Bonds: So Much More Dangerous Than You Think

comicbookgujy said:
Yes...opportunity cost if I had invested in S&P 500 index :(
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Huh? By that measure, you would still have been "killed" if your VBISX has been UP 5% year to date. But gosh, if you'd been in the S&P 500, you'd have still blown it, because you could have been in FSCRX which is up over 13% year to date instead of just 11%.

You must be pulling our leg.
 
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As mentioned in other threads I am very risk averse. Trying to change this by reading others' success with equities here but it's not easy. Also I have little time to study this (did you notice most of my posts are written at night ?) :) I am exhausted most of the time.
HFWR said:
Everyone's entitled to [-]my opinion[/-] their own opinion, but what is it about "stock", i.e. partial ownership in a business, that deserves such a negative view? And I do mean "ownership", not day trading?
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audreyh1 said:
Huh? By that measure, you would still have been "killed" if your VBISX has been UP 5% year to date. But gosh, if you'd been in the S&P 500, you'd have still blown it, because you could have been in FSCRX which is up over 13% year to date instead of just 11%.

You must be pulling our leg.
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i understand what he means. i look at my income mix in hindsite and look and see it is a little down for the year. then i look at the growth model i used to use and i go damn!..

but that is human nature , we feel like a genius when what we own is doing nice but then we have buyers remorse when you watch everything else pass you by.
 
mathjak107 said:
i understand what he means. i look at my income mix in hindsite and look and see it is a little down for the year. then i look at the growth model i used to use and i go damn!..

but that is human nature , we feel like a genius when what we own is doing nice but then we have buyers remorse when you watch everything else pass you by.
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Yes I can understand that in general.

But to regret the "opportunity cost" because a very conservative short-term bond fund well under performs the S&P 500 over a short period of time - well, that's just not a surprising outcome.

Unless that investor made his choice because he was totally convinced that an equity correction was imminent.......

[which could still happen any day now :hide: ]
 
deep down in inside i think all of us that have gone very conservative have that feeling that a big correction is coming at some point.
we just want to side step it and not stress over it if we don't have to.

but the fact is boy do i miss my nice aggressive days when a few hundred point rise translated to a 5 figure change in my portfolio.

but like we say why keep playing if you won the game and the answer is we still miss playing and we hate being left behind..

kind of like i retired as a drummer, and really hated the business after so many years but boy do i miss it all now, but it is a lifestyle i really no longer want to live if that makes sense. lol.


i am just waiting for a roll back and i think the smarter thing to do at this stage is to leave about 10 years withdrawals in the fidelity insight income model i have been using and the rest move into the growth and income model going forward.
 
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Seems to me the sensible thing for any investor is to hedge your bets (i.e. diversify broadly), and also accept that by hedging your bets, at any moment in time, you are going to own some "winners" and some "losers". But you still don't know which ones will be the winners or losers next week, or next month, or next year, so you stay diversified (and rebalance if the AA gets way out of whack when, god forbid, you sell some of your "winners" and buy more of your "losers").

This investing business is psychological torture if you spend a lot of time on the woulda-coulda-shoulda game on a regular basis.

Audrey

PS - you already know I don't subscribe to Bernstein's "Why play the game if you've already won" philosophy because I think it applies to people who get hurt by panic selling after a crash and then unable to get back in. And it ignores the long-term inflation risk.
 
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i edited and added a little more to the post above about my future plans.
 
mathjak107 said:
i am just waiting for a roll back and i think the smarter thing to do at this stage is to leave about 10 years withdrawals in the fidelity insight income model i have been using and the rest move into the growth and income model going forward.
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That would seem like a more reasonable approach than being mostly in fixed income funds at an early retirement age.

I have the X years of withdrawals approach covered simply by having a certain amount of cash, short-term bond funds, and intermediate term bond funds in my AA that can be spent down whenever the equity portion of the portfolio goes through one of its spectacular crashes.

P.S. the "just waiting for a roll back" part can be pretty tough too.
 
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KMyer said:
Check out today's CNN Money's article which also quotes Jeremy Siegel:

Bonds are riskier than stocks - Feb. 20, 2013
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And on the same website, same day this... Premarkets: Close to record highs - Feb. 20, 2013 :facepalm:

Good reason not to pay much attention to the news cycle (financial) sites, they're just filling content space with any and every POV. That way they'll always be able to point to how they got it right later.

Like many of us have said, 'there's no place to hide right now...' so you diversify (or become a market timer, good luck with that).
 
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obgyn65 said:
As mentioned in other threads I am very risk averse. Trying to change this by reading others' success with equities here but it's not easy. Also I have little time to study this (did you notice most of my posts are written at night ?) :) I am exhausted most of the time.
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Why don't you dip your toe into the Vanguard Dividend Appreciation fund? Not a bad place to start.
 
KMyer said:
Check out today's CNN Money's article which also quotes Jeremy Siegel:

Bonds are riskier than stocks - Feb. 20, 2013
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This seems to be yet another article big on the sensational quotes, and sloppy on the supporting "evidence" - in other words, spin.

The 10-year Treasury yield has been falling since the early 1980s, but experts are predicting interest rates will turn higher, creating a challenging market.
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The so-called "experts" have been loudly predicting interest rates would soon turn higher for several years now and have been dead wrong. Sure, they'll be right eventually, but this expert "prediction" for higher rates is nothing new.

Investors with stakes in long-term Treasuries are already feeling the pain.
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Yep, pretty tough if you invested long US government bonds - i.e. in 10-year and 20-year US treasuries - last July when they reached a peak (in value), but most intermediate diversified bond funds have done quite well since mid-2012. My intermediate bond funds are up between 4 and 6% since mid-June of 2012.

If the 10-year yield rises back to the level it was before the financial crisis (around 5%), bond funds could plunge 25%, said Fred Dickson, chief market strategist at KDV Wealth Management.
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The 10-year yield crossed 5% a few times in the 2000s, but it also spend a great deal of time in the 3.5% to 4.5% range. Having it suddenly pop right back up to 5% seems unrealistic. More likely it will return to it's more typical range first, but even to get there we have a ways to go, and no one, no one knows how long that might take. If you look at the historical chart of the 10-year treasury yield, the time in the troughs seem to be shallow and extended. 10 Year Treasury Rate - multpl

The warning of a "25% plunge" in the 10-year treasury seems quite sensational considering that the worst year since 1970, 1980, the "plunge" was -16%, and most bad years had drops in the -9 to -12% range. And again, this is a long bond, and hopefully investors aren't piled into long-term bonds. I suspect most are in short-term to intermediate term bonds and bond funds. PRAGMATIC CAPITALISMStock and Bond Drawdowns - Historical Perspective - PRAGMATIC CAPITALISM

The risk is even more alarming when you consider valuations, added Dickson. The bond market "looks eerily similar" to the overvaluation of the stock market at the height of the Dotcom bubble, he said.

By comparison, the S&P 500, which is near a new record high, is trading at less than 14 times 2013 earnings estimates. Even at its all-time high in October 2007, the S&P 500's valuation was just above 17.
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Give me a break! First of all it's totally ridiculous to use a "2013 earnings estimate" to compare valuations to the past. No one knows what the 2013 earnings are going to be, and estimates are notoriously inaccurate. So lets compare trailing P/E instead. Current trailing S&P500 PE is around 17.36, at the same level as Jan 2007 which was 17.36. I don't think you can make the case that stocks are "undervalued" relative to 2007 at all. S&P 500 PE Ratio by Year

Conclusion? Financial porn - just like most of the articles published today - cherry picking data and quotes to present their sensational case. Very few of these articles present a balanced, informative view. That is not their intent.

I'm not saying that the outlook for bonds is rosy. I doubt there will be any more capital gains like we have enjoyed over the past several years, and instead we will likely suffer some gradual capital losses in our bond funds, whether or not the total return (helped by interest income) is able to make up for those losses. I still don't think I'd declare them "riskier than stocks" in the short term.
 
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Midpack said:
And on the same website, same day this... Premarkets: Close to record highs - Feb. 20, 2013 :facepalm:

Good reason not to pay much attention to the news cycle (financial) sites, they're just filling content space with any and every POV. That way they'll always be able to point to how they got it right later.

Like many of us have said, 'there's no place to hide right now...' so you diversify (or become a market timer, good luck with that).
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I agree with this comment 100%. There is no doubt in my mind that all of these ominous warnings about the danger of investing in bonds right now is going to drive many people into the stock market, just as it's reaching its record high. I can't predict the future, so I don't know how that will work out, but I'm positive that the best time to make a big move into the stock market was four years ago, not now. If you set an asset allocation that you're comfortable with and stick to it, you can ignore all of the noise and be satisfied with periodic rebalancing to adjust the amount of any asset class that has declined in value.
 
karluk said:
If you set an asset allocation that you're comfortable with and stick to it, you can ignore all of the noise and be satisfied with periodic rebalancing to adjust the amount of any asset class that has declined in value.
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Ding ding ding, we have a winner...
 
The arguments on this whole thread basically come down to whether you're an active market timer or passive AA rebalancer.
 
Everyone posting here obviously has a firmly held opinion (and you know what they say about opinons) on the subject of bonds. Fair enough. However, I would suggest that most might be willing to agree that the future is likely to be less bright than the last several years in the bond market. yields are lower, borrowers are extending maturities at low spreads and yields, and we are in a market that is being fooled with and is consequently in something of a never-never land environment. All that adds up to more risk compared to the potential reward, with that skew getting scarier the farther out you go on the curve. Watch your six and make sure you haven't let your duration and quality get out of whack with your risk tolerance.
 
I just did a search here on "bond bubble" and read several popular posts from 2009-10. Interesting to read 3-4 years later, they'll definitely be right - eventually...like any market prediction.

Like the post above noted, "this whole thread basically come down to whether you're an active market timer or passive AA rebalancer." Or a newly minted tweener?

YMMV
 
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karluk said:
If you set an asset allocation that you're comfortable with and stick to it, you can ignore all of the noise and be satisfied with periodic rebalancing to adjust the amount of any asset class that has declined in value.
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When I set my AA it was based on the existing free market (independent buyers and sellers trying to maximize their gain in conjunction with their willingness to assume risk). There was no policy by the Fed to artificially hold interest rates down. When they change that policy and get their thumb off the scale, I'll increase my bond holdings.

It makes sense to respond if/when underlying conditions are changed.
 
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