- Government. This includes Treasuries, but also other things that don't have the full backing of the government. More on that in a separate post.
- Corporate.
- Securitized.
But for the rest of us, who don't mind holding our bonds across a few funds, should we include securitized?
According to the Bond Basics wiki:
- Bill Bernstein says only short term Treasuries. So, no securitized.
- Jack Bogle says TBM is "fine", but "vaguely wonders" about securitized because of negative convexity.
- Larry Swedroe argues against TBM because of the negative convexity; presumably he's against securitized bonds too.
- David Swensen says only Treasuries.
- Rick Ferri is ok with investment-grade corporates and high-yield bonds, not sure about securitized.
The wiki page on mortgage-backed securities says they "are among the most complex securities in the fixed income asset class." So my thoughts: any financial instrument that's complex is hard to value, and anything that's hard to value will tend to rise when times are good, then fall unexpectedly in bad times. Like sub prime during the 2008 recession. Or as Warren Buffett has said, "only when the tide goes out do you know who has been swimming naked."
For the goal of not running out of money in retirement, as opposed to eking out a little more gain during good times, is anyone aware of research on securitization and whether it helps or hurts during long bear markets?
And finally, any thoughts on whether to hold it if you don't mind the added complexity in your portfolio?