Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
I'm not sure owning bonds has much of a payoff
Old 12-26-2017, 05:49 PM   #1
Thinks s/he gets paid by the post
redduck's Avatar
 
Join Date: Mar 2005
Location: yonder
Posts: 2,522
I'm not sure owning bonds has much of a payoff

Iím not sure owning bonds has paid off for me.

I understand that asset allocation is a very big deal in the investment world. And, there are numerous formulas to guide an investor as to what percentage of bonds a person should have in a portfolio. But, looking back over the last 30-40 years of my investment life, it seems (to me) I would have been much better off financially if I had no bonds (or maybe just a very small percentage of bonds in my portfolioómainly to alleviate peer pressure). However, for me, hindsight has never been 20-20. So, for the old-timers here, how have bonds helped you to meet your financial goals? For the younger investors, how do you think bonds in your portfolio will help you meet your financial goals?
__________________

__________________
"I'm in the need of a new signature line" -- redduck
redduck is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-26-2017, 06:33 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,686
Quote:
Originally Posted by redduck View Post
Iím not sure owning bonds has paid off for me.

So, for the old-timers here, how have bonds helped you to meet your financial goals?
I think I qualify as an old-timer.(Unfortunately) For a very long time now, the bond market has pretty much always gone up. My Dad put everything he had into long term and zero-coupon treasuries back when Paul Volker created some honesty in markets in the early 80s. Dad's retirement was a snap, clip coupons and hang on. In those days you actually did clip coupons, and take them to your friendly banker for cash. I also had a lot of long treasuries, but I did not have my Dad's faith. So I made money, but I didn't make my retirement back then as I sold way before they were ripe. I would say that the times are different now, and like Buffett says, currently bonds represent return free risk.

That doesn't mean there is no place for fixed income. Because I have been an unbeliever in the current stock mania, I missed a lot but at least I did not go short or buy puts. What I have done is convert my 50% fixed allocation into almost all cash. I buy 13 week treasury bills at every weekly auction, until I will be fully invested. The way I see it is that I would much rather get 1.31% on a 13 week bill, full faith etc, absolutely liquid, etc. than get kicked in the butt either from adverse moves in interest rates or stocks. It has been almost 10 years since the last big hit against stocks, and we can start to forget how painful that was. But not HaHa- I have a really good memory for pain.

This is obviously not a midstream view, but I really do not care.

So currently I have ~50% long term equity holdings that are in one way or another special situations, or large capital gains which I do not want to cash out and owe tax, and 50% short term governments which will soon all be 13 week bills.

Ha
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 12-26-2017, 06:46 PM   #3
Thinks s/he gets paid by the post
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 4,391
I'm not that much of an old timer here, but I've always thought that bond funds were kind of a "dumb" idea for my portfolio. I can see buying a bond and holding it until maturity, but, dang, in 2008/9, bond funds got pummeled like everything else.

For years, my dad had some coupons, and on his way to the bank would thank an unnamed president every time he went to the bank with a 14% coupon. That was when the prevailing rate was a whole lot lower. But I never was in that era.

According to the efficient frontier dogma, holding a little bit of bonds is better than none, but that's black magic to me.

I guess if your bonds are short enough, then they can hold when equities tumble. That will give you "dry powder" to buy low. But I'll be the first to admit that I'm no expert in this and I'm probably with you RD, don't see a whole lot of "umph" to my history from the bonds.
sengsational is offline   Reply With Quote
Old 12-26-2017, 07:10 PM   #4
Thinks s/he gets paid by the post
Ready's Avatar
 
Join Date: Mar 2013
Location: Southern California
Posts: 2,132
I hold municipal bond funds in my taxable accounts to create some tax free dividend income. So far I've reinvested all dividends but starting next year I'll be using them to live on. I have some money in bank CD's as well, but those generate interest that is taxed as ordinary income, so I'm thinking about reducing my holdings on them.

Bonds tend to zig when equities zag, so they keep your portfolio more stable than if you were invested entirely in equities. Bonds do often go up when the stocks markets crash and buyers look for something more "safe" thus driving up the prices of bond funds.

I agree that current yields are not very appealing. But given that I'm not going to keep 100% in equities, and I don't want all of my money in bank CDs paying ordinary income taxes, there's not a whole lot of alternatives for the fixed income portion of my portfolio.
Ready is offline   Reply With Quote
Old 12-26-2017, 07:14 PM   #5
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 2,816
I buy the efficient frontier logic, so my long term money is 90% stock and 10% bonds (40 year time horizon, FIREcalc data). The reason for this is to maximize my SWR%. But this is belts-and-suspenders because my WR is only about half of what I consider my SWR% to be. So I don't need to do it but I do it anyway, because, well, that's what belts-and-suspenders means, and I buy the belts-and-suspenders logic too.

I also have the next several years of my kids' educational expenses in bond funds because I believe that bonds are less volatile than stocks and I've saved enough, so the downside risk of stocks over the short term is of greater concern than any gain I might make. I still keep any expenses due after that short-term horizon in stock funds.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Old 12-26-2017, 07:16 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 1,493
Quote:
Originally Posted by haha View Post
I think I qualify as an old-timer.(Unfortunately) For a very long time now, the bond market has pretty much always gone up. My Dad put everything he had into long term and zero-coupon treasuries back when Paul Volker created some honesty in markets in the early 80s. Dad's retirement was a snap, clip coupons and hang on. In those days you actually did clip coupons, and take them to your friendly banker for cash. I also had a lot of long treasuries, but I did not have my Dad's faith. So I made money, but I didn't make my retirement back then as I sold way before they were ripe. I would say that the times are different now, and like Buffett says, currently bonds represent return free risk.

That doesn't mean there is no place for fixed income. Because I have been an unbeliever in the current stock mania, I missed a lot but at least I did not go short or buy puts. What I have done is convert my 50% fixed allocation into almost all cash. I buy 13 week treasury bills at every weekly auction, until I will be fully invested. The way I see it is that I would much rather get 1.31% on a 13 week bill, full faith etc, absolutely liquid, etc. than get kicked in the butt either from adverse moves in interest rates or stocks. It has been almost 10 years since the last big hit against stocks, and we can start to forget how painful that was. But not HaHa- I have a really good memory for pain.

This is obviously not a midstream view, but I really do not care.

So currently I have ~50% long term equity holdings that are in one way or another special situations, or large capital gains which I do not want to cash out and owe tax, and 50% short term governments which will soon all be 13 week bills.

Ha
My dad and your dad thought the same. Mine went to the auctions in San Francisco to buy Treasury paper. No internet back then. He did own stocks, and took a bath on a couple he picked and much of what the expensive Merrill Lynch broker sold. He was an early convert to mutual funds for equities.

I own the bonds in Wellington and some treasury paper. That full faith and credit beats the corporate promises any day. Those and some CD's are enough fixed income for me, at least right now.
Another Reader is online now   Reply With Quote
Old 12-26-2017, 07:20 PM   #7
Thinks s/he gets paid by the post
RobbieB's Avatar
 
Join Date: Mar 2016
Location: Central CA
Posts: 3,416
My bonds just limp along and earn very little dough. But they are Munis and don't get taxed.

I have them so I wouldn't just be all equities and cash -
__________________
Retired at 59 in 2014. Should have done it sooner but I worried too much.
RobbieB is offline   Reply With Quote
Old 12-26-2017, 07:38 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 4,661
Quote:
Originally Posted by sengsational View Post
I'm not that much of an old timer here, but I've always thought that bond funds were kind of a "dumb" idea for my portfolio. I can see buying a bond and holding it until maturity, but, dang, in 2008/9, bond funds got pummeled like everything else.
In my case, I've owned bond funds for almost 20 years. My RPSIX (TRPrice Spectrum Income) has had a 15 year annual total return of 6% with a current dividend of 3.3%.
My high yield bond fund PRHYX has had a 15 year total return of 8%, currently paying 5.5%

Nothing stellar but steady income. They only represent about 10% of my holdings in a 60/40 but every month they help pay the bills, chugging along.

Works for me. YYMV
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Old 12-26-2017, 09:39 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 19,061
Bonds aren’t important during accumulation while you have a secure job. They are more important for people interested in reducing the volatility of their portfolio during retirement.

For SWR purposes, (portfolio survival during drawdown) 80/20 out survives 100% stocks, so right there demonstrates the value of bonds for diversification. In addition, between 80% stock and 40-45% stock the portfolio survival is very close to the same. So within that range someone can pick the volatility they prefer to live with.

The efficient frontier curve also shows how you can achieve a good amount of 100% stocks performance with less volatility when you diversify with bonds. So it’s a performance versus volatility trade off, and you have to decide where along that curve you want to be.

I never owned bonds or bond funds until about a year before retiring when I started to build my retirement portfolio.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 12-26-2017, 09:55 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 14,493
The problem is that retirement is not long term...

Sure, over time stocks always perform much better than bonds... just take a look at the graph... as long as you can stand a 25% drop in one day or a 50% drop over a year or so and hang on for the ride it is the best investment.... period...

But if you are retired these drops can devastate your ability to stay retired... as I told someone a long time ago, diversification works both ways.... when the market is going up it 'hurts' your returns, when it is going down it mitigates the hurt...

If you can stand the big swings and still pay the bills, take the chance and stick with stocks... if not, don't...
Texas Proud is offline   Reply With Quote
Old 12-26-2017, 10:16 PM   #11
Thinks s/he gets paid by the post
gcgang's Avatar
 
Join Date: Sep 2012
Posts: 1,090
When you're accumulating wealth, bonds drag you down.

When you're trying to protect wealth, bonds provide an anchor to help you from blowing off course.

No one likes long bonds now. If you truly believe you make money buying when others won't, maybe long zeroes are the way to go.
__________________
In theory, there's no difference between theory and practice. In practice, there is. YB
gcgang is offline   Reply With Quote
Old 12-26-2017, 10:52 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 2,085
Quote:
Originally Posted by audreyh1 View Post
Bonds arenít important during accumulation while you have a secure job. They are more important for people interested in reducing the volatility of their portfolio during retirement.

For SWR purposes, (portfolio survival during drawdown) 80/20 out survives 100% stocks, so right there demonstrates the value of bonds for diversification. In addition, between 80% stock and 40-45% stock the portfolio survival is very close to the same. So within that range someone can pick the volatility they prefer to live with.

The efficient frontier curve also shows how you can achieve a good amount of 100% stocks performance with less volatility when you diversify with bonds. So itís a performance versus volatility trade off, and you have to decide where along that curve you want to be.

I never owned bonds or bond funds until about a year before retiring when I started to build my retirement portfolio.


+1 except that our FA started building a portfolio of individual corporate bonds about 3 years before our ER. While they have been a drag on return the last few years, I also believe that longer term theyíll reduce volatility to a more comfortable level. Our taxable portfolio is 75/25.
Scuba is offline   Reply With Quote
Old 12-26-2017, 11:16 PM   #13
Moderator Emeritus
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 40,712
I was 100% equities until 3 years before retirement, when I began shifting my AA towards 50:50, and now 45:55.

I don't want the volatility of that accumulation phase asset allocation now that I am retired. I have enough, my portfolio is growing at a modest rate, and everything is fine.
__________________
100% retired since 2009 and never plan to work for anybody ever again, paid or not. Retirement funded by Social Security, mini-pension, and investments (AA 45:55, mostly Vanguard). Debt free with no mortgage and over-the-moon happy to be retired.
W2R is offline   Reply With Quote
Old 12-27-2017, 01:05 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,393
I certainly understand the arguments in favour of bonds, (I was a financial professional) but have never owned any. I am very lucky that my generous pension (which when PV’d represents over half my portfolio giving an AA of about 65/35) covers a good portion of our spending. Not sure what I would have done without the pension.
Danmar is offline   Reply With Quote
Old 12-27-2017, 04:02 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 12,747
Quote:
Originally Posted by audreyh1 View Post
Bonds aren’t important during accumulation while you have a secure job. They are more important for people interested in reducing the volatility of their portfolio during retirement.

For SWR purposes, (portfolio survival during drawdown) 80/20 out survives 100% stocks, so right there demonstrates the value of bonds for diversification. In addition, between 80% stock and 40-45% stock the portfolio survival is very close to the same. So within that range someone can pick the volatility they prefer to live with.

The efficient frontier curve also shows how you can achieve a good amount of 100% stocks performance with less volatility when you diversify with bonds. So it’s a performance versus volatility trade off, and you have to decide where along that curve you want to be.

I never owned bonds or bond funds until about a year before retiring when I started to build my retirement portfolio.
+1. My thoughts exactly, probably better expressed...

Bonds are to reduce overall portfolio volatility and keep up with inflation, not to be a better return than equities. But with yields low and rising, there’s principal risk, so there have been more discussions re: fixed income alternatives over the past 8 years, with no good place to hide. However, bond funds have outperformed the predictions of doomsayers for the past 8 years. We’ll see how it all ends.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old 12-27-2017, 04:41 AM   #16
Full time employment: Posting here.
 
Join Date: Jun 2008
Location: Hua Hin, Thailand
Posts: 543
Quote:
Originally Posted by redduck View Post
So, for the old-timers here, how have bonds helped you to meet your financial goals?
Until my early 50s, I was about 90% in equities. Rest was in bonds for 2 reasons. First was if stocks tanked, I'd sell bonds to buy equities cheap, which I did after the Internet bubble burst. Other reason was reassurance that not everything would tank if I was 100% in stocks.

In 2006-7, while preparing for retirement in 2008, I took to heart the warning that a large drop in your assets early in retirement was very difficult, if not impossible, to recover from both financially and emotionally. I've always been financially conservative so I moved about half my holdings into short and intermediate term bond index funds of the highest quality. Got LUCKY on the timing, as I did this about a year before the global economic meltdown. Investors had to move their money somewhere. Many chose those bond fund types. At the end of '09, my asset value was back to pre meltdown level.
__________________
ER Oct 2008 at age 54. An expat mostly settled in Thailand.
ItDontMeanAThing is offline   Reply With Quote
Old 12-27-2017, 05:12 AM   #17
Full time employment: Posting here.
flintnational's Avatar
 
Join Date: Mar 2008
Location: Atlanta Suburb
Posts: 850
During the accumulation phase we never owned bonds. We were 90% stocks decreasing to 70% prior to retirement. The other portion of our portfolio was owned rental real estate. We used it for diversification. Currently we are 65/35. Two thirds of the 35% is short term treasuries and cash. We hold the mortgage on a sold property that is about a third of the 35%. I guess it could be considered a bond. But, the rate resets every 5 years. I am playing with about 5% of our NW. If the market drops, I will move it back into stocks. Still not a bond fan at current prices.
__________________
"Oh, twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees" - John Mayer
flintnational is offline   Reply With Quote
Old 12-27-2017, 05:44 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,686
Quote:
Originally Posted by gcgang View Post

No one likes long bonds now. If you truly believe you make money buying when others won't, maybe long zeroes are the way to go.


Someone must like them very much. All over the world mediocre credits are selling at coupons so low that returns are nonexistent, or even negative.

A bit better here in US, but even here bouncing around at all time lows. When governments ex-US are in the market buying, who needs actual public buyers?
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 12-27-2017, 06:02 AM   #19
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,387
I am pretty much 100% stocks. US index ETFs, not real individual stocks. IVV, IWM, QQQ, IVW, DVY, HDV.

I do not own any bonds, bond funds, bond ETFs, or CDs. I have a bit of cash around in different accounts and in my safe, but they are earning next to nothing and basically give me free bank accounts.

I have a fairly safe solid 6-figure net income coming from my rentals. I also have SS in 4 years, if I want it at 62. I have a pension that continues to grow, and is worth $642 a month in today's money. I have ~$26K+ annual dividends that are fairly safe, and currently being reinvested, and in a market crash they are going to be cut too.

If all you have is stocks for income, you are screwed in a market crash. You have to sell low. You cannot ride out the storm by selling bonds.

If you have solid pensions, high SS, or other outside sources of income, you can get by with less bonds. They are a safety net, and are less volatile than stocks. That outside income can be your safety net, over bonds.

I do think FAs like them as they have a tendency to keep the value of the portfolio stable in a down market, so the FA keeps their job and income. here have been many studies with AA with stocks and bonds, but very few with pensions, SS and rental income to fall back on in bad stock markets.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 12-27-2017, 06:19 AM   #20
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 4,661
Quote:
Originally Posted by Texas Proud View Post
The problem is that retirement is not long term...
.
I take your point but this being the "Retire Early" forum, many might disagree. A 30 or 40 year retirement (someone RE'd in their late 40's, early 50's) might qualify for 'long term' and perhaps might need to think that way.
__________________

__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Im sure this has been posted a million need advice. farfromhome63 Young Dreamers 6 08-09-2011 12:08 AM
45 and not sure how much more can take Gil24 Hi, I am... 19 06-26-2011 05:22 AM
FI (not sure) RE (sure) and 2 questions. dandetour FIRE and Money 8 01-26-2009 02:57 PM

» Quick Links

 
All times are GMT -6. The time now is 03:28 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.