. More losses incoming?
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Re: Bonds in free fall
OK, I am curious, why did you increase duration?
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Re: Bonds in free fall
The cognitive dissonance of "you can't time the market!"/"no one knows nuthin!" with the boglehead tradition of calling the shots on interest rates, bond prices, and the future of fixed income is mildly amusing
Re: Bonds in free fall
I don't think they are actually going to raise rates this time around.
Re: Bonds in free fall
The last time the market had a negative reaction to rate guidance the Fed did capitulate under Bernanke. However, he wasn't dealing with 7% inflation either. The best case is that they delay and hope inflation comes down magically. However, the long end of the curve is moving up despite the Fed continuing to buy long dated treasuries. I wouldn't buy long duration unless I was buying actual bonds and planned to hold to maturity.
Re: Bonds in free fall
What's the difference between holding the actual bonds for 20 years and holding a long duration bond fund for the same amount of time?
Re: Bonds in free fall
Yes, in the shortish term, it's your personal rate that matters. If you own your home and aren't buying a car, you are probably not seeing nearly as much.Tom_T wrote: ↑Sat Jan 08, 2022 10:40 amEveryone's been citing real rates of return lately, and I have an issue/question. Inflation may be 6%, but there is no question that it was not nearly that for most of my expenses last year. Gas/groceries, yes, but a good 2/3 of my expenses were in line with prior years. So I'm having trouble thinking "I'm losing x% real", because that's not really true for my expenses. I don't know if I'm thinking about this the wrong way, but it seems to make sense for me to consider my personal inflation rate, no?Robot Monster wrote: ↑Sat Jan 08, 2022 9:59 amI'm 10% cash, and am honestly unsure if that is the best move. Jeremy Siegel expects the curve to invert, and for stocks to do well this year, so it's very possible I won't be able to deploy my cash into any kind of bond/stock downturn. Siegel expects inflation to rage on, so even though he thinks the Fed Funds rate will reach 2%, that still might translate into negative real rates of perhaps -3% or -4% on cash.Tom_T wrote: ↑Sat Jan 08, 2022 9:28 am I don't really mind holding some cash as part of my fixed allocation right now. I'd like to see how things shake out. This isn't like stocks -- it's not like having cash is going to cost me a 25% rise in bonds. In the meantime, I've maxxed out i Bonds for 2021 and 2022, and will continue to add to them each year. And I have some stable value in my 401K. (I'm 63, so my situation is certainly different than someone in the accumulation stage.)
Mine is actually lower due to covid. I've eaten in a restaurant 6 times since March of 2020. It was 1-2 nights per week before. Even if I do take out, the bill is still less than half of what it would have been due to lack of alcohol.
Longer-term, it does matter generically since it will eventually result in higher prices for everything.
One important point: I found a picture I had taken in 2010 or 2011 showing 87 gas at $3.77/gallon at a crappy gas station. It's only $3.15 now.
Re: Bonds in free fall
There is no guarantee that a bond fund will hold its bonds to maturity. I also don't pay an ER.km91 wrote: ↑Wed Jan 19, 2022 11:31 pmWhat's the difference between holding the actual bonds for 20 years and holding a long duration bond fund for the same amount of time?
Now, I get holding a bond fund when buying foreign bonds as it's prohibitively expensive to buy foreign government bonds.
Re: Bonds in free fall
Not much, as long as you hold the bond fund for a little longer than its average stated duration. People just get weird about the interim NAV changes, because they can see it on a chart and it makes them feel funny. Same thing happens with individual bonds, but you're not constantly marking them to market to see what they're worth right now (at least I hope nobody does that, that sounds terrible).km91 wrote: ↑Wed Jan 19, 2022 11:31 pmWhat's the difference between holding the actual bonds for 20 years and holding a long duration bond fund for the same amount of time?
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Re: Bonds in free fall
My ladder of individual TIPS is held at Fidelity, and they graciously provide me with an updated total worth each and every day that the markets are open. Since I will hold them all to maturity, I am fully aware that even as inflation drives the values higher, the above-market coupon rates (some as high as .875%) will drive them lower over time.Beensabu wrote: ↑Wed Jan 19, 2022 11:54 pm People just get weird about the interim NAV changes, because they can see it on a chart and it makes them feel funny. Same thing happens with individual bonds, but you're not constantly marking them to market to see what they're worth right now (at least I hope nobody does that, that sounds terrible).
Fun fact: the 10 year TIPS yielded -.54% at today's auction. That ain't "good," but it's a lot better than it would have been over the last year or so.
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Re: Bonds in free fall
"Pimco Says Treasuries ‘Becoming More Attractive’ After Selloff"Bloomberg link
Geraldine Sundstrom says bonds are ‘closer to fair area’
‘Market probably going over its skis’ on rate-hike bets
Pimco may soon reconsider its underweight stance on long-duration government bonds that have already taken a big beating in the new-year selloff.
Geraldine Sundstrom, a portfolio manager focused on asset allocation strategies at Pacific Investment Management Co. in London, said Treasury yields are starting to look appealing after soaring more than 30 basis points since the start of 2022.
Re: Bonds in free fall
Hmm just thinking through the mechanics:
10k invested in a 20 year bond paying 2% returns 2% every year and then the 10k principal after 20 years. There are usually no commissions to buy individual bonds or yearly charges for holding them. Pretty simple and very predictable.
Meanwhile, 10k invested in a bond fund with a 20 year duration on the same day pays not exactly 2%, because the fund contains a mixture of bonds, some with longer duration that 20 years and some with shorter duration than 20 years, and those bonds may pay different rates. And the fund may also sell bonds before they mature, if the yield curve is favorable. The fund will also charge a small management fee which reduces returns slightly.
After 20 years, if the investor in the bond fund wants their principal, they need to sell their shares in the fund. Since the fund maintains a constant duration, selling shares in the fund means taking the market price for the bonds which make up the fund. Since interest rates have likely changed since the fund made its bond purchases, selling shares of the fund will very likely return either less than the original 10k investment (a capital loss) or greater than the 10k investment (a capital gain).
Overall it seems that holding duration matched individual bonds provides a more predictable outcome. The bond fund may provide returns which are similar (or better, or worse), but it will be less predictable.
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
Re: Bonds in free fall
The biggest difference is that at the end of 20 years the holder of an individual bond gets a pile of cash that has to be invested and the holder of a long bond fund still owns a long bond fund.km91 wrote: ↑Wed Jan 19, 2022 11:31 pmWhat's the difference between holding the actual bonds for 20 years and holding a long duration bond fund for the same amount of time?
The actual return for the twenty year period can vary between the two depending on what interest rates do over that period. A risk that will arise when the 20 year bond matures is reinvestment risk that the cash cannot be reinvested at the same yield as before.
It really all depends on what the purpose of your investment is.
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Re: Bonds in free fall
Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
The Sensible Steward
Re: Bonds in free fall
There should be a bot that automatically deletes any post that uses the word "safe." I guess the bot would have to be smart enough not to delete posts that talk about posts using that word. I don't know if SWR would be an end run around that.willthrill81 wrote: ↑Fri Jan 21, 2022 10:14 am Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
Re: Bonds in free fall
s/safe/relatively safe/
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
Re: Bonds in free fall
Whether an asset is "safe" or not does not depend on how volatile it's price is, and perhaps not even on whether it loses or gains "buying power".willthrill81 wrote: ↑Fri Jan 21, 2022 10:14 am Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
An asset is considered to be risk-free if its income stream reliably matches its expected income stream, measured in whatever terms the investors liabilities are measured.
An investor with a nominal liability would find a nominal bond to be the most "safe". An investor with a real liability would find an inflation indexed bond to be the most "safe". A loss of "buying power" would be irrelevant to the former and critically important to the later.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: Bonds in free fall
The problem is not with the degree; it is with the meaning. It is probably better with investing to just describe in plain language or with math what actually happens and let the reader interpret the implications of those facts and estimates.
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Re: Bonds in free fall
We've discussed this before, and while I partly agree with the premise of your argument, it seems to me that relatively few of the liabilities that retail investors have are purely nominal besides fixed rate debt (e.g., mortgage).vineviz wrote: ↑Fri Jan 21, 2022 10:23 amWhether an asset is "safe" or not does not depend on how volatile it's price is, and perhaps not even on whether it loses or gains "buying power".willthrill81 wrote: ↑Fri Jan 21, 2022 10:14 am Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
An asset is considered to be risk-free if its income stream reliably matches its expected income stream, measured in whatever terms the investors liabilities are measured.
An investor with a nominal liability would find a nominal bond to be the most "safe". An investor with a real liability would find an inflation indexed bond to be the most "safe". A loss of "buying power" would be irrelevant to the former and critically important to the later.
Also, non-volatility is only one of several ways that 'safe' could be defined.
The Sensible Steward
Re: Bonds in free fall
Alright, I hear your feedback on the alpha version and made some updates: s/safe/safe-ish (see disclaimers)/.
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
Re: Bonds in free fall
While these are good observations, I think you have to go back to a fundamental fact that words like risk and safe are not fully defined. Risk should be completed by saying "risk of X" where X is something specific. Your example is a very reasonable example of an X that a person might well be interested in, but it is not the only possible X.vineviz wrote: ↑Fri Jan 21, 2022 10:23 amWhether an asset is "safe" or not does not depend on how volatile it's price is, and perhaps not even on whether it loses or gains "buying power".willthrill81 wrote: ↑Fri Jan 21, 2022 10:14 am Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
An asset is considered to be risk-free if its income stream reliably matches its expected income stream, measured in whatever terms the investors liabilities are measured.
An investor with a nominal liability would find a nominal bond to be the most "safe". An investor with a real liability would find an inflation indexed bond to be the most "safe". A loss of "buying power" would be irrelevant to the former and critically important to the later.
There is a tendency for words like this to be used without saying the X in certain discussions where the X is understood or conventional. Your example probably falls in that area for some people. Another example is the implicit understanding that investment risk is defined as the standard deviation of periodic returns, conventional in some disciplines. I think it is a good idea to use plain language to be explicit regarding what one is talking about. That does take more time and attention from both writers and readers.
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Re: Bonds in free fall
I 100% agree.
While it's understandable that people want to make investing as approachable for those unfamiliar with it, resulting in strong temptation to overly simplify matters, there is no good substitute for clarity and precision of terms.
Even in peer-reviewed academic papers regarding popular topics, failing to precisely define the variable(s) of interest is a surefire way to get quickly rejected.
The Sensible Steward
Re: Bonds in free fall
Risk has a very well defined meaning, IMHO: a risk is an event which, if it occurs, results in an unexpected loss. This is the common definition used in the field of risk management and fully captures the logic behind Markowitz's use of single-period variance in his stylized mean-variance framework. A "risk-free asset" is simply one that cannot produce "an unexpected loss".dbr wrote: ↑Fri Jan 21, 2022 10:41 am
While these are good observations, I think you have to go back to a fundamental fact that words like risk and safe are not fully defined. Risk should be completed by saying "risk of X" where X is something specific. Your example is a very reasonable example of an X that a person might well be interested in, but it is not the only possible X.
Perhaps investors in nominal bonds actually do have real liabilities. This would be unfortunate, since there is no reasonable way to form an accurate expectation about the future real value of a nominal cash flow. At least, not an real value which doesn't have a very significant likelihood of resulting in an unexpected loss.
On the other hand, a default-free nominal bond cannot produce an unexpected nominal loss when the bond is held to duration.
And a default-free inflation-linked bond cannot produce an unexpected real loss when the bond is held to duration.
Cross the terms, though, and all bets are off. Investors with real liabilities are exposed to risk when they buy nominal bonds, and investors with nominal liabilities are exposed to risk when they buy real bonds.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Bonds in free fall
"Overseas Treasury Buyers See Window for Best Yields Since 2016"
-->After-hedging-cost yields jump to the highest in years
-->But chance may be brief, with Fed hikes set to roil calculus
-->After-hedging-cost yields jump to the highest in years
-->But chance may be brief, with Fed hikes set to roil calculus
Bloomberg linkThe clock is ticking on a foreign-exchange-market phenomenon that has made U.S. Treasuries a major draw to foreign buyers looking for bigger yields than they can get at home.
The Treasury selloff since the start of the year has given European and Japanese investors the chance to pick up the highest yields in six years, after currency-hedging costs are taken into account.
Re: Bonds in free fall
Applying that definition to personal finance implies almost nothing is safe.vineviz wrote: ↑Fri Jan 21, 2022 12:30 pm Risk has a very well defined meaning, IMHO: a risk is an event which, if it occurs, results in an unexpected loss. This is the common definition used in the field of risk management and fully captures the logic behind Markowitz's use of single-period variance in his stylized mean-variance framework. A "risk-free asset" is simply one that cannot produce "an unexpected loss".
Perhaps investors in nominal bonds actually do have real liabilities. This would be unfortunate, since there is no reasonable way to form an accurate expectation about the future real value of a nominal cash flow. At least, not an real value which doesn't have a very significant likelihood of resulting in an unexpected loss.
On the other hand, a default-free nominal bond cannot produce an unexpected nominal loss when the bond is held to duration.
And a default-free inflation-linked bond cannot produce an unexpected real loss when the bond is held to duration.
Cross the terms, though, and all bets are off. Investors with real liabilities are exposed to risk when they buy nominal bonds, and investors with nominal liabilities are exposed to risk when they buy real bonds.
Most people have major nominal liabilities only for repayment of existing debt. Matching a stream of mortgage payments due with bonds is safe by definition but likely a worse choice than just prepaying. Worse still for credit cards.
One might rent a home with a fixed rent for a year or two, or have a mobile phone plan at a temporarily fixed price. Since the duration of the nominal portion is short, only short-term nominal bonds are safe for these.
Future spending on goods and services would be subject to inflation beyond such briefly fixed prices. This makes TIPS seem safe, but the duration of expenses isn't really known, so a TIPS portfolio can be duration-matched only in a very approximate way.
Series I savings bond seem the closest to safe for real liabilities of unknown duration. At least they have a known real return if held between 5 and 30 years. Unfortunately the taxable portion is still uncertain, and there is the pesky annual purchase limit.
Re: Bonds in free fall
Were you referring to some post in particular or just wanted to bring this up?willthrill81 wrote: ↑Fri Jan 21, 2022 10:14 am Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
Nothing in life is perfectly safe. There is no bond without default risk. But bonds are for safety against stock risk. They are not the only choice but they have their own ups and downs.
BTW bonds are soaring today.
Maybe I should change the title to Bonds: what are they up to today? or Bonds: what are they doing today? or Bonds continue to move or Bonds: soaring or sinking?. Anyone have thoughts on that?
Re: Bonds in free fall
my vote is for Bonds: what are they doing today? but maybe others have better ideas000 wrote: ↑Fri Jan 21, 2022 3:13 pmWere you referring to some post in particular or just wanted to bring this up?willthrill81 wrote: ↑Fri Jan 21, 2022 10:14 am Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
Nothing in life is perfectly safe. There is no bond without default risk. But bonds are for safety against stock risk. They are not the only choice but they have their own ups and downs.
BTW bonds are soaring today.
Maybe I should change the title to Bonds: what are they up to today? or Bonds: what are they doing today? or Bonds continue to move or Bonds: soaring or sinking?. Anyone have thoughts on that?
Re: Bonds in free fall
000 wrote: ↑Fri Jan 21, 2022 3:13 pmWere you referring to some post in particular or just wanted to bring this up?willthrill81 wrote: ↑Fri Jan 21, 2022 10:14 am Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
Nothing in life is perfectly safe. There is no bond without default risk. But bonds are for safety against stock risk. They are not the only choice but they have their own ups and downs.
BTW bonds are soaring today.
Maybe I should change the title to Bonds: what are they up to today? or Bonds: what are they doing today? or Bonds continue to move or Bonds: soaring or sinking?. Anyone have thoughts on that?
Today:
BND +0.37%
VOO -1.94%
QQQ -2.77%
VXUS -1.44%
Re: Bonds in free fall
I'm still partial to this poster's suggestion for the merged free-fall/soaring mega-thread:
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Re: Bonds in free fall
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Re: Bonds in free fall
There is a prominent poster who has made the above statement too many times to count.000 wrote: ↑Fri Jan 21, 2022 3:13 pmWere you referring to some post in particular or just wanted to bring this up?willthrill81 wrote: ↑Fri Jan 21, 2022 10:14 am Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
The Sensible Steward
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Re: Bonds in free fall
Safety is only relative and it depends on what one is trying to protect against.willthrill81 wrote: ↑Fri Jan 21, 2022 4:24 pmThere is a prominent poster who has made the above statement too many times to count.000 wrote: ↑Fri Jan 21, 2022 3:13 pmWere you referring to some post in particular or just wanted to bring this up?willthrill81 wrote: ↑Fri Jan 21, 2022 10:14 am Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
Bonds are safe in that you won't expect to lose 50% of your buying power in a year. Stocks should be expected to do so a few times in one's investing time frame.
If trying to protect a long term portfolio against losing purchasing power, bonds are terrible.
If trying to protect against short term significant losses and to dampen portfolio volatility, bonds are fine.
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Re: Bonds in free fall
I think the issue is we get into a lot of questions about interpretation and context.willthrill81 wrote: ↑Fri Jan 21, 2022 4:24 pmThere is a prominent poster who has made the above statement too many times to count.000 wrote: ↑Fri Jan 21, 2022 3:13 pmWere you referring to some post in particular or just wanted to bring this up?willthrill81 wrote: ↑Fri Jan 21, 2022 10:14 am Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
The S&P 500 has never had a negative return over 20 years going back to 1919.
Five-year treasuries have never had a negative return over 7 years going back to 1926. Stocks have been positive in 95% of those periods.
The worst historical drawdowns for stocks over short periods far exceed the worst drawdowns for bonds over similar periods.
But we also need to consider all types of risk. Short-term risk (selling stocks when they are down and depleting the portfolio) is one thing, long-term risk (bond heavy portfolio not surviving 50 years) is another. I know you know this, but I think it just means it's too simple to say "bonds are safe" is either right or wrong; it depends on the context in which it's being written IMO.
EDIT: TDG beat me to most of this but I spent ten minutes on it so I'm keeping it
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Re: Bonds in free fall
Agreed.Triple digit golfer wrote: ↑Fri Jan 21, 2022 4:36 pmSafety is only relative and it depends on what one is trying to protect against.willthrill81 wrote: ↑Fri Jan 21, 2022 4:24 pmThere is a prominent poster who has made the above statement too many times to count.000 wrote: ↑Fri Jan 21, 2022 3:13 pmWere you referring to some post in particular or just wanted to bring this up?willthrill81 wrote: ↑Fri Jan 21, 2022 10:14 am Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
Bonds are safe in that you won't expect to lose 50% of your buying power in a year. Stocks should be expected to do so a few times in one's investing time frame.
If trying to protect a long term portfolio against losing purchasing power, bonds are terrible.
If trying to protect against short term significant losses and to dampen portfolio volatility, bonds are fine.
The Sensible Steward
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Re: Bonds in free fall
It reminds me of Einstein's quote that "Everything should be made as simple as possible but not simpler."canadianbacon wrote: ↑Fri Jan 21, 2022 4:42 pmI know you know this, but I think it just means it's too simple to say "bonds are safe" is either right or wrong; it depends on the context in which it's being written IMO.
There are many here who I'm sure have the best of intentions toward making personal finance as accessible to the general public as possible, and that's needful. But oversimplifying matters by saying things like 'bonds are safe' is a bridge too far.
The Sensible Steward
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Re: Bonds in free fall
canadianbacon wrote: ↑Fri Jan 21, 2022 4:42 pmI think the issue is we get into a lot of questions about interpretation and context.willthrill81 wrote: ↑Fri Jan 21, 2022 4:24 pmThere is a prominent poster who has made the above statement too many times to count.000 wrote: ↑Fri Jan 21, 2022 3:13 pmWere you referring to some post in particular or just wanted to bring this up?willthrill81 wrote: ↑Fri Jan 21, 2022 10:14 am Can we please, please, PLEASE retire the erroneous statement that 'bonds are safe'?
An instrument that has lost 10% of its buying power in a single year is not 'safe'.
The S&P 500 has never had a negative return over 20 years going back to 1919.
Five-year treasuries have never had a negative return over 7 years going back to 1926. Stocks have been positive in 95% of those periods.
The worst historical drawdowns for stocks over short periods far exceed the worst drawdowns for bonds over similar periods.
But we also need to consider all types of risk. Short-term risk (selling stocks when they are down and depleting the portfolio) is one thing, long-term risk (bond heavy portfolio not surviving 50 years) is another. I know you know this, but I think it just means it's too simple to say "bonds are safe" is either right or wrong; it depends on the context in which it's being written IMO.
EDIT: TDG beat me to most of this but I spent ten minutes on it so I'm keeping it
Re: Bonds in free fall
If you plan to have bonds as some constant portion of your asset allocation, bonds are safe. The only risk is the mark to market risk of looking at the value of your bond fund on the screen everyday.willthrill81 wrote: ↑Fri Jan 21, 2022 4:48 pmIt reminds me of Einstein's quote that "Everything should be made as simple as possible but not simpler."canadianbacon wrote: ↑Fri Jan 21, 2022 4:42 pmI know you know this, but I think it just means it's too simple to say "bonds are safe" is either right or wrong; it depends on the context in which it's being written IMO.
There are many here who I'm sure have the best of intentions toward making personal finance as accessible to the general public as possible, and that's needful. But oversimplifying matters by saying things like 'bonds are safe' is a bridge too far.
Re: Bonds in free fall
A right tail good/great case, such as the US over the last century+ will tend to exhibit such characteristic. For other more average cases the situation tends to differ. Fundamentally its a currency factor, all fiat currencies have a tendency to decline over time and in the average case a 20 year negative real stock total returns will be encountered. When so foreign currencies invested in foreign stocks can mitigate the loss. UK Pounds/stocks/inflation 1901 to 1920 total real returns compounded to a -33% loss or thereabouts, whilst a UK investor in US$/stocks over the same period saw a +33% real gain. 50/50 of both initial bought and held (no rebalancing) or 50/50 yearly rebalanced resulted in around a 0% real compounded 20 year total return.canadianbacon wrote: ↑Fri Jan 21, 2022 4:42 pmThe S&P 500 has never had a negative return over 20 years going back to 1919.
Absolute trust/faith in ones own fiat currency, even when dominant (primary reserve currency) and seemingly supreme, can/will falter sooner or later. Not IF, but WHEN. If your 30 year/whatever investment horizon coincides with a stumble/fall then both stocks and bonds can fail to live up to expectations, inflation (currency devaluation) being the common factor.
There is the TINA (there is no alternative) belief for the US$ continuing to remain being the primary reserve currency, however others are seeking out alternatives and to assume none will be found/adopted during the next 30/whatever years is perhaps too optimistic, especially given the petro-dollar situation in a world that is looking to move away from great dependency upon oil. Petro-dollar is Arabian oil producers agreeing to buy/price oil in US$ and with any surplus/profits to buy US treasuries.
The claim that many US stocks have global earnings is at risk of many firms opting to hedge their FX exposure to the country/currency they report in, so that earnings reported domestically are more stable/consistent i.e. negates the potential benefit from holding foreign currencies.