Should I dump my bonds?
Should I dump my bonds?
Hi guys.
European government bonds are 30% of my portfolio (the rest is split between equity, real estate, and private investment; my currency is €).
As for most of us, this year has been testing, and my bond portfolio lost 7% of its value.
Role of the bonds in my portfolio is to provide a counterweight and store value (not looking for a fixed income).
What should I do with my bonds:
a) move to cash?
b) move to equity?
c) move to some other type of bonds (e.g. inflation linked)?
d) keep the bonds?
Many thanks!
European government bonds are 30% of my portfolio (the rest is split between equity, real estate, and private investment; my currency is €).
As for most of us, this year has been testing, and my bond portfolio lost 7% of its value.
Role of the bonds in my portfolio is to provide a counterweight and store value (not looking for a fixed income).
What should I do with my bonds:
a) move to cash?
b) move to equity?
c) move to some other type of bonds (e.g. inflation linked)?
d) keep the bonds?
Many thanks!
-
- Posts: 500
- Joined: Tue May 19, 2015 9:55 pm
- Location: Austin, TX
Re: Should I dump my bonds?
maybe do half inflation linked (store of value) and half nominal (counterbalance)
- Noobvestor
- Posts: 5944
- Joined: Mon Aug 23, 2010 1:09 am
Re: Should I dump my bonds?
Bond rates are better -- this is the opposite of when you might want to sell. Buy more and stay the course.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Re: Should I dump my bonds?
My Vanguard Global Aggregate Bond UCITS ETF EUR Hedged is down 12% form its top in 08/2020.
I will sell some of it soon to harvest losses. But I'll reinvest into a similar bond ETF right away.
If you listen to financial news, quite some money managers are pondering about entering the bond market because yields have risen.
What I want to say: it is too late to sell bonds. You took the hit already. Is it too late to buy inflation linked bonds? I also would say yes. The maximum of unexpected inflation is probably behind us.
Bonds as a counterweight: bonds prices move sometimes in the same direction as stock prices, sometimes not (they are mostly uncorrelated). So bonds don't act as a reliable counterweight. But they are a reliable buffer against extreme equity price moves because of their lower volatility.
What I often read here at bogleheads: If you are concerned about a 7% bond price move, just wait for that 35% equity price move.
Bonds as store of value: European government bonds are especially exposed to high debt levels of some European countries and the ECB monetary policy to mitigate related financial/political risks.
Maybe it is a good time to go more global with bonds and to be exposed to different monetary regimes in order to diversify some of that risk:
https://www.vanguardinvestments.de/docu ... -eu-ch.pdf
Since I am a private person and have no personal benefit dropping these ETF names bluntly, I just go ahead and do it. That's what I would do in your case: don't change the allocation to bonds, sell to harvest some losses (if that makes sense in your tax situation), and invest in a more diversified product like Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Acc or iShares Core Global Aggregate Bond UCITS ETF EUR Hedged Acc.
Done.
I will sell some of it soon to harvest losses. But I'll reinvest into a similar bond ETF right away.
If you listen to financial news, quite some money managers are pondering about entering the bond market because yields have risen.
What I want to say: it is too late to sell bonds. You took the hit already. Is it too late to buy inflation linked bonds? I also would say yes. The maximum of unexpected inflation is probably behind us.
Bonds as a counterweight: bonds prices move sometimes in the same direction as stock prices, sometimes not (they are mostly uncorrelated). So bonds don't act as a reliable counterweight. But they are a reliable buffer against extreme equity price moves because of their lower volatility.
What I often read here at bogleheads: If you are concerned about a 7% bond price move, just wait for that 35% equity price move.
Bonds as store of value: European government bonds are especially exposed to high debt levels of some European countries and the ECB monetary policy to mitigate related financial/political risks.
Maybe it is a good time to go more global with bonds and to be exposed to different monetary regimes in order to diversify some of that risk:
https://www.vanguardinvestments.de/docu ... -eu-ch.pdf
Since I am a private person and have no personal benefit dropping these ETF names bluntly, I just go ahead and do it. That's what I would do in your case: don't change the allocation to bonds, sell to harvest some losses (if that makes sense in your tax situation), and invest in a more diversified product like Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Acc or iShares Core Global Aggregate Bond UCITS ETF EUR Hedged Acc.
Done.
The information provided is intended to be entertaining. It is not to be construed as professional advice. Use it at your own risk.
Re: Should I dump my bonds?
Can you specify your country, your other options (are there any government savings programs? eg like the one France used to offer), and the rough size of your portfolio, so we know what advice we can give?MrCurious wrote: ↑Thu May 19, 2022 12:27 am Hi guys.
European government bonds are 30% of my portfolio (the rest is split between equity, real estate, and private investment; my currency is €).
As for most of us, this year has been testing, and my bond portfolio lost 7% of its value.
Role of the bonds in my portfolio is to provide a counterweight and store value (not looking for a fixed income).
What should I do with my bonds:
a) move to cash?
b) move to equity?
c) move to some other type of bonds (e.g. inflation linked)?
d) keep the bonds?
Many thanks!
Maybe use the portfolio template from the wiki?
Also, it’s difficult to get responses in international investing
“And how shall I think of you?' He considered a moment and then laughed. 'Think of me with my nose in a book!” |
― Susanna Clarke, Jonathan Strange & Mr Norrell
Re: Should I dump my bonds?
Many thanks for your replies.
@Tellurius
My portfolio is in Bosnia, and there aren't any government savings programs. I invest together with my dad and my sister and our bond portfolio is around 400k €.
@tr3sori
I believe it's reasonable to expect that the interest rates will keep going up. Won't that have a negative impact on bond prices?
@Tellurius
My portfolio is in Bosnia, and there aren't any government savings programs. I invest together with my dad and my sister and our bond portfolio is around 400k €.
@tr3sori
I believe it's reasonable to expect that the interest rates will keep going up. Won't that have a negative impact on bond prices?
-
- Posts: 871
- Joined: Sat Mar 18, 2017 7:12 pm
Re: Should I dump my bonds?
I'm a little weird but I think a mere 7 percent loss means bonds are doing exactly what they were supposed to do. Will 7 percent really make a huge difference in your life? Almost all of it is still there. I'd just ride it out and get that higher interest. I'm also not convinced "interest rates will keep going up" significantly, but even if they do, that just means more interest income. Personally I'd worry that whatever choice I made would be worse than what I have, simply because I can't guess the future, and it seems even smart people who study markets professionally don't know anything either.
I'm not smart enough to know, and I can't afford to guess.
-
- Posts: 249
- Joined: Tue Nov 18, 2014 3:52 pm
- Location: Denmark
Re: Should I dump my bonds?
+1.harvestbook wrote: ↑Fri May 20, 2022 6:04 am I'm a little weird but I think a mere 7 percent loss means bonds are doing exactly what they were supposed to do. Will 7 percent really make a huge difference in your life? Almost all of it is still there. I'd just ride it out and get that higher interest.
The 7% hit is taken, now is the time to stay the course and reap the higher interest rates, going forward.
"The intelligent investor is a realist who sells to optimists and buys from pessimists" - Benjamin Graham
- andrew99999
- Posts: 1021
- Joined: Fri Jul 13, 2018 8:14 pm
Re: Should I dump my bonds?
The question is not whether interest rates rise. It is whether it will rise beyond what the market is expecting.
The expected future rises are already priced in, meaning the price has adjusted accordingly. So if rates rise to what is expected, bond prices should not actually fall based on that. In fact, if the market's expectation changes to expect it to not rise as much as they expect now, bond prices would rise.
So the question really is not whether rates will rise, but do you think your estimate of future rate rises is more accurate than the aggregate of the rest of the market who is pricing bonds by way of what they are willing to buy?