Please reference and link any papers and/or articles which have supporting math for a re-balancing plans being superior.KlangFool wrote: ↑Sat Jan 15, 2022 10:29 amsmitcat,smitcat wrote: ↑Sat Jan 15, 2022 9:21 am Here is the key post in that rebalancing thread (cut and paste)...
RE: PSA: Fixed AA with 5/25 rebalancing works!
Post by csh » Sun Jan 24, 2021 5:37 pm
KlangFool wrote: ↑Sun Jan 10, 2021 11:56 am
1) My SCV bought in March 2020 is up 95%. Almost double.
2) My international bought in March 2020 is up 63%.
3) My US stock index bought in March 2020 is up 66%.
You seem to be implying that there is a rebalancing bonus with this strategy. In the near term I think you are correct, but this does not hold out in the long term.
The correct answer is the actual portfolio return is highly dependent on the individual portfolio sequence of return. We only live once. We only have one sequence of return. It is not a simple addition of return of the stock plus return of the bond.
<<In the near term I think you are correct, but this does not hold out in the long term. >>
The correct answer is we do not know how it would work out in the long term either. Ditto for the short term.
KlangFool
Will BND return be negative in 2022
Re: Will BND return be negative in 2022
Re: Will BND return be negative in 2022
Can you break that down in 10-year increments? Ending in 1981 might be a bit misleading because of double-digit inflation in late 70s, early 80s.willthrill81 wrote: ↑Mon Jan 10, 2022 11:31 amPast is not prologue, especially with bonds. Bond yields and inflation of the past have little to no bearing on the future performance of bonds.
Bonds returned -1.6% real from 1941-1981. Extended periods of negative real returns on bonds are far from unprecedented and could certainly happen again.
Or how about 1941-1951, 1941-1961, and 1941-1971?
Rising interest rates don't really kill bond funds. Inflation is the real danger.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Bonds are for safety during stock market declines
Meh... if the market is down 50%, and bonds are down 2%, even with a negative return, I would feel that bonds did their job as a "safe" haven.000 wrote: ↑Mon Jan 10, 2022 3:52 pmGetting a non-negative return is pretty important for an investment to be considered safe though.Taylor Larimore wrote: ↑Mon Jan 10, 2022 11:55 am Bogleheads:
Two facts about bonds and a conclusion:
Bond returns are secondary. We buy bonds for safety when stocks fall.
Bonds with the highest returns are usually the worst when stocks fall.
Investors seeking higher returns (and more risk of loss) should increase their stock allocations.
Best wishes
TaylorJack Bogle's Words of Wisdom: "The Lehman Bond Index (total bond market), in substance, is an appropriate choice for investors with an intermediate-term time horizon and seeking top quality."
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Will BND return be negative in 2022
Why is that necessary? It is basic common sense. Aka, whether re balancing would work out better is dependent on a specific sequence of returns.smitcat wrote: ↑Sat Jan 15, 2022 11:58 amPlease reference and link any papers and/or articles which have supporting math for a re-balancing plans being superior.KlangFool wrote: ↑Sat Jan 15, 2022 10:29 amsmitcat,smitcat wrote: ↑Sat Jan 15, 2022 9:21 am Here is the key post in that rebalancing thread (cut and paste)...
RE: PSA: Fixed AA with 5/25 rebalancing works!
Post by csh » Sun Jan 24, 2021 5:37 pm
KlangFool wrote: ↑Sun Jan 10, 2021 11:56 am
1) My SCV bought in March 2020 is up 95%. Almost double.
2) My international bought in March 2020 is up 63%.
3) My US stock index bought in March 2020 is up 66%.
You seem to be implying that there is a rebalancing bonus with this strategy. In the near term I think you are correct, but this does not hold out in the long term.
The correct answer is the actual portfolio return is highly dependent on the individual portfolio sequence of return. We only live once. We only have one sequence of return. It is not a simple addition of return of the stock plus return of the bond.
<<In the near term I think you are correct, but this does not hold out in the long term. >>
The correct answer is we do not know how it would work out in the long term either. Ditto for the short term.
KlangFool
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Re: Bonds are for safety during stock market declines
In March 2020, the stock went down 30+% and the bond went down 7%. The bond did its job and those rebalance in March 2020 benefited.HomerJ wrote: ↑Sat Jan 15, 2022 12:05 pmMeh... if the market is down 50%, and bonds are down 2%, even with a negative return, I would feel that bonds did their job as a "safe" haven.000 wrote: ↑Mon Jan 10, 2022 3:52 pmGetting a non-negative return is pretty important for an investment to be considered safe though.Taylor Larimore wrote: ↑Mon Jan 10, 2022 11:55 am Bogleheads:
Two facts about bonds and a conclusion:
Bond returns are secondary. We buy bonds for safety when stocks fall.
Bonds with the highest returns are usually the worst when stocks fall.
Investors seeking higher returns (and more risk of loss) should increase their stock allocations.
Best wishes
TaylorJack Bogle's Words of Wisdom: "The Lehman Bond Index (total bond market), in substance, is an appropriate choice for investors with an intermediate-term time horizon and seeking top quality."
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Re: Will BND return be negative in 2022
FWIW, there's a bit more history on the US Agg Bnd index prior to the start of Vanguard's fund.ebeb wrote: ↑Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects.
Worst period appears to be the just over 2 year period from mid-1979 to late 1981.
Not only underwater across the period, at one point was down more than -10%
MStar Chart
The thing about bonds though, as long as they're of a good credit quality, they are a promise of a return of all your principal and interest as long as you hold them to maturity. I don't buy bonds (or bond funds) that have a relative maturity longer than I expect to hold them.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: Will BND return be negative in 2022
True for individual bonds unless the issuer goes insolvent. But not sure about bond funds with 6.8 years duration whether the (sellprice + interestaccumulated - taxes - initialpurchase) would be positive or negative in 6.8 years one just hopes it will be positive.JoMoney wrote: ↑Sat Jan 15, 2022 12:10 pm The thing about bonds though, as long as they're of a good credit quality, they are a promise of a return of all your principal and interest as long as you hold them to maturity. I don't buy bonds (or bond funds) that have a relative maturity longer than I expect to hold them.
Last edited by ebeb on Sat Jan 15, 2022 1:03 pm, edited 1 time in total.
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
Re: Will BND return be negative in 2022
The maturity of the bonds in a portfolio with a 6.8 year "duration" would likely be much longer than 6.8 years.ebeb wrote: ↑Sat Jan 15, 2022 12:33 pmTrue for individual bonds unless the issuer goes insolvent. But not sure about bond funds with 6.8 years duration whether the (sell price - initial purchase+interest) would be positive or negative in 6.8 years one just hopes it will be positive.JoMoney wrote: ↑Sat Jan 15, 2022 12:10 pm The thing about bonds though, as long as they're of a good credit quality, they are a promise of a return of all your principal and interest as long as you hold them to maturity. I don't buy bonds (or bond funds) that have a relative maturity longer than I expect to hold them.
I've been told on here, that you should be able to expect break-even by holding for the period of the duration, but not necessarily garnering the principal return +interest.
If you want to get close to the return of holding to maturity, you would need to hold bond fund(s) with a duration similar to a ladder of bonds maturing over some time period, and manage the fund portfolio to decrease the portfolios duration to make it match that of a laddered portfolio of bonds as each rung matures.
I'm not sure it's a correct way to do this, but I've used a rough estimation that a bond ladder portfolio would have a duration of roughly half the longest maturity bond. e.g. If you had a bond ladder with rungs maturing in 1 year, 2 years, 3 years, 4 years, and the last 5 years out - the duration of that portfolio would be roughly 2.5 years. So a bond fund fund with a duration 6.8 years would be roughly similar to that of a laddered portfolio of 1 to 13+ years out, and each year you hold it you would need to gradually mix in lower duration bonds to match the equivalent change in a laddered portfolio.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Will BND return be negative in 2022
I think BND could be negative or positive at year end.
Re: Will BND return be negative in 2022
This.
True. However, the benefit is that the conversation will invariably help OP and others...and those who choose to adopt will also pass it forward, etc.burritoLover wrote: ↑Mon Jan 10, 2022 8:32 am All these "what will asset X do in 2022" are pointless threads. No one knows. Not sure why you would be changing your bond allocation year-to-year based on some forecast - It is pointless to listen to even financial geniuses' on predictions, let alone some DIY dudes in a forum.
Re: Will BND return be negative in 2022
I suspect short, medium, & long term bonds will have a slightly negative return this year.
If one is Reinvesting the dividend each month, maybe you will have a positive relative return.
I purchased some TBM ( VTC - etf class ) this week - glad I did. Probably more in the future.
In my taxable account, I plan to sell some short & medium term Bond ETF’s to harvest LT Cap Loss to offset some LT Cap Gains
of Stock’s I sold in early January - This is a planned AA adjustment / rebalancing action ( not market timing ).
Good discussion in this thread - thank you.
If one is Reinvesting the dividend each month, maybe you will have a positive relative return.
I purchased some TBM ( VTC - etf class ) this week - glad I did. Probably more in the future.
In my taxable account, I plan to sell some short & medium term Bond ETF’s to harvest LT Cap Loss to offset some LT Cap Gains
of Stock’s I sold in early January - This is a planned AA adjustment / rebalancing action ( not market timing ).
Good discussion in this thread - thank you.
- willthrill81
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Re: Will BND return be negative in 2022
Below are the real returns for intermediate-term Treasuries from the Simba backtesting spreadsheet.HomerJ wrote: ↑Sat Jan 15, 2022 12:04 pmCan you break that down in 10-year increments? Ending in 1981 might be a bit misleading because of double-digit inflation in late 70s, early 80s.willthrill81 wrote: ↑Mon Jan 10, 2022 11:31 amPast is not prologue, especially with bonds. Bond yields and inflation of the past have little to no bearing on the future performance of bonds.
Bonds returned -1.6% real from 1941-1981. Extended periods of negative real returns on bonds are far from unprecedented and could certainly happen again.
Or how about 1941-1951, 1941-1961, and 1941-1971?
Rising interest rates don't really kill bond funds. Inflation is the real danger.
1941-1950: -3.65%
1951-1960: +0.45%
1961-1970: +0.48%
1971-1980: -3.11%
I agree that inflation is the biggest danger to bondholders, which is why I've long advocated for inflation-linked bonds over nominals.
The Sensible Steward
Re: Will BND return be negative in 2022
The problem with inflation linked is that these returns are built in from the start. You know what you're getting.willthrill81 wrote: ↑Sat Jan 15, 2022 2:02 pmBelow are the real returns for intermediate-term Treasuries from the Simba backtesting spreadsheet.HomerJ wrote: ↑Sat Jan 15, 2022 12:04 pmCan you break that down in 10-year increments? Ending in 1981 might be a bit misleading because of double-digit inflation in late 70s, early 80s.willthrill81 wrote: ↑Mon Jan 10, 2022 11:31 amPast is not prologue, especially with bonds. Bond yields and inflation of the past have little to no bearing on the future performance of bonds.
Bonds returned -1.6% real from 1941-1981. Extended periods of negative real returns on bonds are far from unprecedented and could certainly happen again.
Or how about 1941-1951, 1941-1961, and 1941-1971?
Rising interest rates don't really kill bond funds. Inflation is the real danger.
1941-1950: -3.65%
1951-1960: +0.45%
1961-1970: +0.48%
1971-1980: -3.11%
I agree that inflation is the biggest danger to bondholders, which is why I've long advocated for inflation-linked bonds over nominals.
- willthrill81
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- Contact:
Re: Will BND return be negative in 2022
Better the devil you know.rockstar wrote: ↑Sat Jan 15, 2022 2:46 pmThe problem with inflation linked is that these returns are built in from the start. You know what you're getting.willthrill81 wrote: ↑Sat Jan 15, 2022 2:02 pmBelow are the real returns for intermediate-term Treasuries from the Simba backtesting spreadsheet.HomerJ wrote: ↑Sat Jan 15, 2022 12:04 pmCan you break that down in 10-year increments? Ending in 1981 might be a bit misleading because of double-digit inflation in late 70s, early 80s.willthrill81 wrote: ↑Mon Jan 10, 2022 11:31 amPast is not prologue, especially with bonds. Bond yields and inflation of the past have little to no bearing on the future performance of bonds.
Bonds returned -1.6% real from 1941-1981. Extended periods of negative real returns on bonds are far from unprecedented and could certainly happen again.
Or how about 1941-1951, 1941-1961, and 1941-1971?
Rising interest rates don't really kill bond funds. Inflation is the real danger.
1941-1950: -3.65%
1951-1960: +0.45%
1961-1970: +0.48%
1971-1980: -3.11%
I agree that inflation is the biggest danger to bondholders, which is why I've long advocated for inflation-linked bonds over nominals.
Those who have been holding I bonds and TIPS all along look like they're sittin' in buttah compared to TBM holders.
The Sensible Steward
Re: Will BND return be negative in 2022
Would it be wise to sell half of the BND allocation and put into VTIP so it becomes BND:VTIP half and half.willthrill81 wrote: ↑Sat Jan 15, 2022 5:00 pm Those who have been holding I bonds and TIPS all along look like they're sittin' in buttah compared to TBM holders.
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
Re: Will BND return be negative in 2022
And once again here are the numbers for rebalancing annually vs 5/25 vs none at all....KlangFool wrote: ↑Sat Jan 15, 2022 12:07 pmWhy is that necessary? It is basic common sense. Aka, whether re balancing would work out better is dependent on a specific sequence of returns.smitcat wrote: ↑Sat Jan 15, 2022 11:58 amPlease reference and link any papers and/or articles which have supporting math for a re-balancing plans being superior.KlangFool wrote: ↑Sat Jan 15, 2022 10:29 amsmitcat,smitcat wrote: ↑Sat Jan 15, 2022 9:21 am Here is the key post in that rebalancing thread (cut and paste)...
RE: PSA: Fixed AA with 5/25 rebalancing works!
Post by csh » Sun Jan 24, 2021 5:37 pm
KlangFool wrote: ↑Sun Jan 10, 2021 11:56 am
1) My SCV bought in March 2020 is up 95%. Almost double.
2) My international bought in March 2020 is up 63%.
3) My US stock index bought in March 2020 is up 66%.
You seem to be implying that there is a rebalancing bonus with this strategy. In the near term I think you are correct, but this does not hold out in the long term.
The correct answer is the actual portfolio return is highly dependent on the individual portfolio sequence of return. We only live once. We only have one sequence of return. It is not a simple addition of return of the stock plus return of the bond.
<<In the near term I think you are correct, but this does not hold out in the long term. >>
The correct answer is we do not know how it would work out in the long term either. Ditto for the short term.
KlangFool
KlangFool
Rebalancing Initial Balance Final Balance CAGR TWRR MWRR Stdev Best Year Worst Year Max. Drawdown
No rebalance - $10,000 $1,433,076 20.19% 7.88% 7.89% 10.25% 24.24% -25.38% -37.50%
Annually - $10,000 $1,354,149 19.94% 7.74% 7.53% 8.88% 21.98% -20.96% -33.23%
5/25 - $10,000 $1,361,982 19.96% 7.72% 7.57% 9.04% 21.47% -21.75% -34.02%
Re: Will BND return be negative in 2022
I don't know but still placed a good order for VBIAX yesterday.
- willthrill81
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Re: Will BND return be negative in 2022
For the long-term going forward, I certainly think that a hefty, if not total, allocation to inflation-linked bonds is wise. But don't expect the short-term results to be pretty.ebeb wrote: ↑Sat Jan 15, 2022 5:06 pmWould it be wise to sell half of the BND allocation and put into VTIP so it becomes BND:VTIP half and half.willthrill81 wrote: ↑Sat Jan 15, 2022 5:00 pm Those who have been holding I bonds and TIPS all along look like they're sittin' in buttah compared to TBM holders.
The Sensible Steward
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Re: Will BND return be negative in 2022
How long is "all along?" Total Bond returns have been good in my investing time frame.willthrill81 wrote: ↑Sat Jan 15, 2022 5:00 pmBetter the devil you know.rockstar wrote: ↑Sat Jan 15, 2022 2:46 pmThe problem with inflation linked is that these returns are built in from the start. You know what you're getting.willthrill81 wrote: ↑Sat Jan 15, 2022 2:02 pmBelow are the real returns for intermediate-term Treasuries from the Simba backtesting spreadsheet.HomerJ wrote: ↑Sat Jan 15, 2022 12:04 pmCan you break that down in 10-year increments? Ending in 1981 might be a bit misleading because of double-digit inflation in late 70s, early 80s.willthrill81 wrote: ↑Mon Jan 10, 2022 11:31 am
Past is not prologue, especially with bonds. Bond yields and inflation of the past have little to no bearing on the future performance of bonds.
Bonds returned -1.6% real from 1941-1981. Extended periods of negative real returns on bonds are far from unprecedented and could certainly happen again.
Or how about 1941-1951, 1941-1961, and 1941-1971?
Rising interest rates don't really kill bond funds. Inflation is the real danger.
1941-1950: -3.65%
1951-1960: +0.45%
1961-1970: +0.48%
1971-1980: -3.11%
I agree that inflation is the biggest danger to bondholders, which is why I've long advocated for inflation-linked bonds over nominals.
Those who have been holding I bonds and TIPS all along look like they're sittin' in buttah compared to TBM holders.
Re: Will BND return be negative in 2022
Briefly, let's say in TBM you decide to stop reinvesting the dividends when the NAV is in its high range. Then later if there were to be a big dip in NAV you buy back in with the same amount that you had withheld in those 8 months, or a year, or whatever.trek83 wrote: ↑Sat Jan 15, 2022 1:50 pm I suspect short, medium, & long term bonds will have a slightly negative return this year.
If one is Reinvesting the dividend each month, maybe you will have a positive relative return.
I purchased some TBM ( VTC - etf class ) this week - glad I did. Probably more in the future.
In my taxable account, I plan to sell some short & medium term Bond ETF’s to harvest LT Cap Loss to offset some LT Cap Gains
of Stock’s I sold in early January - This is a planned AA adjustment / rebalancing action ( not market timing ).
Good discussion in this thread - thank you.
What impact does that have on duration etc. for the entire holding of TBM?
And would such a thing even be worth the trouble since it might just be a few dollars one way or the other? So actually pointless.
"We keep you alive to serve this ship. Row well...and live." Ben Hur...and The Taxman! hahaha (a George Harrison song)
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Re: Bonds are for safety during stock market declines
Respectfully, wouldn't cash serve the role you describe, more aptly?Taylor Larimore wrote: ↑Mon Jan 10, 2022 11:55 am Bogleheads:
Two facts about bonds and a conclusion:
Bond returns are secondary. We buy bonds for safety when stocks fall.
Bonds with the highest returns are usually the worst when stocks fall.
Investors seeking higher returns (and more risk of loss) should increase their stock allocations.
Best wishes
TaylorJack Bogle's Words of Wisdom: "The Lehman Bond Index (total bond market), in substance, is an appropriate choice for investors with an intermediate-term time horizon and seeking top quality."
Re: Bonds are for safety during stock market declines
What about negative beta stocks and put options then?
BTW, wasn't BND down like 7% and Munis down 10% during coronacrash and trending down further before intervention?
Re: Bonds are for safety during stock market declines
Have a look at the graph and you decide:CraigTester wrote: ↑Sat Jan 15, 2022 10:49 pmRespectfully, wouldn't cash serve the role you describe, more aptly?Taylor Larimore wrote: ↑Mon Jan 10, 2022 11:55 am Bogleheads:
Two facts about bonds and a conclusion:
Bond returns are secondary. We buy bonds for safety when stocks fall.
Bonds with the highest returns are usually the worst when stocks fall.
Investors seeking higher returns (and more risk of loss) should increase their stock allocations.
Best wishes
TaylorJack Bogle's Words of Wisdom: "The Lehman Bond Index (total bond market), in substance, is an appropriate choice for investors with an intermediate-term time horizon and seeking top quality."
https://www.portfoliovisualizer.com/bac ... ion3_3=100
Sure, cash is a bit less volatile than bonds. But bonds returned a fair bit more and are much less volatile than stocks. Historically cash sacrifices lots of return for not much more stability compared to bonds. What the future will bring, who knows. Nominal bond returns could be shaky this year (low yields, maybe inflation will be high). I'm keeping the bonds anyway. If there is inflation cash will lose badly to that anyway.
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Re: Bonds are for safety during stock market declines
Agreed, but if Bond returns are secondary. And we buy bonds for safety when stocks fall, then wouldn't a floating rate money market fund meet this "primary" goal, as well as bonds ....? FDIC insured, very liquid, etc, etc.Da5id wrote: ↑Sat Jan 15, 2022 10:53 pmHave a look at the graph and you decide:CraigTester wrote: ↑Sat Jan 15, 2022 10:49 pmRespectfully, wouldn't cash serve the role you describe, more aptly?Taylor Larimore wrote: ↑Mon Jan 10, 2022 11:55 am Bogleheads:
Two facts about bonds and a conclusion:
Bond returns are secondary. We buy bonds for safety when stocks fall.
Bonds with the highest returns are usually the worst when stocks fall.
Investors seeking higher returns (and more risk of loss) should increase their stock allocations.
Best wishes
TaylorJack Bogle's Words of Wisdom: "The Lehman Bond Index (total bond market), in substance, is an appropriate choice for investors with an intermediate-term time horizon and seeking top quality."
https://www.portfoliovisualizer.com/bac ... ion3_3=100
Sure, cash is a bit less volatile than bonds. But bonds returned a fair bit more and are much less volatile than stocks. Historically cash sacrifices lots of return for not much more stability compared to bonds. What the future will bring, who knows.
As for the secondary goal, at a time when rates are at historic lows, and the Fed is telling us they intend to raise them, its not a slam dunk that bonds are positioned to outperform cash in the near term....
Last edited by CraigTester on Sat Jan 15, 2022 11:10 pm, edited 1 time in total.
Re: Bonds are for safety during stock market declines
Cash historically barely kept up with inflation.CraigTester wrote: ↑Sat Jan 15, 2022 11:04 pm Agreed, but if Bond returns are secondary. And we buy bonds for safety when stocks fall, then wouldn't a floating rate money market fund meet this "primary" goal more effectively ....? FDIC insured, very liquid, etc, etc.
As for the secondary goal, at a time when rates are at historic lows, and the Fed is telling us they intend to raise them, its not a slam dunk that bonds are positioned to outperform cash in the near term....
From this and other threads, I gather you are into reading the tea leaves and timing the market. I'm not.
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Re: Bonds are for safety during stock market declines
No tea leaves, but I do listen very closely when the Fed speaks...Da5id wrote: ↑Sat Jan 15, 2022 11:08 pmCash historically barely kept up with inflation.CraigTester wrote: ↑Sat Jan 15, 2022 11:04 pm Agreed, but if Bond returns are secondary. And we buy bonds for safety when stocks fall, then wouldn't a floating rate money market fund meet this "primary" goal more effectively ....? FDIC insured, very liquid, etc, etc.
As for the secondary goal, at a time when rates are at historic lows, and the Fed is telling us they intend to raise them, its not a slam dunk that bonds are positioned to outperform cash in the near term....
From this and other threads, I gather you are into reading the tea leaves and timing the market. I'm not.
Focus on the logic, not the emotion.
Re: Bonds are for safety during stock market declines
The logic is that historically predicting/timing the market is not successful. The emotion is generally involved with that timing, or believing that one knows more than one actually does.CraigTester wrote: ↑Sat Jan 15, 2022 11:12 pmNo tea leaves, but I do listen very closely when the Fed speaks...Da5id wrote: ↑Sat Jan 15, 2022 11:08 pmCash historically barely kept up with inflation.CraigTester wrote: ↑Sat Jan 15, 2022 11:04 pm Agreed, but if Bond returns are secondary. And we buy bonds for safety when stocks fall, then wouldn't a floating rate money market fund meet this "primary" goal more effectively ....? FDIC insured, very liquid, etc, etc.
As for the secondary goal, at a time when rates are at historic lows, and the Fed is telling us they intend to raise them, its not a slam dunk that bonds are positioned to outperform cash in the near term....
From this and other threads, I gather you are into reading the tea leaves and timing the market. I'm not.
Focus on the logic, not the emotion.
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- Joined: Wed Aug 08, 2018 6:34 am
Re: Bonds are for safety during stock market declines
Read Taylor's words very carefully:Da5id wrote: ↑Sat Jan 15, 2022 11:14 pmThe logic is that historically predicting/timing the market is not successful. The emotion is generally involved with that timing, or believing that one knows more than one actually does.CraigTester wrote: ↑Sat Jan 15, 2022 11:12 pmNo tea leaves, but I do listen very closely when the Fed speaks...Da5id wrote: ↑Sat Jan 15, 2022 11:08 pmCash historically barely kept up with inflation.CraigTester wrote: ↑Sat Jan 15, 2022 11:04 pm Agreed, but if Bond returns are secondary. And we buy bonds for safety when stocks fall, then wouldn't a floating rate money market fund meet this "primary" goal more effectively ....? FDIC insured, very liquid, etc, etc.
As for the secondary goal, at a time when rates are at historic lows, and the Fed is telling us they intend to raise them, its not a slam dunk that bonds are positioned to outperform cash in the near term....
From this and other threads, I gather you are into reading the tea leaves and timing the market. I'm not.
Focus on the logic, not the emotion.
Bond returns are secondary. And we buy bonds for safety when stocks fall.
How does an FDIC insured money market fund not meet the stated primary goal?
Re: Bonds are for safety during stock market declines
I don't agree with your interpretation of his point. That the bonds returns are secondary doesn't mean to discount them. High quality bonds are historically safe enough. Your prioritizing safety above everything else is not reasonable. If one wants to skew bonds towards safety, intermediate treasuries are a reasonable way to do that, not cash. But you do you.CraigTester wrote: ↑Sat Jan 15, 2022 11:22 pmRead Taylor's words very carefully:Da5id wrote: ↑Sat Jan 15, 2022 11:14 pmThe logic is that historically predicting/timing the market is not successful. The emotion is generally involved with that timing, or believing that one knows more than one actually does.CraigTester wrote: ↑Sat Jan 15, 2022 11:12 pmNo tea leaves, but I do listen very closely when the Fed speaks...Da5id wrote: ↑Sat Jan 15, 2022 11:08 pmCash historically barely kept up with inflation.CraigTester wrote: ↑Sat Jan 15, 2022 11:04 pm Agreed, but if Bond returns are secondary. And we buy bonds for safety when stocks fall, then wouldn't a floating rate money market fund meet this "primary" goal more effectively ....? FDIC insured, very liquid, etc, etc.
As for the secondary goal, at a time when rates are at historic lows, and the Fed is telling us they intend to raise them, its not a slam dunk that bonds are positioned to outperform cash in the near term....
From this and other threads, I gather you are into reading the tea leaves and timing the market. I'm not.
Focus on the logic, not the emotion.
Bond returns are secondary. And we buy bonds for safety when stocks fall.
How does an FDIC insured money market fund not meet the stated primary goal?
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Re: Bonds are for safety during stock market declines
I agree that bond returns being secondary does not mean to discount them, completely. It simply means that returns are subordinate to the primary goal of safety. But logic must let you see that an FDIC insured MMF will do an excellent job of meeting Taylor's primary goal for Bonds?Da5id wrote: ↑Sat Jan 15, 2022 11:26 pmI don't agree with your interpretation of his point. That the bonds returns are secondary doesn't mean to discount them. High quality bonds are historically safe enough. Your prioritizing safety above everything else is not reasonable. If one wants to skew bonds towards safety, intermediate treasuries are a reasonable way to do that, not cash. But you do you.CraigTester wrote: ↑Sat Jan 15, 2022 11:22 pmRead Taylor's words very carefully:Da5id wrote: ↑Sat Jan 15, 2022 11:14 pmThe logic is that historically predicting/timing the market is not successful. The emotion is generally involved with that timing, or believing that one knows more than one actually does.CraigTester wrote: ↑Sat Jan 15, 2022 11:12 pmNo tea leaves, but I do listen very closely when the Fed speaks...
Focus on the logic, not the emotion.
Bond returns are secondary. And we buy bonds for safety when stocks fall.
How does an FDIC insured money market fund not meet the stated primary goal?
Now onto the secondary goal.
What will mathematically happen to the value of a bond you already own if rates increase (as the Fed is telling us they will).
The answer is that if rates go up, the value of the bond you already own will go down. (This really is just math)
So given that math usually wins, the only way for the value of your bond to increase is if rates decrease after you buy it.
So whether we like it or not, we all have a timing decision to make when it comes to deciding between bonds and cash.
Now I know there is a lot of confusion that gets introduced when we talk about bond "funds" versus individual bonds. But just because you bundle a bunch of them together, doesn't change the math.
Re: Will BND return be negative in 2022
Real return from Jan 2001 to Dec 2021:Triple digit golfer wrote: ↑Sat Jan 15, 2022 8:46 pmHow long is "all along?" Total Bond returns have been good in my investing time frame.willthrill81 wrote: ↑Sat Jan 15, 2022 5:00 pmBetter the devil you know.rockstar wrote: ↑Sat Jan 15, 2022 2:46 pmThe problem with inflation linked is that these returns are built in from the start. You know what you're getting.willthrill81 wrote: ↑Sat Jan 15, 2022 2:02 pmBelow are the real returns for intermediate-term Treasuries from the Simba backtesting spreadsheet.HomerJ wrote: ↑Sat Jan 15, 2022 12:04 pm
Can you break that down in 10-year increments? Ending in 1981 might be a bit misleading because of double-digit inflation in late 70s, early 80s.
Or how about 1941-1951, 1941-1961, and 1941-1971?
Rising interest rates don't really kill bond funds. Inflation is the real danger.
1941-1950: -3.65%
1951-1960: +0.45%
1961-1970: +0.48%
1971-1980: -3.11%
I agree that inflation is the biggest danger to bondholders, which is why I've long advocated for inflation-linked bonds over nominals.
Those who have been holding I bonds and TIPS all along look like they're sittin' in buttah compared to TBM holders.
60/40 with TSM/TIPS: 5.41%
60/40 with TSM/TBM: 5.08%
source
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Re: Bonds are for safety during stock market declines
Perhaps you have a timing decision to make, but that's because you're a tactical investor. I'm not. I plan to hold my bond funds for longer than their duration. All your mathematical proofs deal with the short haul, whereas I'm in it for the long haul.CraigTester wrote: ↑Sat Jan 15, 2022 11:48 pm What will mathematically happen to the value of a bond you already own if rates increase (as the Fed is telling us they will).
The answer is that if rates go up, the value of the bond you already own will go down. (This really is just math)
So given that math usually wins, the only way for the value of your bond to increase is if rates decrease after you buy it.
So whether we like it or not, we all have a timing decision to make when it comes to deciding between bonds and cash.
Now I know there is a lot of confusion that gets introduced when we talk about bond "funds" versus individual bonds. But just because you bundle a bunch of them together, doesn't change the math.
Re: Bonds are for safety during stock market declines
Uh... yes, it does. There have been a number of years where "rates" went up, but a fund like Total Bond Market had a positive total return. According to you, that's impossible.CraigTester wrote: ↑Sat Jan 15, 2022 11:48 pm
What will mathematically happen to the value of a bond you already own if rates increase (as the Fed is telling us they will).
The answer is that if rates go up, the value of the bond you already own will go down. (This really is just math)
So given that math usually wins, the only way for the value of your bond to increase is if rates decrease after you buy it.
So whether we like it or not, we all have a timing decision to make when it comes to deciding between bonds and cash.
Now I know there is a lot of confusion that gets introduced when we talk about bond "funds" versus individual bonds. But just because you bundle a bunch of them together, doesn't change the math.
Re: Bonds are for safety during stock market declines
If you're investing for the near term, then cash might be a better option.CraigTester wrote: ↑Sat Jan 15, 2022 11:04 pm As for the secondary goal, at a time when rates are at historic lows, and the Fed is telling us they intend to raise them, its not a slam dunk that bonds are positioned to outperform cash in the near term....
Most of us here are investing for the long term.
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Re: Bonds are for safety during stock market declines
Your plan should meet Taylor’s primary goal - and so would an FDIC insured MMF (money market fund)UpperNwGuy wrote: ↑Sun Jan 16, 2022 5:18 amPerhaps you have a timing decision to make, but that's because you're a tactical investor. I'm not. I plan to hold my bond funds for longer than their duration. All your mathematical proofs deal with the short haul, whereas I'm in it for the long haul.CraigTester wrote: ↑Sat Jan 15, 2022 11:48 pm What will mathematically happen to the value of a bond you already own if rates increase (as the Fed is telling us they will).
The answer is that if rates go up, the value of the bond you already own will go down. (This really is just math)
So given that math usually wins, the only way for the value of your bond to increase is if rates decrease after you buy it.
So whether we like it or not, we all have a timing decision to make when it comes to deciding between bonds and cash.
Now I know there is a lot of confusion that gets introduced when we talk about bond "funds" versus individual bonds. But just because you bundle a bunch of them together, doesn't change the math.
However, if you buy an intermediate bond today, and hold it for its duration of say 6 years, you will get whatever it’s yield is today. Then if you reinvest the proceeds at maturity, you will get whatever the prevailing rate is at that time.
Alternatively, if you bought a MMF today, and “choose” to hold it for the same 6 year period, you will have the exact same opportunity to reinvest it as if you held a bond to maturity.
The only question is whether you will earn more over the next 6 years by locking in todays rate, or getting the “variable” rate the MMF yields over that same period.
So lock it in today if you think rates won’t increase, or put it in a MMF if you think increasing rates will exceed todays.
But the real point here is that you meet Taylor’s primary goal either way.
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Re: Will BND return be negative in 2022
You probably will when you factor in inflation.nisiprius wrote: ↑Sun Jan 09, 2022 7:43 pm I won't guess for single years.
If you care about not having a negative return over a single year, you shouldn't be looking at a bond fund with a 6.8-year duration.
Since the duration is 6.8 years, since Vanguard says that ETFs in its risk category "may be appropriate for investors with medium-term investment horizons (4 to 10 years)," and since the Vanguard Total Bond Market Index Fund has, to date, never lost money over any 48-month period, I will go out on a limb.
I predict that over the four-year period 1/1/2022 through 1/1/2006, BND (total return including dividends). will make money. It will not have a negative return over a four-year period.
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Re: Bonds are for safety during stock market declines
You're talking like a tactical investor (again). Like I said, that's not my thing.CraigTester wrote: ↑Sun Jan 16, 2022 6:15 amYour plan should meet Taylor’s primary goal - and so would an FDIC insured MMF (money market fund)UpperNwGuy wrote: ↑Sun Jan 16, 2022 5:18 amPerhaps you have a timing decision to make, but that's because you're a tactical investor. I'm not. I plan to hold my bond funds for longer than their duration. All your mathematical proofs deal with the short haul, whereas I'm in it for the long haul.CraigTester wrote: ↑Sat Jan 15, 2022 11:48 pm What will mathematically happen to the value of a bond you already own if rates increase (as the Fed is telling us they will).
The answer is that if rates go up, the value of the bond you already own will go down. (This really is just math)
So given that math usually wins, the only way for the value of your bond to increase is if rates decrease after you buy it.
So whether we like it or not, we all have a timing decision to make when it comes to deciding between bonds and cash.
Now I know there is a lot of confusion that gets introduced when we talk about bond "funds" versus individual bonds. But just because you bundle a bunch of them together, doesn't change the math.
However, if you buy an intermediate bond today, and hold it for its duration of say 6 years, you will get whatever it’s yield is today. Then if you reinvest the proceeds at maturity, you will get whatever the prevailing rate is at that time.
Alternatively, if you bought a MMF today, and “choose” to hold it for the same 6 year period, you will have the exact same opportunity to reinvest it as if you held a bond to maturity.
The only question is whether you will earn more over the next 6 years by locking in todays rate, or getting the “variable” rate the MMF yields over that same period.
So lock it in today if you think rates won’t increase, or put it in a MMF if you think increasing rates will exceed todays.
But the real point here is that you meet Taylor’s primary goal either way.
Re: Bonds are for safety during stock market declines
A bond fund does not have a maturity date. Also, you might want to check out this thread.CraigTester wrote: ↑Sun Jan 16, 2022 6:15 am However, if you buy an intermediate bond today, and hold it for its duration of say 6 years, you will get whatever it’s yield is today. Then if you reinvest the proceeds at maturity, you will get whatever the prevailing rate is at that time.
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Re: Bonds are for safety during stock market declines
Your response tells me I failed to explain the “tactical”decision you are making, whether you realize it or not.UpperNwGuy wrote: ↑Sun Jan 16, 2022 6:26 amYou're talking like a tactical investor (again). Like I said, that's not my thing.CraigTester wrote: ↑Sun Jan 16, 2022 6:15 amYour plan should meet Taylor’s primary goal - and so would an FDIC insured MMF (money market fund)UpperNwGuy wrote: ↑Sun Jan 16, 2022 5:18 amPerhaps you have a timing decision to make, but that's because you're a tactical investor. I'm not. I plan to hold my bond funds for longer than their duration. All your mathematical proofs deal with the short haul, whereas I'm in it for the long haul.CraigTester wrote: ↑Sat Jan 15, 2022 11:48 pm What will mathematically happen to the value of a bond you already own if rates increase (as the Fed is telling us they will).
The answer is that if rates go up, the value of the bond you already own will go down. (This really is just math)
So given that math usually wins, the only way for the value of your bond to increase is if rates decrease after you buy it.
So whether we like it or not, we all have a timing decision to make when it comes to deciding between bonds and cash.
Now I know there is a lot of confusion that gets introduced when we talk about bond "funds" versus individual bonds. But just because you bundle a bunch of them together, doesn't change the math.
However, if you buy an intermediate bond today, and hold it for its duration of say 6 years, you will get whatever it’s yield is today. Then if you reinvest the proceeds at maturity, you will get whatever the prevailing rate is at that time.
Alternatively, if you bought a MMF today, and “choose” to hold it for the same 6 year period, you will have the exact same opportunity to reinvest it as if you held a bond to maturity.
The only question is whether you will earn more over the next 6 years by locking in todays rate, or getting the “variable” rate the MMF yields over that same period.
So lock it in today if you think rates won’t increase, or put it in a MMF if you think increasing rates will exceed todays.
But the real point here is that you meet Taylor’s primary goal either way.
But like I said, you’ll meet Taylor’s primary goal either way….
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Re: Bonds are for safety during stock market declines
Sorry, but choosing to stay the course on a long term asset allocation strategy is NOT a tactical decision. Your logic is getting much too complicated.CraigTester wrote: ↑Sun Jan 16, 2022 6:37 amYour response tells me I failed to explain the “tactical”decision you are making, whether you realize it or not.UpperNwGuy wrote: ↑Sun Jan 16, 2022 6:26 amYou're talking like a tactical investor (again). Like I said, that's not my thing.CraigTester wrote: ↑Sun Jan 16, 2022 6:15 amYour plan should meet Taylor’s primary goal - and so would an FDIC insured MMF (money market fund)UpperNwGuy wrote: ↑Sun Jan 16, 2022 5:18 amPerhaps you have a timing decision to make, but that's because you're a tactical investor. I'm not. I plan to hold my bond funds for longer than their duration. All your mathematical proofs deal with the short haul, whereas I'm in it for the long haul.CraigTester wrote: ↑Sat Jan 15, 2022 11:48 pm What will mathematically happen to the value of a bond you already own if rates increase (as the Fed is telling us they will).
The answer is that if rates go up, the value of the bond you already own will go down. (This really is just math)
So given that math usually wins, the only way for the value of your bond to increase is if rates decrease after you buy it.
So whether we like it or not, we all have a timing decision to make when it comes to deciding between bonds and cash.
Now I know there is a lot of confusion that gets introduced when we talk about bond "funds" versus individual bonds. But just because you bundle a bunch of them together, doesn't change the math.
However, if you buy an intermediate bond today, and hold it for its duration of say 6 years, you will get whatever it’s yield is today. Then if you reinvest the proceeds at maturity, you will get whatever the prevailing rate is at that time.
Alternatively, if you bought a MMF today, and “choose” to hold it for the same 6 year period, you will have the exact same opportunity to reinvest it as if you held a bond to maturity.
The only question is whether you will earn more over the next 6 years by locking in todays rate, or getting the “variable” rate the MMF yields over that same period.
So lock it in today if you think rates won’t increase, or put it in a MMF if you think increasing rates will exceed todays.
But the real point here is that you meet Taylor’s primary goal either way.
But like I said, you’ll meet Taylor’s primary goal either way….
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Re: Bonds are for safety during stock market declines
A bond “fund” is simply a bunch of individual bonds, that each have a maturity date.zuma wrote: ↑Sun Jan 16, 2022 6:33 amA bond fund does not have a maturity date. Also, you might want to check out this thread.CraigTester wrote: ↑Sun Jan 16, 2022 6:15 am However, if you buy an intermediate bond today, and hold it for its duration of say 6 years, you will get whatever it’s yield is today. Then if you reinvest the proceeds at maturity, you will get whatever the prevailing rate is at that time.
Re: Bonds are for safety during stock market declines
What does it mean to “reinvest the proceeds at maturity” if one is holding a bond fund?CraigTester wrote: ↑Sun Jan 16, 2022 6:45 amA bond “fund” is simply a bunch of individual bonds, that each have a maturity date.zuma wrote: ↑Sun Jan 16, 2022 6:33 amA bond fund does not have a maturity date. Also, you might want to check out this thread.CraigTester wrote: ↑Sun Jan 16, 2022 6:15 am However, if you buy an intermediate bond today, and hold it for its duration of say 6 years, you will get whatever it’s yield is today. Then if you reinvest the proceeds at maturity, you will get whatever the prevailing rate is at that time.
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Re: Bonds are for safety during stock market declines
Ok, I give up. The pay isn’t very good anyway.UpperNwGuy wrote: ↑Sun Jan 16, 2022 6:42 amSorry, but choosing to stay the course on a long term asset allocation strategy is NOT a tactical decision. Your logic is getting much too complicated.CraigTester wrote: ↑Sun Jan 16, 2022 6:37 amYour response tells me I failed to explain the “tactical”decision you are making, whether you realize it or not.UpperNwGuy wrote: ↑Sun Jan 16, 2022 6:26 amYou're talking like a tactical investor (again). Like I said, that's not my thing.CraigTester wrote: ↑Sun Jan 16, 2022 6:15 amYour plan should meet Taylor’s primary goal - and so would an FDIC insured MMF (money market fund)UpperNwGuy wrote: ↑Sun Jan 16, 2022 5:18 am
Perhaps you have a timing decision to make, but that's because you're a tactical investor. I'm not. I plan to hold my bond funds for longer than their duration. All your mathematical proofs deal with the short haul, whereas I'm in it for the long haul.
However, if you buy an intermediate bond today, and hold it for its duration of say 6 years, you will get whatever it’s yield is today. Then if you reinvest the proceeds at maturity, you will get whatever the prevailing rate is at that time.
Alternatively, if you bought a MMF today, and “choose” to hold it for the same 6 year period, you will have the exact same opportunity to reinvest it as if you held a bond to maturity.
The only question is whether you will earn more over the next 6 years by locking in todays rate, or getting the “variable” rate the MMF yields over that same period.
So lock it in today if you think rates won’t increase, or put it in a MMF if you think increasing rates will exceed todays.
But the real point here is that you meet Taylor’s primary goal either way.
But like I said, you’ll meet Taylor’s primary goal either way….
Re: Bonds are for safety during stock market declines
CraigTester,
So, after all said and done, are you 100% cash now? Since 2018? If not, what is your current allocation?
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Re: Bonds are for safety during stock market declines
These things don't work as mechanically as you say. e.g. 2015-2018 saw a rising Fed fund rates (and rising 10 year treasury rates), but somehow TBM beat cash over that period. See https://www.portfoliovisualizer.com/bac ... ion2_2=100CraigTester wrote: ↑Sat Jan 15, 2022 11:48 pmI agree that bond returns being secondary does not mean to discount them, completely. It simply means that returns are subordinate to the primary goal of safety. But logic must let you see that an FDIC insured MMF will do an excellent job of meeting Taylor's primary goal for Bonds?Da5id wrote: ↑Sat Jan 15, 2022 11:26 pmI don't agree with your interpretation of his point. That the bonds returns are secondary doesn't mean to discount them. High quality bonds are historically safe enough. Your prioritizing safety above everything else is not reasonable. If one wants to skew bonds towards safety, intermediate treasuries are a reasonable way to do that, not cash. But you do you.CraigTester wrote: ↑Sat Jan 15, 2022 11:22 pmRead Taylor's words very carefully:Da5id wrote: ↑Sat Jan 15, 2022 11:14 pmThe logic is that historically predicting/timing the market is not successful. The emotion is generally involved with that timing, or believing that one knows more than one actually does.CraigTester wrote: ↑Sat Jan 15, 2022 11:12 pm
No tea leaves, but I do listen very closely when the Fed speaks...
Focus on the logic, not the emotion.
Bond returns are secondary. And we buy bonds for safety when stocks fall.
How does an FDIC insured money market fund not meet the stated primary goal?
Now onto the secondary goal.
What will mathematically happen to the value of a bond you already own if rates increase (as the Fed is telling us they will).
The answer is that if rates go up, the value of the bond you already own will go down. (This really is just math)
So given that math usually wins, the only way for the value of your bond to increase is if rates decrease after you buy it.
So whether we like it or not, we all have a timing decision to make when it comes to deciding between bonds and cash.
Now I know there is a lot of confusion that gets introduced when we talk about bond "funds" versus individual bonds. But just because you bundle a bunch of them together, doesn't change the math.
So where is your simple math in all that? We absolutely don't need to make timing decisions, despite your steadfast advocacy here and in the stock valuation thread. Making such timing calls is a losing game. But you are welcome participate in that game to your heart's content of course.
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Re: Bonds are for safety during stock market declines
As I’ve said many times, I follow Ben Graham’s advice of maintaining a lower bound equity allocation of 25%. (Where I currently am positioned for reasons explained elsewhere). The balance is in a “horse race” between MMF, bonds, CDs, VTI, VEA and VXUS.
At present, I gratefully own some higher yielding bonds and CDs that I purchased when rates were not near historic lows.
But any fixed-income maturing in today’s crazy market, re-enters the horse race. And right at this moment, MMF’s are winning. This is an anomaly.
My way is certainly not for everyone, and does require more thinking than a three fund portfolio, but at least so far, it has been more than worth the effort.
PS. Whatever strategy you follow, the key is to stick to it. And in order to stick to it when things inevitably turn against your chosen strategy, it’s really helpful to understand "why" you own what you own.
As an early retiree, I have extra time to chime in to forums like this. And when I see so much autopilot happening, I believe it’s useful for people to hear alternative views.
I've just had too many friends along the way, want to have these conversations after its too late....But I fully understand why people find my views uncomfortable...Who wants to talk about fixing the roof when the sun is shining....
Re: Bonds are for safety during stock market declines
CraigTester,CraigTester wrote: ↑Sun Jan 16, 2022 8:37 amAs I’ve said many times, I follow Ben Graham’s advice of maintaining a lower bound equity allocation of 25%. (Where I currently am positioned for reasons explained elsewhere). The balance is in a “horse race” between MMF, bonds, CDs, VTI, VEA and VXUS.
.....
As an early retiree, I have extra time to chime in to forums like this. And when I see so much autopilot happening, I believe it’s useful for people to hear alternative views.
What is your portfolio size? 50X? 100X?
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Re: Bonds are for safety during stock market declines
Since you started posting that the market was overpriced in 2018, the US stock market has almost doubled. It may well have been overpriced then, and may well be overpriced now. But define "worth the effort" in this context. Market timing is not a historically successfully implemented strategy. Being "right" but being way to early in one's call is indistinguishable from being wrong.CraigTester wrote: ↑Sun Jan 16, 2022 8:37 am My way is certainly not for everyone, and does require more thinking than a three fund portfolio, but at least so far, it has been more than worth the effort.
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Re: Bonds are for safety during stock market declines
The good news is that both bonds and MMF's satisfied Taylor's primary objective for fixed income, during your chosen time frame....Da5id wrote: ↑Sun Jan 16, 2022 8:24 amThese things don't work as mechanically as you say. e.g. 2015-2018 saw a rising Fed fund rates (and rising 10 year treasury rates), but somehow TBM beat cash over that period. See https://www.portfoliovisualizer.com/bac ... ion2_2=100CraigTester wrote: ↑Sat Jan 15, 2022 11:48 pmI agree that bond returns being secondary does not mean to discount them, completely. It simply means that returns are subordinate to the primary goal of safety. But logic must let you see that an FDIC insured MMF will do an excellent job of meeting Taylor's primary goal for Bonds?Da5id wrote: ↑Sat Jan 15, 2022 11:26 pmI don't agree with your interpretation of his point. That the bonds returns are secondary doesn't mean to discount them. High quality bonds are historically safe enough. Your prioritizing safety above everything else is not reasonable. If one wants to skew bonds towards safety, intermediate treasuries are a reasonable way to do that, not cash. But you do you.CraigTester wrote: ↑Sat Jan 15, 2022 11:22 pmRead Taylor's words very carefully:
Bond returns are secondary. And we buy bonds for safety when stocks fall.
How does an FDIC insured money market fund not meet the stated primary goal?
Now onto the secondary goal.
What will mathematically happen to the value of a bond you already own if rates increase (as the Fed is telling us they will).
The answer is that if rates go up, the value of the bond you already own will go down. (This really is just math)
So given that math usually wins, the only way for the value of your bond to increase is if rates decrease after you buy it.
So whether we like it or not, we all have a timing decision to make when it comes to deciding between bonds and cash.
Now I know there is a lot of confusion that gets introduced when we talk about bond "funds" versus individual bonds. But just because you bundle a bunch of them together, doesn't change the math.
So where is your simple math in all that? We absolutely don't need to make timing decisions, despite your steadfast advocacy here and in the stock valuation thread. Making such timing calls is a losing game. But you are welcome participate in that game to your heart's content of course.
But as far as data mining specific time periods to prove a specific point, it's a distracting game.
At the end of the day, if you purchase a bond, and rates go up afterward, the price of your bond will decrease.
It does this because you could now buy a new bond, with the same attributes, that has a higher yield.
Everything in finance is "relative"
And just because you hit a window where a bond fund happened to have held maturities in such a combination as to temporarily "hide" the math, the math still holds.
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Re: Bonds are for safety during stock market declines
From 2018 through 2021, you are correct.Da5id wrote: ↑Sun Jan 16, 2022 8:49 amSince you started posting that the market was overpriced in 2018, the US stock market has almost doubled. It may well have been overpriced then, and may well be overpriced now. But define "worth the effort" in this context. Market timing is not a historically successfully implemented strategy. Being "right" but being way to early in one's call is indistinguishable from being wrong.CraigTester wrote: ↑Sun Jan 16, 2022 8:37 am My way is certainly not for everyone, and does require more thinking than a three fund portfolio, but at least so far, it has been more than worth the effort.
But the catch is that the very same reasons that led you to hold US equities at these valuations, will also lead you to hold them when they inevitably revert to their mean.
It will be interesting to have this conversation again in say, 2030 or 2040.....