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Old 02-10-2015, 08:25 AM   #21
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Originally Posted by mathjak107 View Post
the 30 year bond was up 25% in 2014 and up another 10% or so this year. the story is all about capital apprecian ,not yield.

in fact my speculating money is in USO and TLT for now. i ride the cycles up and down and buy and sell sometimes 2 times in a week.
US0 is definitely not my idea of a low risk buy and hold with yearly adjustments kind of fund!

United States Oil ETF (USO) Fund Tax Analysis
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Old 02-10-2015, 08:33 AM   #22
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Originally Posted by gcgang View Post
Not sure what you are looking at. In 2014, EDV, Vanguard long Treasury zeros, made 44%. No hedging, no junk. Lots of interest rate risk, however.





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EDV is certainly generating returns I would like. They haven't been around over 10 years though. I tend to shy away from "boutique" funds that are created to solve the problem du jour and lack the history to show a consistent return. Give them another 10 years and I'll give them a look. Clearly I'm missing some returns by taking that approach. Actually, for me, this would be the more "speculative" investment. Just, to my way of thinking, longer term, broader investment in equities has lower overall risk than a more narrow investment in bonds.

Vanguard Extended Duration Treasury ETF (EDV) Fund Tax Analysis
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Old 02-10-2015, 08:33 AM   #23
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I agree with others, you are not looking at the right bonds. The Total Bond Admiral fund had total returns for 1,3,5 and 10 year periods ended 1/31/2015 of 6.70%, 3.06%, 4.52% and 4.85% respectively.
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Old 02-10-2015, 09:43 AM   #24
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I use TGLMX...TCW Total Return Bond Fund
1yr..4.85%
3 yr..6.20%
5 yr..6.82%
10 yr..7.01%
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Old 02-10-2015, 01:42 PM   #25
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Yes we have a 30 year monster bull market in bonds. The last 10 year have been especially generous. Unless you think we are for a extended period of deflation, the party has to end soon, since US 10 year are at 2%, and many European 10 year rates are under 1%.

Historically, the best indicator of the total returns of bonds over the next 5 to 10 years is current yield and that doesn't paint a particularly pretty picture.

It is pretty hard to fine tune monetary policy, and while there certainly doesn't seem to be any immediate concern for inflation or higher interest rates. There are plenty of very smart people who think the massive injection of liquidity by the developed countries over the last 6 years, won't end well.

I am still on the side of Warren Buffett bonds are return free risk. There certainly is good case for having fixed income in a retirement portfolio but I think whenever possible you use instruments like CDs, stable value funds, and possibly unconstrained bond funds. Short to intermediate corporate and Muni probably make some sense.
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Old 02-10-2015, 03:47 PM   #26
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I have a stable value fund ready and waiting in case rates actually start to move higher. But I have no intention of making that move in anticipation of a rate increase that nobody really knows when or if it will occur.
I hear ya. For a while there, I kept my fixed income portion split between the stable value fund in my Vanguard 401(k) and the total bond fund. But when it became clear the consensus regarding an interest rate rise was wrong and the stable value fund (which has a higher expense ratio) dropped below a 2% return, I went back to 100% in the total bond fund.
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Old 02-10-2015, 04:25 PM   #27
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I hear ya. For a while there, I kept my fixed income portion split between the stable value fund in my Vanguard 401(k) and the total bond fund. But when it became clear the consensus regarding an interest rate rise was wrong and the stable value fund (which has a higher expense ratio) dropped below a 2% return, I went back to 100% in the total bond fund.
My stable value fund yields 1.8% with an ER of 0.83%, so I'll continue avoiding it until I need a refuge. Right now, there are too many cross-currents affecting interest rates to warrant making a bet on rising rates (or getting overly defensive). Just looking at the US, there's a decent case for rising rates, especially with the labor market continuing to improve and increased likelihood of a Fed rate hike later this year. But I think the weakness in Europe, Russia and elsewhere, the strengthening dollar, insatiable global demand for treasuries, lack of inflation, slumping commodity prices, deflation fears, etc, could just as easily keep rates in a sideways mode for an extended period. So for now, I'll stick with my diversified mix of bond index ETFs and wait to see how and when this all plays out. That same inaction served me well in 2014.
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Old 02-10-2015, 06:55 PM   #28
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I own both REITs and Bond Funds, but REITs are not a substitute for Bonds.

I'm curious why you think REITs aren't a substitute for bonds or regular income.

Everyone is talking about the great performance of bonds, which is to be expected as rataes fall to multi-decade lows, but I wonder what you guys are going to do when the blood bath starts and bond prices get slammed as rates rise...and people realize they are getting paid peanuts to hold that kind of risk.
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Old 02-10-2015, 06:59 PM   #29
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reits do not have a tendency to rise in a recession , they offer no protection in a depression and generally what is bad for stocks is bad for reits.

reits are stocks.
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Old 02-10-2015, 07:13 PM   #30
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@Wolf - check out Trowe Price Mutual fund for Virginia bonds - PRVAX.


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Old 02-10-2015, 07:18 PM   #31
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Originally Posted by bad_LNIP View Post
I own both REITs and Bond Funds, but REITs are not a substitute for Bonds.

I'm curious why you think REITs aren't a substitute for bonds or regular income.

Everyone is talking about the great performance of bonds, which is to be expected as rataes fall to multi-decade lows, but I wonder what you guys are going to do when the blood bath starts and bond prices get slammed as rates rise...and people realize they are getting paid peanuts to hold that kind of risk.
Wake us up when that actually happens.

On a more serious note,

If we don't endure a few years of deflation first, long-term rate rises are likely to be very, very gradual taking years if not decades. It took 40 years to go from the lows of 1940 to the highs of 1980. Intermediate bond funds will do OK in that scenario. No one here expects them to be super stars even though they certainly were at times during the 2000s. The portfolio diversification role bonds play is still valid even during periods of gradually rising rates.
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Old 02-10-2015, 08:49 PM   #32
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I use TGLMX...TCW Total Return Bond Fund
1yr..4.85%
3 yr..6.20%
5 yr..6.82%
10 yr..7.01%
Look at the return after tax from Morningstar and it looks like slightly above inflation...

TCW Total Return Bond I (TGLMX) Fund Tax Analysis

Someone here mentioned comparing to CPI. How it is calculated has changed several times in my lifetime. My family has leased property tied to the CPI based on how it was calculated in the 1970's. The newer numbers downplay food and energy. These items are what I expect the biggest factors to be for me in retirement. Not sure how it treats medical care. Food was pretty flat from the 90's until maybe 2005? Since then its gone up but the new calculations reduce the input of food into the CPI number.
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Old 02-10-2015, 09:32 PM   #33
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Look at the return after tax from Morningstar and it looks like slightly above inflation...

TCW Total Return Bond I (TGLMX) Fund Tax Analysis

Someone here mentioned comparing to CPI. How it is calculated has changed several times in my lifetime. My family has leased property tied to the CPI based on how it was calculated in the 1970's. The newer numbers downplay food and energy. These items are what I expect the biggest factors to be for me in retirement. Not sure how it treats medical care. Food was pretty flat from the 90's until maybe 2005? Since then its gone up but the new calculations reduce the input of food into the CPI number.
Why are you looking at tax adjusted return? What if someone kept their bond funds in their IRA, as many do for tax efficiency reasons, - then it doesn't matter.

Regardless average annual inflation rates have averaged about 2.6% for the 2000s, and under 2% this decade so far. Average Annual Inflation Rate by Decade

So I don't see how you can beef about a 5+% real return for the past 15 years, or even a ~3% "after tax" real return on TGLMX. That is NOT "slightly above inflation".

The 10-year Treasury on average only will only give a provide a small real return. Only very occasionally do returns exceed 5%. Some periods you'll average around 2%, and occasionally the real return is negative. 2% is the expected long-term return going forward based on the current yield. Inflation right now is running under 1% and who knows it might keep dropping.

You need to look at why people own various asset classes as part of a diversified portfolio, not the real or after-tax returns of each component. It's important to understand how they work together as a whole and why people choose to own them.

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Old 02-13-2015, 09:19 AM   #34
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I will admit, I really should look at bonds in a tax sheltered account. Its only reasonable since the majority of my funds are in such accounts. Just a dumb oversight on my part.

Still, the more I read the less I think bonds are reasonable. Again, maybe I'm only getting what I look for. But as an example, why would someone buy corporate bonds that are negative return. I mean, buying Gov bonds that are negative seems backwards to me but a corporate bond is even worse. A safe deposit box is cheaper than paying negative rates on a large sum of cash.

Very weird: Corporate bond rates go negative - Feb. 5, 2015
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Old 02-13-2015, 09:23 AM   #35
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why negative rates ? two reasons :

capital appreciation selling it to someone who thinks rates will go more negative .

countries can't go to bank and buy a 10 billion dollar cd. countries need a place to keep their money with a healthy currency and stable gov't..

where is greece going to keep their money ? taking a slightly negative rate in german bonds is a whole lot better than greek bonds or greek banks.
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Old 02-13-2015, 09:33 AM   #36
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My 0.9% online bank account is growing on me after reading this.

This was the part that I don't get:

Quote:
"You've got over $1 trillion of euros that will be created. All of that new money needs to find a home," said Thomas Urano, a managing director at fixed-income manager Sage Advisory. "I could park it in the bank and lose money for certain or I could put it into a corporate bond and maybe only lose one basis point."
Why would parking it in the bank be a loss for certain? Or is he referring to on a real basis? If the latter, I don't see where the corporate bond is much better unless interest rates decline further which would mean get more negative. Doesn't make sense to me.
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Old 02-13-2015, 11:14 AM   #37
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why negative rates ? two reasons :

capital appreciation selling it to someone who thinks rates will go more negative .

countries can't go to bank and buy a 10 billion dollar cd. countries need a place to keep their money with a healthy currency and stable gov't..

where is greece going to keep their money ? taking a slightly negative rate in german bonds is a whole lot better than greek bonds or greek banks.
OK, so educate me please. Assumptions--Governments (or their reserve banks) can print currency at will. Other than funds actually in paper currency, those funds are just numbers on a balance sheet. Greece doesn't have to have them listed as being in their own bonds, they can consider it "cash" without it being in currency that can be stolen. Why move the funds to an account knowing another country will reduce the amount? Its worth paying someone else to keep those numbers on their balance sheet? I didn't think computer hackers were THAT good! Something is obviously missing in my understanding.

For most individuals, a safe deposit box is cheaper once you hit about $1K. That would secure you against even most of the financial confiscations that took place last year as in Portugal. "Capital appreciation" would be higher under this path than purchasing a negative return bond.
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Old 02-13-2015, 11:54 AM   #38
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Bonds are by far the trickier slice of our investments. The cycle of stocks is usually less than 10 years, so a 20 year history is sufficient to understand their ups and downs. Bonds, on the other hand, have a cycle that started in the late 40's going up then started back down around 1982. This is a 65'ish year cycle. This means that looking at 1, 5, or 10 year returns is a very incomplete picture. Do we expect another 65 year cycle just because interest rates happen to be bottoming right now?

I personally don't think a long cycle of steady increases in interest rates is likely as the fundamentals of our whole market seems to be trending in a poorer direction than this. Hence, we are hedging our stock investments through a portion of long term treasuries in the form of Vanguard long term bond index, BLV. 43% stocks and 57% bonds.

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Old 02-14-2015, 10:59 AM   #39
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Reading the title of the original post made me think of the Time cover article many years ago:
The End of Stocks? (or some such thing).

Investments come into favor and go out of favor.
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Old 02-17-2015, 06:10 PM   #40
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I dont see bonds as having a cycle, what i see is rates asymptotically approaching zero as a result of a fractional banking system reaching its final equilibrium after decades of slow change.

What comes after zero is the BIG question. Do we hover here forever? I hope so, because now both up and down are a problem.


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