Still trying to believe in bonds

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abc132
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Joined: Thu Oct 18, 2018 1:11 am

Re: Still trying to believe in bonds

Post by abc132 »

Marseille07 wrote: Fri Jun 09, 2023 5:55 pm
abc132 wrote: Fri Jun 09, 2023 5:54 pm My worst CD is earning 3.1% (due shortly). Only you short term investors were ever earning 0.5%.
A second example is that 2001 I-bonds have absolutely destroyed your methodology. Think 39k per 10k vs 25k per 10k.
It absolutely pays to hold longer term bonds when rates are good.
Today's rates are good (probably not best) and now is almost certainly a good time to start investing over time.
I don't know which methodology you're speaking of.

I keep my fixed income short but instead hold more equities. So your fixed income comparison would be off the mark.
I have a range of durations and hold more equities. So the comparison is fair for the same AA.
coffeeblack
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Re: Still trying to believe in bonds

Post by coffeeblack »

JMK909er wrote: Tue Jun 06, 2023 10:04 am I know the conventional wisdom is to hold equities and bonds. However I have had VTI and BND for about a year now 60/40 on a balance of about 243k. My experience is that when VTI has a great day then BND has a loss. Conversely when BND has a great day VTI has a loss. So for about a year my investments seem to keep defeating each other and being stagnant and flat. It seems self defeating to me.

So for about a month I switched to all in on VTI and have already had an increase of about 5-6k! Without bonds dragging my account down, I am doing much better.

Can someone please explain to me why I should be holding bonds again as a strategy?

Thanks, Joe
Here is one way to think about it.

If you were 100% equities and the market dropped 50% and you had zero bonds how would you feel. It's a big loss for a few years until it goes up again. Do you have enough funds elsewhere that you can use and wait it out? If yes, how many years?

Now, imagine if you had a 60/40 portfolio and equities dropped by 50% and bonds went up by 5%. So your total loss would be less than 30% and you would not have to sell stock when it is down. Again, if you have the funds somewhere else (pension, SS) then can wait it out.
Buddtholomew
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Re: Still trying to believe in bonds

Post by Buddtholomew »

OP, the term “bonds” on this forum can apply to a variety of fixed income investments ranging from cash to Long Term treasuries.

With 40% invested in Cash, you COULD have earned 250K * .4 = 100K * 4% or 4000 dollars over that year timeframe.

Match the duration of your fixed income to you withdrawal needs.

Budd
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
abc132
Posts: 2435
Joined: Thu Oct 18, 2018 1:11 am

Re: Still trying to believe in bonds

Post by abc132 »

ACCUMULATION:
$10000 in year 2000 with 100/month added to date
70% US stocks / 30% intermediate treasury 11.89% CAGR (BEST)
70% US stocks / 15% intermediate / 15% short treasury 11.75% CAGR
70% US stocks / 30% short treasury 11.59% CAGR

RETIREMENT (decumulation)
$40000 in year 2000 with 100/month removed (3% SWR)
70% US stocks / 30% intermediate treasury $30,790 (BEST)
70% US stocks / 15% intermediate / 15% short treasury $26,025
70% US stocks / 30% short treasury $21,503

What we notice is that short vs intermediate duration doesn't matter that much in accumulation and that longer duration has helped quite a bit for the year 2000 retiree in retirement. It's tough to show on portfolio visualizer, but if we start with a longer duration in 2000 and shorten duration we get the best of both worlds.

I tried 2000, 2005, 2010, and 2015 retiree. In each case intermediate was better than short term treasury.

To be fair the 2020 retiree is down by 0.8% with equal retirement amounts. However the intermediate treasury would still have about 6% more money because they held intermediates during accumulation and retired with more money.
Last edited by abc132 on Fri Jun 09, 2023 7:12 pm, edited 1 time in total.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Still trying to believe in bonds

Post by secondopinion »

abc132 wrote: Fri Jun 09, 2023 5:54 pm
Marseille07 wrote: Fri Jun 09, 2023 5:44 pm
abc132 wrote: Fri Jun 09, 2023 5:36 pm 2022 was only wrong if you spent a significant portion of your bonds in 2022. This was easily avoidable not spening 10 years of expenses in 2022 or by having cash or short term for the amount of money spent in 2022. I avoided any need to time by
1) owning I-bonds for unexpected needs (short, medium, or long)
2) owning CD's for short term needs
3) owning intermediate for remaining space and for rebalancing AA

Each one of these has a positive return 2022 to present. I'm also buying new intermediate and long bonds at today's higher rates - increasing my capacity to provide future income. I buy over time and minimize interest rate risk by not timing what rates will do.

"short term bonds are for safety" is just as bad advice as "bonds are for safety" advice.
Our perspectives on LMP must be different because my opinion is that we don't have a whole lot of future expenses needing liability matching.

If you're talking about a future house purchase or saving up for kids' college fund, sure. But if we're talking about buying food, paying mortgage monthly, paying for an auto loan etc etc...they are current & ongoing expenses not needing liability matching.
My worst CD is earning 3.1% (due shortly). Only you short term investors were ever earning 0.5%.
A second example is that 2001 I-bonds have absolutely destroyed your methodology. Think 39k per 10k vs 25k per 10k.
It absolutely pays to hold longer term bonds when rates are good.
Today's rates are good (probably not best) and now is almost certainly a good time to start investing over time.
Don't let 2022 convince you that taking the current short term rate is always a good idea.
Who is convinced? I strive for high bond convexity so that I have opportunities regardless of the rates if any rate movement happens; a good add-on direct CD is always worth the while (or any good direct CD for that matter) because I can break into it for a fixed penalty (the add-on nature adds a rate floor for any cash or shorter-term CDs that might be yielding better right now).

I do not need to be content with 0.5%; I obviously have made more, especially when I could sell at a profit my long-term bonds back in 2020 and only bought back in late 2022 (which that was to take advantage of that add-on CD rate floor I had).
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Still trying to believe in bonds

Post by secondopinion »

abc132 wrote: Fri Jun 09, 2023 7:10 pm ACCUMULATION:
$10000 in year 2000 with 100/month added to date
70% US stocks / 30% intermediate treasury 11.89% CAGR (BEST)
70% US stocks / 15% intermediate / 15% short treasury 11.75% CAGR
70% US stocks / 30% short treasury 11.59% CAGR

RETIREMENT (decumulation)
$40000 in year 2000 with 100/month removed (3% SWR)
70% US stocks / 30% intermediate treasury $30,790 (BEST)
70% US stocks / 15% intermediate / 15% short treasury $26,025
70% US stocks / 30% short treasury $21,503

What we notice is that short vs intermediate duration doesn't matter that much in accumulation and that longer duration has helped quite a bit for the year 2000 retiree in retirement. It's tough to show on portfolio visualizer, but if we start with a longer duration in 2000 and shorten duration we get the best of both worlds.

I tried 2000, 2005, 2010, and 2015 retiree. In each case intermediate was better than short term treasury.

To be fair the 2020 retiree is down by 0.8% with equal retirement amounts. However the intermediate treasury would still have about 6% more money because they held intermediates during accumulation and retired with more money.
A smart short term fixed-income investor can do better than with short term treasury.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
abc132
Posts: 2435
Joined: Thu Oct 18, 2018 1:11 am

Re: Still trying to believe in bonds

Post by abc132 »

secondopinion wrote: Fri Jun 09, 2023 7:12 pm
abc132 wrote: Fri Jun 09, 2023 5:54 pm
Marseille07 wrote: Fri Jun 09, 2023 5:44 pm
abc132 wrote: Fri Jun 09, 2023 5:36 pm 2022 was only wrong if you spent a significant portion of your bonds in 2022. This was easily avoidable not spening 10 years of expenses in 2022 or by having cash or short term for the amount of money spent in 2022. I avoided any need to time by
1) owning I-bonds for unexpected needs (short, medium, or long)
2) owning CD's for short term needs
3) owning intermediate for remaining space and for rebalancing AA

Each one of these has a positive return 2022 to present. I'm also buying new intermediate and long bonds at today's higher rates - increasing my capacity to provide future income. I buy over time and minimize interest rate risk by not timing what rates will do.

"short term bonds are for safety" is just as bad advice as "bonds are for safety" advice.
Our perspectives on LMP must be different because my opinion is that we don't have a whole lot of future expenses needing liability matching.

If you're talking about a future house purchase or saving up for kids' college fund, sure. But if we're talking about buying food, paying mortgage monthly, paying for an auto loan etc etc...they are current & ongoing expenses not needing liability matching.
My worst CD is earning 3.1% (due shortly). Only you short term investors were ever earning 0.5%.
A second example is that 2001 I-bonds have absolutely destroyed your methodology. Think 39k per 10k vs 25k per 10k.
It absolutely pays to hold longer term bonds when rates are good.
Today's rates are good (probably not best) and now is almost certainly a good time to start investing over time.
Don't let 2022 convince you that taking the current short term rate is always a good idea.
Who is convinced? I strive for high bond convexity so that I have opportunities regardless of the rates if any rate movement happens; a good add-on direct CD is always worth the while (or any good direct CD for that matter) because I can break into it for a fixed penalty (the add-on nature adds a rate floor for any cash or shorter-term CDs that might be yielding better right now).

I do not need to be content with 0.5%; I obviously have made more, especially when I could sell at a profit my long-term bonds back in 2020 and only bought back in late 2022...
My response is against those saying "short bonds are for safety" while knocking "bonds are for safety".

If you can both hold and/or not hold short bonds then I think you have a strategy.
abc132
Posts: 2435
Joined: Thu Oct 18, 2018 1:11 am

Re: Still trying to believe in bonds

Post by abc132 »

secondopinion wrote: Fri Jun 09, 2023 7:16 pm
abc132 wrote: Fri Jun 09, 2023 7:10 pm ACCUMULATION:
$10000 in year 2000 with 100/month added to date
70% US stocks / 30% intermediate treasury 11.89% CAGR (BEST)
70% US stocks / 15% intermediate / 15% short treasury 11.75% CAGR
70% US stocks / 30% short treasury 11.59% CAGR

RETIREMENT (decumulation)
$40000 in year 2000 with 100/month removed (3% SWR)
70% US stocks / 30% intermediate treasury $30,790 (BEST)
70% US stocks / 15% intermediate / 15% short treasury $26,025
70% US stocks / 30% short treasury $21,503

What we notice is that short vs intermediate duration doesn't matter that much in accumulation and that longer duration has helped quite a bit for the year 2000 retiree in retirement. It's tough to show on portfolio visualizer, but if we start with a longer duration in 2000 and shorten duration we get the best of both worlds.

I tried 2000, 2005, 2010, and 2015 retiree. In each case intermediate was better than short term treasury.

To be fair the 2020 retiree is down by 0.8% with equal retirement amounts. However the intermediate treasury would still have about 6% more money because they held intermediates during accumulation and retired with more money.
A smart short term fixed-income investor can do better than with short term treasury.
The same would be true for the smart intermediate investor, no?
secondopinion
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Re: Still trying to believe in bonds

Post by secondopinion »

abc132 wrote: Fri Jun 09, 2023 7:18 pm
secondopinion wrote: Fri Jun 09, 2023 7:16 pm
abc132 wrote: Fri Jun 09, 2023 7:10 pm ACCUMULATION:
$10000 in year 2000 with 100/month added to date
70% US stocks / 30% intermediate treasury 11.89% CAGR (BEST)
70% US stocks / 15% intermediate / 15% short treasury 11.75% CAGR
70% US stocks / 30% short treasury 11.59% CAGR

RETIREMENT (decumulation)
$40000 in year 2000 with 100/month removed (3% SWR)
70% US stocks / 30% intermediate treasury $30,790 (BEST)
70% US stocks / 15% intermediate / 15% short treasury $26,025
70% US stocks / 30% short treasury $21,503

What we notice is that short vs intermediate duration doesn't matter that much in accumulation and that longer duration has helped quite a bit for the year 2000 retiree in retirement. It's tough to show on portfolio visualizer, but if we start with a longer duration in 2000 and shorten duration we get the best of both worlds.

I tried 2000, 2005, 2010, and 2015 retiree. In each case intermediate was better than short term treasury.

To be fair the 2020 retiree is down by 0.8% with equal retirement amounts. However the intermediate treasury would still have about 6% more money because they held intermediates during accumulation and retired with more money.
A smart short term fixed-income investor can do better than with short term treasury.
The same would be true for the smart intermediate investor, no?
Not really. Most bank and credit unions do not extend past five years; so, the non-marketed space is limited to shorter-term. Can you find me a better place for longer than five years, because I would be glad to check it out?
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
abc132
Posts: 2435
Joined: Thu Oct 18, 2018 1:11 am

Re: Still trying to believe in bonds

Post by abc132 »

secondopinion wrote: Fri Jun 09, 2023 7:21 pm
abc132 wrote: Fri Jun 09, 2023 7:18 pm
secondopinion wrote: Fri Jun 09, 2023 7:16 pm
abc132 wrote: Fri Jun 09, 2023 7:10 pm ACCUMULATION:
$10000 in year 2000 with 100/month added to date
70% US stocks / 30% intermediate treasury 11.89% CAGR (BEST)
70% US stocks / 15% intermediate / 15% short treasury 11.75% CAGR
70% US stocks / 30% short treasury 11.59% CAGR

RETIREMENT (decumulation)
$40000 in year 2000 with 100/month removed (3% SWR)
70% US stocks / 30% intermediate treasury $30,790 (BEST)
70% US stocks / 15% intermediate / 15% short treasury $26,025
70% US stocks / 30% short treasury $21,503

What we notice is that short vs intermediate duration doesn't matter that much in accumulation and that longer duration has helped quite a bit for the year 2000 retiree in retirement. It's tough to show on portfolio visualizer, but if we start with a longer duration in 2000 and shorten duration we get the best of both worlds.

I tried 2000, 2005, 2010, and 2015 retiree. In each case intermediate was better than short term treasury.

To be fair the 2020 retiree is down by 0.8% with equal retirement amounts. However the intermediate treasury would still have about 6% more money because they held intermediates during accumulation and retired with more money.
A smart short term fixed-income investor can do better than with short term treasury.
The same would be true for the smart intermediate investor, no?
Not really. Most bank and credit unions do not extend past five years; so, the non-marketed space is limited to shorter-term.
If you can boost your retirement net worth by 50% through short rate shopping I would say it's a good idea. For me, I'll take intermediates, skip the chance at cognitive decline, and enjoy retirement. 75% of retirement portfolio after 23 years sounds a lot better than 50% of retirement portfolio.
secondopinion
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Joined: Wed Dec 02, 2020 12:18 pm

Re: Still trying to believe in bonds

Post by secondopinion »

abc132 wrote: Fri Jun 09, 2023 7:16 pm
secondopinion wrote: Fri Jun 09, 2023 7:12 pm
abc132 wrote: Fri Jun 09, 2023 5:54 pm
Marseille07 wrote: Fri Jun 09, 2023 5:44 pm
abc132 wrote: Fri Jun 09, 2023 5:36 pm 2022 was only wrong if you spent a significant portion of your bonds in 2022. This was easily avoidable not spening 10 years of expenses in 2022 or by having cash or short term for the amount of money spent in 2022. I avoided any need to time by
1) owning I-bonds for unexpected needs (short, medium, or long)
2) owning CD's for short term needs
3) owning intermediate for remaining space and for rebalancing AA

Each one of these has a positive return 2022 to present. I'm also buying new intermediate and long bonds at today's higher rates - increasing my capacity to provide future income. I buy over time and minimize interest rate risk by not timing what rates will do.

"short term bonds are for safety" is just as bad advice as "bonds are for safety" advice.
Our perspectives on LMP must be different because my opinion is that we don't have a whole lot of future expenses needing liability matching.

If you're talking about a future house purchase or saving up for kids' college fund, sure. But if we're talking about buying food, paying mortgage monthly, paying for an auto loan etc etc...they are current & ongoing expenses not needing liability matching.
My worst CD is earning 3.1% (due shortly). Only you short term investors were ever earning 0.5%.
A second example is that 2001 I-bonds have absolutely destroyed your methodology. Think 39k per 10k vs 25k per 10k.
It absolutely pays to hold longer term bonds when rates are good.
Today's rates are good (probably not best) and now is almost certainly a good time to start investing over time.
Don't let 2022 convince you that taking the current short term rate is always a good idea.
Who is convinced? I strive for high bond convexity so that I have opportunities regardless of the rates if any rate movement happens; a good add-on direct CD is always worth the while (or any good direct CD for that matter) because I can break into it for a fixed penalty (the add-on nature adds a rate floor for any cash or shorter-term CDs that might be yielding better right now).

I do not need to be content with 0.5%; I obviously have made more, especially when I could sell at a profit my long-term bonds back in 2020 and only bought back in late 2022...
My response is against those saying "short bonds are for safety" while knocking "bonds are for safety".

If you can both hold and/or not hold short bonds then I think you have a strategy.
It is more like hold or not hold long-term nominal bonds. I always have short-term fixed income.

As I have said, I was not content with 0.5%. I do not have cash usually (unless it is now where cash yields more but I have rate floors via add-on CDs to keep a minimum yield for five years if it drops, hitting many other floors along the way).
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
abc132
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Re: Still trying to believe in bonds

Post by abc132 »

secondopinion wrote: Fri Jun 09, 2023 7:29 pm
abc132 wrote: Fri Jun 09, 2023 7:16 pm
secondopinion wrote: Fri Jun 09, 2023 7:12 pm
abc132 wrote: Fri Jun 09, 2023 5:54 pm
Marseille07 wrote: Fri Jun 09, 2023 5:44 pm

Our perspectives on LMP must be different because my opinion is that we don't have a whole lot of future expenses needing liability matching.

If you're talking about a future house purchase or saving up for kids' college fund, sure. But if we're talking about buying food, paying mortgage monthly, paying for an auto loan etc etc...they are current & ongoing expenses not needing liability matching.
My worst CD is earning 3.1% (due shortly). Only you short term investors were ever earning 0.5%.
A second example is that 2001 I-bonds have absolutely destroyed your methodology. Think 39k per 10k vs 25k per 10k.
It absolutely pays to hold longer term bonds when rates are good.
Today's rates are good (probably not best) and now is almost certainly a good time to start investing over time.
Don't let 2022 convince you that taking the current short term rate is always a good idea.
Who is convinced? I strive for high bond convexity so that I have opportunities regardless of the rates if any rate movement happens; a good add-on direct CD is always worth the while (or any good direct CD for that matter) because I can break into it for a fixed penalty (the add-on nature adds a rate floor for any cash or shorter-term CDs that might be yielding better right now).

I do not need to be content with 0.5%; I obviously have made more, especially when I could sell at a profit my long-term bonds back in 2020 and only bought back in late 2022...
My response is against those saying "short bonds are for safety" while knocking "bonds are for safety".

If you can both hold and/or not hold short bonds then I think you have a strategy.
It is more like hold or not hold long-term nominal bonds. I always have short-term fixed income.

As I have said, I was not content with 0.5%. I do not have cash usually (unless it is now where cash yields more but I have rate floors via add-on CDs to keep a minimum for five years).
That sounds reasonable.

I'm having a hard time imagining anyone earning that 0.5% that was not short term shopping. I find your comparison to be faulty since my worst fixed income is/was a Feb 2019 CD earning 3.1%. Certainly your comparison should be the longer term 2-3% rates people were actually getting.
Marseille07
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Re: Still trying to believe in bonds

Post by Marseille07 »

abc132 wrote: Fri Jun 09, 2023 7:16 pm My response is against those saying "short bonds are for safety" while knocking "bonds are for safety".

If you can both hold and/or not hold short bonds then I think you have a strategy.
What's there to be against? Short bonds are safer, I don't understand how that's controversial.
Capster1
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Re: Still trying to believe in bonds

Post by Capster1 »

This is not a game of only maximizing returns. It’s a game of making enough to fund retirement taking on an appropriate risk level.
I’m at 65/30/5 so I don’t have to worry about losing all of my hard earned money at once. The income from my intermediate bond funds has had a nice increase, despite looking like they’ve went nowhere.
Outer Marker
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Re: Still trying to believe in bonds

Post by Outer Marker »

JMK909er wrote: Fri Jun 09, 2023 11:25 am I am the original poster and have been monitoring all the posts. I have learned a whole lot from all your input and appreciate it greatly.
I have reallocated my portfolio to 65% VTI and 35%BND
Thanks for all the education!
JMK, a 5% shift in AA while maintaining BND as your core fixed income holding is not going to have a material impact on your portfolio. If you want to change the behavior of fixed income, you need to be considerable shorter in duration and/or consider alternatives like MM, CD's etc. I think there's a solid case for that and a corresponding higher equity allocation to maintain the same risk profile.
rich126
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Re: Still trying to believe in bonds

Post by rich126 »

When it comes to investing you have to do what you are comfortable with unless you've had a history of doing poorly with investments.

I've tried bonds a few times and just never cared for investing in them. Right now I have a bunch of treasuries and the rest in stocks and ETFs. I invest my money that I will use until social security kicks in, very conservatively in treasuries or maybe less than 20% in stocks (I'm currently retired). My other money is also somewhat conservatively invested in stocks, ETFs and treasuries. At most 60% in stocks.

Obviously when rates are increasing, bond funds won't do well, but when they went down (mostly from 2000-2020) they did well.
----------------------------- | If you think something is important and it doesn't involve the health of someone, think again. Life goes too fast, enjoy it and be nice.
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JMK909er
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Re: Still trying to believe in bonds

Post by JMK909er »

I have heard a lot in this thread about investing in treasuries. I don't know anything about them. How do you invest in treasuries? Is there an ETF for them? Where would I go to invest in treasuries? Thanks.
-JMK
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Re: Still trying to believe in bonds

Post by Outer Marker »

JMK909er wrote: Sat Jun 10, 2023 8:52 am I have heard a lot in this thread about investing in treasuries. I don't know anything about them. How do you invest in treasuries? Is there an ETF for them? Where would I go to invest in treasuries? Thanks.
You can buy them through a fund, such as Vanguard's https://advisors.vanguard.com/investmen ... ral-shares or buy individual bonds from Treasury Direct. Another option to consider is short term TIPS, also available in a Vanguard fund. https://investor.vanguard.com/investmen ... file/vtapx
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Re: Still trying to believe in bonds

Post by Outer Marker »

rich126 wrote: Sat Jun 10, 2023 8:44 am Obviously when rates are increasing, bond funds won't do well, but when they went down (mostly from 2000-2020) they did well.
I find it problematic that particularly with bond funds, so much performance is dictated by the whim of the Fed.
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JMK909er
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Re: Still trying to believe in bonds

Post by JMK909er »

Outer Marker wrote: Sat Jun 10, 2023 9:00 am
JMK909er wrote: Sat Jun 10, 2023 8:52 am I have heard a lot in this thread about investing in treasuries. I don't know anything about them. How do you invest in treasuries? Is there an ETF for them? Where would I go to invest in treasuries? Thanks.
You can buy them through a fund, such as Vanguard's https://advisors.vanguard.com/investmen ... ral-shares or buy individual bonds from Treasury Direct. Another option to consider is short term TIPS, also available in a Vanguard fund. https://investor.vanguard.com/investmen ... file/vtapx
So are Treasuries also bonds? Is VSBSX a better investment now instead of BND?
-JMK
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Re: Still trying to believe in bonds

Post by Outer Marker »

JMK909er wrote: Sat Jun 10, 2023 9:06 am So are Treasuries also bonds? Is VSBSX a better investment now instead of BND?
Yes, Treasuries are bonds issued by the U.S. Government - so essentially no risk of default. No way to know which is "better" since none of us can predict the future. But, the Short Term Treasury fund is certainly going to be less volatile than BND.
dbr
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Re: Still trying to believe in bonds

Post by dbr »

JMK909er wrote: Sat Jun 10, 2023 9:06 am
Outer Marker wrote: Sat Jun 10, 2023 9:00 am
JMK909er wrote: Sat Jun 10, 2023 8:52 am I have heard a lot in this thread about investing in treasuries. I don't know anything about them. How do you invest in treasuries? Is there an ETF for them? Where would I go to invest in treasuries? Thanks.
You can buy them through a fund, such as Vanguard's https://advisors.vanguard.com/investmen ... ral-shares or buy individual bonds from Treasury Direct. Another option to consider is short term TIPS, also available in a Vanguard fund. https://investor.vanguard.com/investmen ... file/vtapx
So are Treasuries also bonds? Is VSBSX a better investment now instead of BND?
"Treasuries" comprises the various financial instruments you can purchase for the Treasury. See here: https://www.treasurydirect.gov/

There is nomenclature. First there is the categorization of Bills, Notes, and Bonds, all of which are bonds. There are also Series EE and Series I Savings Bonds, which are bonds but not bonds as in Bills, Notes, and Bonds. There are also Treasury Inflation Protected Securities, which are bonds but not Bonds nor Savings Bonds. You can save a lot of time and questions by exploring the website for the different uses of words.

VSBXS is a better or worse investment than something else depending on what you are trying to do.
secondopinion
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Re: Still trying to believe in bonds

Post by secondopinion »

abc132 wrote: Fri Jun 09, 2023 7:46 pm
secondopinion wrote: Fri Jun 09, 2023 7:29 pm
abc132 wrote: Fri Jun 09, 2023 7:16 pm
secondopinion wrote: Fri Jun 09, 2023 7:12 pm
abc132 wrote: Fri Jun 09, 2023 5:54 pm

My worst CD is earning 3.1% (due shortly). Only you short term investors were ever earning 0.5%.
A second example is that 2001 I-bonds have absolutely destroyed your methodology. Think 39k per 10k vs 25k per 10k.
It absolutely pays to hold longer term bonds when rates are good.
Today's rates are good (probably not best) and now is almost certainly a good time to start investing over time.
Don't let 2022 convince you that taking the current short term rate is always a good idea.
Who is convinced? I strive for high bond convexity so that I have opportunities regardless of the rates if any rate movement happens; a good add-on direct CD is always worth the while (or any good direct CD for that matter) because I can break into it for a fixed penalty (the add-on nature adds a rate floor for any cash or shorter-term CDs that might be yielding better right now).

I do not need to be content with 0.5%; I obviously have made more, especially when I could sell at a profit my long-term bonds back in 2020 and only bought back in late 2022...
My response is against those saying "short bonds are for safety" while knocking "bonds are for safety".

If you can both hold and/or not hold short bonds then I think you have a strategy.
It is more like hold or not hold long-term nominal bonds. I always have short-term fixed income.

As I have said, I was not content with 0.5%. I do not have cash usually (unless it is now where cash yields more but I have rate floors via add-on CDs to keep a minimum for five years).
That sounds reasonable.

I'm having a hard time imagining anyone earning that 0.5% that was not short term shopping. I find your comparison to be faulty since my worst fixed income is/was a Feb 2019 CD earning 3.1%. Certainly your comparison should be the longer term 2-3% rates people were actually getting.
In early mid 2019, I opened a five year add-on CD yielding about 3%. CDs have been a mainstay for me; since I have the baked in option to break the CDs with a fixed penalty, it is close to cash in the portfolio dynamics. Most of my fixed income is shorter (five years or less), but my effective duration is quite a bit lower. So yes, I was not in cash.

But in 2019, I did have long-term bonds as well (since I actually do not mind them). What happened in 2020 posed a situation where I could make a bit of money beyond what the market would have given in comparable 4 year treasuries (which I compared my add-on CD to). Since this was a serious deal and I believed that markets were efficient, it would not be wise to take duration risk in long-term bonds when I was earning >2% above the market at the 4 year mark.

I bought the add-on CD to hedge my shorter term fixed-income against dropping rates. I did not know it would end up the way it happened with my long-term fixed income as well.
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Marseille07
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Re: Still trying to believe in bonds

Post by Marseille07 »

JMK909er wrote: Sat Jun 10, 2023 9:06 am So are Treasuries also bonds? Is VSBSX a better investment now instead of BND?
VSBXSX would be a sensible choice in my opinion. Going back to 65/35 does not address the underlying issue which is that you don't like BND volatility.
secondopinion
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Re: Still trying to believe in bonds

Post by secondopinion »

Marseille07 wrote: Fri Jun 09, 2023 10:46 pm
abc132 wrote: Fri Jun 09, 2023 7:16 pm My response is against those saying "short bonds are for safety" while knocking "bonds are for safety".

If you can both hold and/or not hold short bonds then I think you have a strategy.
What's there to be against? Short bonds are safer, I don't understand how that's controversial.
In real terms, short-term nominals are safer than long-term nominals. But since neither guarantee the real returns long-term, that is why I do not count long-term real safety in anything but long-term TIPS. Stocks are usually better long-term, but the pessimist side of myself feels a lot better with some long-term TIPS and I-bonds as a long-term cushion (I-bonds have a nominal floor and are tax-deferred, so there is a lot going for them).

But I am also an opportunist; I keep my eyes open for potential profits everywhere and very little is off the table. Even short-term nominals can be the profit makers if done right; hence, I have no problem holding them. Not as a means to beat the market but as a means to control and diversify my risk; it has been profitable for my risk taken, which is the only thing I care about at the end of the day.
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Marseille07
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Re: Still trying to believe in bonds

Post by Marseille07 »

secondopinion wrote: Sat Jun 10, 2023 11:41 am In real terms, short-term nominals are safer than long-term nominals. But since neither guarantee the real returns long-term, that is why I do not count long-term real safety in anything but long-term TIPS. Stocks are usually better long-term, but the pessimist side of myself feels a lot better with some long-term TIPS and I-bonds as a long-term cushion (I-bonds have a nominal floor and are tax-deferred, so there is a lot going for them).

But I am also an opportunist; I keep my eyes open for potential profits everywhere and very little is off the table. Even short-term nominals can be the profit makers if done right; hence, I have no problem holding them. Not as a means to beat the market but as a means to control and diversify my risk; it has been profitable for my risk taken, which is the only thing I care about at the end of the day.
That's an interesting perspective because I hold fixed income to pay day-to-day expenses. Getting good returns would be a plus of course, but not my primary goal. I also want to make sure it is rock solid; I certainly don't want it to go -15% since my monthly bills don't wait for recovery.
secondopinion
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Re: Still trying to believe in bonds

Post by secondopinion »

Marseille07 wrote: Sat Jun 10, 2023 11:47 am
secondopinion wrote: Sat Jun 10, 2023 11:41 am In real terms, short-term nominals are safer than long-term nominals. But since neither guarantee the real returns long-term, that is why I do not count long-term real safety in anything but long-term TIPS. Stocks are usually better long-term, but the pessimist side of myself feels a lot better with some long-term TIPS and I-bonds as a long-term cushion (I-bonds have a nominal floor and are tax-deferred, so there is a lot going for them).

But I am also an opportunist; I keep my eyes open for potential profits everywhere and very little is off the table. Even short-term nominals can be the profit makers if done right; hence, I have no problem holding them. Not as a means to beat the market but as a means to control and diversify my risk; it has been profitable for my risk taken, which is the only thing I care about at the end of the day.
That's an interesting perspective because I hold fixed income to pay day-to-day expenses. Getting good returns would be a plus of course, but not my primary goal. I also want to make sure it is rock solid; I certainly don't want it to go -15% since my monthly bills don't wait for recovery.
Agreed. It is far easier to take a -5% loss. It is a plus side but not my main objective with short-term fixed-income. Different prisms; both decide it is good to hold it.
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Re: Still trying to believe in bonds

Post by mikeyzito22 »

123 wrote: Tue Jun 06, 2023 9:51 pm In the Spring of 2022 I took the coward's way out of bonds and went to ladders of 52 week treasuries in our IRAs where we hold most of our fixed income. No regrets so far. Last Fall I bought a little of BND just so I would pay more attention to it for possible recovery. So far I'm happy I've stayed with the treasuries for our primary fixed income positions.
That is not a cowards play. That is a smart play. I did it way before, but I don't see any reason why you wouldn't. I wish my employer's plan would give me access to individual treasuries. So, I have to hold them in taxable at the moment.
abc132
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Re: Still trying to believe in bonds

Post by abc132 »

Marseille07 wrote: Fri Jun 09, 2023 10:46 pm
abc132 wrote: Fri Jun 09, 2023 7:16 pm My response is against those saying "short bonds are for safety" while knocking "bonds are for safety".

If you can both hold and/or not hold short bonds then I think you have a strategy.
What's there to be against? Short bonds are safer, I don't understand how that's controversial.
Using your terminology cash is even safer. We don't recommend 100% cash for fixed income here at Bogleheads. You don't use 100% cash. You need a definition of "safe" that incorporates your own choices.

With portfolio construction you also have to look at returns. With bonds you look at the ability of the fixed income to meet future expenses.
Portfolio size and future payment streams make a portfolio safer - it is not just maximum annual percentage loss that matters.

Considering all of these things intermediate has been a better choice than staying short term. This could change in the future, but it is very clear you now are less safe than someone that made a different choice for the last 2 decades.
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Re: Still trying to believe in bonds

Post by Marseille07 »

abc132 wrote: Sat Jun 10, 2023 6:38 pm Using your terminology cash is even safer. We don't recommend 100% cash for fixed income here at Bogleheads. You don't use 100% cash. You need a definition of "safe" that incorporates your own choices.

With portfolio construction you also have to look at returns. With bonds you look at the ability of the fixed income to meet future expenses.
Portfolio size and future payment streams make a portfolio safer - it is not just maximum annual percentage loss that matters.

Considering all of these things intermediate has been a better choice than staying short term. This could change in the future, but it is very clear you now are less safe than someone that made a different choice for the last 2 decades.
Safety and "a better choice" are different. Obviously if you just go for the yields, don't even bother with ITTs, buy LTTs.

When we talk about safety, we need to look at the volatility of the instruments. And sometimes one picks lower-yielding instruments (i.e. a worse choice) for better safety.
rich126
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Re: Still trying to believe in bonds

Post by rich126 »

Outer Marker wrote: Sat Jun 10, 2023 9:03 am
rich126 wrote: Sat Jun 10, 2023 8:44 am Obviously when rates are increasing, bond funds won't do well, but when they went down (mostly from 2000-2020) they did well.
I find it problematic that particularly with bond funds, so much performance is dictated by the whim of the Fed.
I wouldn't call it a "whim" but rates usually go up when inflation hits to try and reduce the supply of money (costlier to take out loans, often negatively impacts stocks which reduce assets, etc.) and then go down when there is a need to stimulate the economy.
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abc132
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Re: Still trying to believe in bonds

Post by abc132 »

Marseille07 wrote: Sat Jun 10, 2023 6:58 pm
abc132 wrote: Sat Jun 10, 2023 6:38 pm Using your terminology cash is even safer. We don't recommend 100% cash for fixed income here at Bogleheads. You don't use 100% cash. You need a definition of "safe" that incorporates your own choices.

With portfolio construction you also have to look at returns. With bonds you look at the ability of the fixed income to meet future expenses.
Portfolio size and future payment streams make a portfolio safer - it is not just maximum annual percentage loss that matters.

Considering all of these things intermediate has been a better choice than staying short term. This could change in the future, but it is very clear you now are less safe than someone that made a different choice for the last 2 decades.
Safety and "a better choice" are different. Obviously if you just go for the yields, don't even bother with ITTs, buy LTTs.

When we talk about safety, we need to look at the volatility of the instruments. And sometimes one picks lower-yielding instruments (i.e. a worse choice) for better safety.
No you also need to look at portfolio size. Otherwise 100% cash would always be better than short term.

You have to understand two ideas, not just one.
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Re: Still trying to believe in bonds

Post by Marseille07 »

abc132 wrote: Wed Jun 14, 2023 2:59 am No you also need to look at portfolio size. Otherwise 100% cash would always be better than short term.

You have to understand two ideas, not just one.
What in the world are you even talking about. I didn't say short term is the best at anything. What I said was, if the OP was feeling discomfort holding ITTs (and it is clear they are), then shortening the duration may be helpful.

It is straightforward advice and nothing crazy to be honest.
abc132
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Re: Still trying to believe in bonds

Post by abc132 »

Marseille07 wrote: Wed Jun 14, 2023 10:06 am
abc132 wrote: Wed Jun 14, 2023 2:59 am No you also need to look at portfolio size. Otherwise 100% cash would always be better than short term.

You have to understand two ideas, not just one.
What in the world are you even talking about. I didn't say short term is the best at anything. What I said was, if the OP was feeling discomfort holding ITTs (and it is clear they are), then shortening the duration may be helpful.

It is straightforward advice and nothing crazy to be honest.
All I said was to look at return and max drawdowns. Nothing crazy there, but something you have not been able to acknowledge in your posts. I think looking at both is superior than focusing on just one of the two. One-dimensional investing choices are almost always suboptimal. Multiple things should usually be considered.
Marseille07
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Re: Still trying to believe in bonds

Post by Marseille07 »

abc132 wrote: Wed Jun 14, 2023 1:34 pm All I said was to look at return and max drawdowns. Nothing crazy there, but something you have not been able to acknowledge in your posts. I think looking at both is superior than focusing on just one of the two. One-dimensional investing choices are almost always suboptimal. Multiple things should usually be considered.
No, it is crazy because we aren't talking about the return, and the point is to purposely make a suboptimal move to reduce volatility.

Calling to keep holding ITTs because that's optimal, isn't helpful.
bugleheadd
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Re: Still trying to believe in bonds

Post by bugleheadd »

I hold money market funds instead of BND.
abc132
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Re: Still trying to believe in bonds

Post by abc132 »

Marseille07 wrote: Wed Jun 14, 2023 1:41 pm
abc132 wrote: Wed Jun 14, 2023 1:34 pm All I said was to look at return and max drawdowns. Nothing crazy there, but something you have not been able to acknowledge in your posts. I think looking at both is superior than focusing on just one of the two. One-dimensional investing choices are almost always suboptimal. Multiple things should usually be considered.
No, it is crazy because we aren't talking about the return, and the point is to purposely make a suboptimal move to reduce volatility.

Calling to keep holding ITTs because that's optimal, isn't helpful.
I care about portfolio balance so something with greater volatility and better returns can be safer if it's balance is always higher. For a long enough holding period that pushes the safe choice of the initial portfolio to longer duration than short. This is also why we own stocks - accepting greater volatility for higher expected returns. You embrace the concept by owning stocks.

The difference with bonds is any decrease in current pricing is offset by higher future payments. Bonds are a much safer in respect to price swings because the future income stream roughly offsets the reduction in price. People are trading different rate of bonds so they are fairly priced with respect to each other. Thus you should not be overly concerned with short term bond movement - it is not a true measure of risk because the price change is always offset by future payments.
Marseille07
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Re: Still trying to believe in bonds

Post by Marseille07 »

abc132 wrote: Wed Jun 14, 2023 2:29 pm I care about portfolio balance so something with greater volatility and better returns can be safer if it's balance is always higher. For a long enough holding period that pushes the safe choice of the initial portfolio to longer duration than short. This is also why we own stocks - accepting greater volatility for higher expected returns. You embrace the concept by owning stocks.

The difference with bonds is any decrease in current pricing is offset by higher future payments. Bonds are a much safer in respect to price swings because the future income stream roughly offsets the reduction in price. People are trading different rate of bonds so they are fairly priced with respect to each other. Thus you should not be overly concerned with short term bond movement - it is not a true measure of risk because the price change is always offset by future payments.
Well you should advise the OP, not me.

My game is different, I load up on equities while keeping fixed income short to pay bills. I am not interested in holding ITTs to pay for food for example.
secondopinion
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Re: Still trying to believe in bonds

Post by secondopinion »

abc132 wrote: Wed Jun 14, 2023 1:34 pm
Marseille07 wrote: Wed Jun 14, 2023 10:06 am
abc132 wrote: Wed Jun 14, 2023 2:59 am No you also need to look at portfolio size. Otherwise 100% cash would always be better than short term.

You have to understand two ideas, not just one.
What in the world are you even talking about. I didn't say short term is the best at anything. What I said was, if the OP was feeling discomfort holding ITTs (and it is clear they are), then shortening the duration may be helpful.

It is straightforward advice and nothing crazy to be honest.
All I said was to look at return and max drawdowns. Nothing crazy there, but something you have not been able to acknowledge in your posts. I think looking at both is superior than focusing on just one of the two. One-dimensional investing choices are almost always suboptimal. Multiple things should usually be considered.
Are ITT, let alone LTT, safer in real returns at any timeframe than good cash equivalents or STT? From my research, the answer is no. Therefore, it is a risk asset using real returns as the basis.

Yes, there is risk and return to consider; and the correlation to stocks is on average low. But if the goal is to ensure long-term real returns, that is for long-term TIPS to handle. Cash equivalents and STT have variability in real returns, but it is considerably less than LTT regardless of the timeframe. From what I see, the real returns risk is spread across time with them rather than drastically reduced around a certain timeframe with TIPS.

Now, there may a term premium; the question is how long does it for the average to be a very likely outcome? Sadly for LTT, it takes a long time for even one independent sample to occur, let alone multiple. Like stocks, we generally do not get many independent samples in our investing experience. ITT would probably surface a smaller premium faster, and hence why it is a happy medium duration-wise to hold. It still do not change the fact that real returns will still vary quite a bit long-term. All this does not exclude the potential that same term premium exists in TIPS.

If bonds are serving strictly a risk asset in the portfolio, then by all means use long-term nominal bonds (or intermediate of the real risk needs to be tempered). But let not confuse safety just because we assume there is a premium; it does not work that way unless saving money would be insufficient without taking risk.
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Marseille07
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Re: Still trying to believe in bonds

Post by Marseille07 »

secondopinion wrote: Wed Jun 14, 2023 3:24 pm Are ITT, let alone LTT, safer in real returns at any timeframe than good cash equivalents or STT? From my research, the answer is no. Therefore, it is a risk asset using real returns as the basis.

Yes, there is risk and return to consider; and the correlation to stocks is on average low. But if the goal is to ensure long-term real returns, that is for long-term TIPS to handle. Cash equivalents and STT have variability in real returns, but it is considerably less than LTT regardless of the timeframe. From what I see, the real returns risk is spread across time with them rather than drastically reduced around a certain timeframe with TIPS.

Now, there may a term premium; the question is how long does it for the average to be a very likely outcome? Sadly for LTT, it takes a long time for even one independent sample to occur, let alone multiple. Like stocks, we generally do not get many independent samples in our investing experience. ITT would probably surface a smaller premium faster, and hence why it is a happy medium duration-wise to hold. It still do not change the fact that real returns will still vary quite a bit long-term. All this does not exclude the potential that same term premium exists in TIPS.

If bonds are serving strictly a risk asset in the portfolio, then by all means use long-term nominal bonds (or intermediate of the real risk needs to be tempered). But let not confuse safety just because we assume there is a premium; it does not work that way unless saving money would be insufficient without taking risk.
The problem with the real-return argument is it is a moot point for someone struggling to stay the course. If one dislikes ITT then the only sensible thing to do is to shorten the duration or to reduce the ITT allocation.
CookieDough
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Re: Still trying to believe in bonds

Post by CookieDough »

bugleheadd wrote: Wed Jun 14, 2023 1:51 pm I hold money market funds instead of BND.
May I ask about your thoughts behind this strategy? I'm starting to see the benefits of moving (partly) in this direction myself.
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Re: Still trying to believe in bonds

Post by secondopinion »

Marseille07 wrote: Wed Jun 14, 2023 3:54 pm
secondopinion wrote: Wed Jun 14, 2023 3:24 pm Are ITT, let alone LTT, safer in real returns at any timeframe than good cash equivalents or STT? From my research, the answer is no. Therefore, it is a risk asset using real returns as the basis.

Yes, there is risk and return to consider; and the correlation to stocks is on average low. But if the goal is to ensure long-term real returns, that is for long-term TIPS to handle. Cash equivalents and STT have variability in real returns, but it is considerably less than LTT regardless of the timeframe. From what I see, the real returns risk is spread across time with them rather than drastically reduced around a certain timeframe with TIPS.

Now, there may a term premium; the question is how long does it for the average to be a very likely outcome? Sadly for LTT, it takes a long time for even one independent sample to occur, let alone multiple. Like stocks, we generally do not get many independent samples in our investing experience. ITT would probably surface a smaller premium faster, and hence why it is a happy medium duration-wise to hold. It still do not change the fact that real returns will still vary quite a bit long-term. All this does not exclude the potential that same term premium exists in TIPS.

If bonds are serving strictly a risk asset in the portfolio, then by all means use long-term nominal bonds (or intermediate of the real risk needs to be tempered). But let not confuse safety just because we assume there is a premium; it does not work that way unless saving money would be insufficient without taking risk.
The problem with the real-return argument is it is a moot point for someone struggling to stay the course. If one dislikes ITT then the only sensible thing to do is to shorten the duration or to reduce the ITT allocation.
Right. If short-term nominal safety is required (rationally or emotionally), then shortening the duration is the only option. I am just saying that real returns are not any bit more secure even for the long-term by extending the duration on nominal bonds (even if the average real return might include a premium).
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Marseille07
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Re: Still trying to believe in bonds

Post by Marseille07 »

secondopinion wrote: Wed Jun 14, 2023 4:07 pm Right. If short-term nominal safety is required (rationally or emotionally), then shortening the duration is the only option. I am just saying that real returns are not any bit more secure even for the long-term by extending the duration on nominal bonds (even if the average real return might include a premium).
I think real returns are better because the yield curve tends to be upward sloping. The risk-adjusted returns (i.e. Sharpe) are actually about the same.
abc132
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Re: Still trying to believe in bonds

Post by abc132 »

secondopinion wrote: Wed Jun 14, 2023 3:24 pm
abc132 wrote: Wed Jun 14, 2023 1:34 pm
Marseille07 wrote: Wed Jun 14, 2023 10:06 am
abc132 wrote: Wed Jun 14, 2023 2:59 am No you also need to look at portfolio size. Otherwise 100% cash would always be better than short term.

You have to understand two ideas, not just one.
What in the world are you even talking about. I didn't say short term is the best at anything. What I said was, if the OP was feeling discomfort holding ITTs (and it is clear they are), then shortening the duration may be helpful.

It is straightforward advice and nothing crazy to be honest.
All I said was to look at return and max drawdowns. Nothing crazy there, but something you have not been able to acknowledge in your posts. I think looking at both is superior than focusing on just one of the two. One-dimensional investing choices are almost always suboptimal. Multiple things should usually be considered.
Are ITT, let alone LTT, safer in real returns at any timeframe than good cash equivalents or STT? From my research, the answer is no. Therefore, it is a risk asset using real returns as the basis.
The core issue is people backtest a LTT and do not model a LTT with a reduction in duration to the expense date. The backtesting models show risk that should not exist and of course after four 3/4 point increases in a row the LTT will look bad with this methodology, or good if we try a few years ago. You can't normalize your reference point around a target date of right after four 3/4 point interest rate increases in a row.

LTT bought in 2000 with a reduction in duration beat short term handily. Show me your model with an appropriate reduction in duration over time where choosing longer initial duration did not help on average. You can pick something like 30 year duration in 2000 slowly reduced to 7 year duration in 2023, or 11 year duration in 2000 reduced to 4 year duration in 2023. This cycle will repeat from if/when we go from high nominal rates to normalized nominal rates. Now is the time to start purchasing LTT or ITT over time for most investors.

secondopinion wrote: Wed Jun 14, 2023 3:24 pm Yes, there is risk and return to consider; and the correlation to stocks is on average low. But if the goal is to ensure long-term real returns, that is for long-term TIPS to handle. Cash equivalents and STT have variability in real returns, but it is considerably less than LTT regardless of the timeframe. From what I see, the real returns risk is spread across time with them rather than drastically reduced around a certain timeframe with TIPS.
That implies we need many years of TIPS. People use TIPS for the gap to social security which misses out almost entirely on the interest rate risk, which is a longer term risk. You would want to ensure your last 10 years of life with TIPS, not your first 10 years when the portfolio size is already big enough to guarantee ten years of success. That implies LTT TIPS which is the opposite of what many are doing based on recency bias with respect to longer duration.
secondopinion wrote: Wed Jun 14, 2023 3:24 pm Now, there may a term premium; the question is how long does it for the average to be a very likely outcome? Sadly for LTT, it takes a long time for even one independent sample to occur, let alone multiple. Like stocks, we generally do not get many independent samples in our investing experience. ITT would probably surface a smaller premium faster, and hence why it is a happy medium duration-wise to hold. It still do not change the fact that real returns will still vary quite a bit long-term. All this does not exclude the potential that same term premium exists in TIPS.

If bonds are serving strictly a risk asset in the portfolio, then by all means use long-term nominal bonds (or intermediate of the real risk needs to be tempered). But let not confuse safety just because we assume there is a premium; it does not work that way unless saving money would be insufficient without taking risk.
Anything less than duration of portfolio survival results in interest rate risk because the future TIPS rate is unknown. With inflation risk much bigger over 30 years than 10 years, the appropriate inflation protection duration should be long. We see people see investing in TIPS according to short term spending or pricing instead of over the longer term interest rate risk.
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Re: Still trying to believe in bonds

Post by Woodshark »

Marseille07 wrote: Fri Jun 09, 2023 5:14 pm
Not :oops: though. Quite frankly "bonds are for safety" in 2022 was flat out wrong. Instead of not timing the bond market, one should absolutely have timed the bond market instead of taking a 0.5% yield. To infuriate the matter further, some posters are now saying the ship has sailed, even though they were the ones telling people not to make a move back then.
I'm no financial genius, just someone who is trying to make wise financial decisions. Like many here I drink the conventional Kool-Aid that Bonds were your anchor against the a market plummeting. It was quite alarming to watch my bonds portfolio move in lockstep with the equities during the market downturn. There were a few dissenting voices about holding bonds because the low interest rates and recommended T-Bills and CD's. However many of us followed the herd and "stayed the course". Like I said, I'm no financial genius and have no plans to sell any of my BND funds, however I doubt I will ever purchase any more in the Future. It was more volatile and not the anchor I was expecting. Any future purchases in will be in T bills or CDs.
Marseille07
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Re: Still trying to believe in bonds

Post by Marseille07 »

Woodshark wrote: Wed Jun 14, 2023 5:30 pm I'm no financial genius, just someone who is trying to make wise financial decisions. Like many here I drink the conventional Kool-Aid that Bonds were your anchor against the a market plummeting. It was quite alarming to watch my bonds portfolio move in lockstep with the equities during the market downturn. There were a few dissenting voices about holding bonds because the low interest rates and recommended T-Bills and CD's. However many of us followed the herd and "stayed the course". Like I said, I'm no financial genius and have no plans to sell any of my BND funds, however I doubt I will ever purchase any more in the Future. It was more volatile and not the anchor I was expecting. Any future purchases in will be in T bills or CDs.
Your reaction is normal. The purpose of fixed income is to provide safety during the downturns.

Willthrill81 noted that bonds went negative real between 1941~1981, but he wasn't taken seriously unfortunately.
000
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Re: Still trying to believe in bonds

Post by 000 »

Marseille07 wrote: Wed Jun 14, 2023 5:49 pm The purpose of fixed income is to provide safety during the downturns.
No, there are many possible purposes of fixed income. This is only one.

Matching future expenses with less risk (than stocks) is another.

So is simply trying to capture the return of risk premia available without hoping for any particular rebalancing bonus or comfort during stock crashes.
Marseille07
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Re: Still trying to believe in bonds

Post by Marseille07 »

000 wrote: Wed Jun 14, 2023 5:57 pm No, there are many possible purposes of fixed income. This is only one.

Matching future expenses with less risk (than stocks) is another.

So is simply trying to capture the return of risk premia available without hoping for any particular rebalancing bonus or comfort during stock crashes.
But that's precisely the problem.

The folks like the OP want stability, but they receive ITT recommendation by those holding bonds for other purposes. So when bonds go shaky, the OP panics, asks for help, but they receive responses by others saying they're trying to capture the return of risk premia available.
bugleheadd
Posts: 920
Joined: Fri Nov 29, 2019 10:25 am

Re: Still trying to believe in bonds

Post by bugleheadd »

CookieDough wrote: Wed Jun 14, 2023 4:02 pm
bugleheadd wrote: Wed Jun 14, 2023 1:51 pm I hold money market funds instead of BND.
May I ask about your thoughts behind this strategy? I'm starting to see the benefits of moving (partly) in this direction myself.
Bnd price feels very volatile to me. Feels like there's still room for it to drop. At least with money markets , if you put in a $1, your $1 isn't going to drop unless in a very rare situation like what happened in 2008, even then I think it went back up to $1. And money market yields are 5% now...bnd is 2-3%, so bnd doesn't look attractive
CookieDough
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Joined: Sun Dec 25, 2022 1:07 pm

Re: Still trying to believe in bonds

Post by CookieDough »

bugleheadd wrote: Wed Jun 14, 2023 6:36 pm
CookieDough wrote: Wed Jun 14, 2023 4:02 pm
bugleheadd wrote: Wed Jun 14, 2023 1:51 pm I hold money market funds instead of BND.
May I ask about your thoughts behind this strategy? I'm starting to see the benefits of moving (partly) in this direction myself.
Bnd price feels very volatile to me. Feels like there's still room for it to drop. At least with money markets , if you put in a $1, your $1 isn't going to drop unless in a very rare situation like what happened in 2008, even then I think it went back up to $1. And money market yields are 5% now...bnd is 2-3%, so bnd doesn't look attractive
Thanks. Yeah, I agree. I'm still going to keep most of my fixed income allocation in BND for now, but I'm going to keep a chunk of it in MM moving forward.

I figure BND is, over time, supposed to beat inflation; I'm not sure MM will. But at least for now, MM is beating BND. I may further refine my approach in a year or two. I just feel uneasy having all my fixed income eggs in the BND basket.
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