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Old 07-20-2012, 01:49 PM   #21
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Originally Posted by imoldernu View Post
Seems like a slight difference of opinion here.

My friend, farmer Bill is sitting on top of 1500 acres of farmland, bought @ an average of $1500/acre... Now selling for $17,000... Excellent ROI, considering that he's been farming much of it for the past 35 years.

Do IBonds count? Because of my confusion about investing, we bought in back in 2001 through 2003... Not getting rich, but the 6% return beats the .23% that my bank uses to entice me into an interest bearing checking account.

Would anyone care to weigh in on the future of Municipal Bond values, when Credit Default Swaps kick in?

What about SanBernadino. San Vallejo, Stockton or Mammoth Lake Bonds?

Am thinking perhaps, a fireproof mattress?
The ROI on an investment of $1,500/acre that is valued at $17,000/acrce after 35 years is 7.18% annualized. This is good, but not unusual. FIL has ranch land he purchased 63 years ago at $9.50/acrce. The value is considerably higher now.

The author of the article is recommending 30 year-olds buy bonds today. While you are receiving 6% on IBonds purchased in 2001-2003, a buyer today would not receive those higher rates. With our government overspending, it is easy to see high inflation in the future. When that comes, I would not want to be holding a large portion of my portfolio in long-term bonds that I purchased in todays market.

Pigs get fat, hogs get slaughtered. That's my story and I am sticking to it.
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Old 07-20-2012, 02:22 PM   #22
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The point I was thinking of is that even if bonds funds don't do as well as equities, they don't go down as much in a down cycle. That means that they don't have to recover as far up.
Bonds fluctuate less than stocks, that's right. Traditionally, they are therefore considered less "risky". However, variance is just one measure of risk. It has been used in economics a lot because it fits nicely into mathematical models, but it is by no means the only thing you should take into account.
In other words, maybe bonds don't go down nominally. What counts are real returns. At this point in time, you are almost assured a real return (after inflation) of +/- zero if you buy investment grade bonds. If capital preservation is your priority, that maybe fine for you. But you will most certainly not make any money. (This is an opinion, but I'm willing to put my money where my mouth is.) Where do you think interest rates are headed in the mid-term - down or up? Where do you think inflation rates are headed? Hint: There's not too much "down" left. What does this mean for bonds?

If by 'tiny sample' you mean my own personal situation, yeah, you're right. If you mean a 15 year average is a 'tiny sample', I'm not sure that's a good point.
I was indeed referring to the time period. 15 years is nothing compared to the several hundred years during which stocks have outperformed bonds. Bonds have done well over this most recent period because interest rates have declined to historic minimums. Unless you believe we will soon see negative interest rates, there is just no way this trend will continue.
In addition to that, bonds carry default risk very similar to stocks, but the returns are capped. While there are certainly not many things to be sure of in the investment world, I believe the following is a universal truth: Going 100% bonds is a suckers bet.

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Old 07-23-2012, 03:22 PM   #23
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Originally Posted by imoldernu

What about SanBernadino. San Vallejo, Stockton or Mammoth Lake Bonds?

Am thinking perhaps, a fireproof mattress?
Don't forget the sovereign Greek bonds at 24%!!!!!

The worst decisions are usually made in times of anger and impatience.
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