When we say "Bonds" do we mean Bond Mutual Funds?

[Retire2013]

Hello Forum Members,

I apologize if this question is super "dumb!" --- but on this Forum when we speak of asset allocation between stocks and bonds, I always assume that we are generally speaking of stock funds and bond funds as well as of individual stocks and individual bonds? Or do Forum members mean individual bonds, not bond mutual funds?

Thank you in advance for any clarification.

Retire 2014

 

[freebird5825]

For myself, bond mutual funds and the bonds held in mixed mutual funds.

I do not have the knowledge needed to intelligently select individual bond issues.
And I am too lazy to find out.

 

[Midpack]

About 75% of members here mean bond funds though they may they use the word "bonds" when posting. The other 25% were a mix of both or entirely individual bonds. It's a good question, worth clarifying before you act, there are similarities but there are significant differences as well.

http://www.early-retirement.org/forums/f28/poll-how-are-your-fixed-income-assets-invested-59626.html

 

[FIREd]

I mean both individual bonds and bond funds. When I talk about "bonds" in my AA, I also include CDs in there.

 

[ziggy29]

To me "bonds" are individual bonds, bond funds, CDs of 2+ year duration, and perhaps even fixed annuities. Some would even consider the present value of their pensions as an allocation to "bonds", but that's a matter of individual preference.

 

[Alan]

As you can see from the first few replies, bonds can mean lots of things to different people. I use the VG portfolio analyzer to show my allocation to bonds, and I don't classify I-Bonds and CD's as bonds - I classify them as cash.

I also don't include our pensions or SS in the AA calculation at all, as for me they are income streams just like our salaries used to be.

 

[brewer12345]

I hold both and I include CDs and any permanent allocation to cash in the category as well.

 

[NW-Bound]

... I always assume that we are generally speaking of stock funds and bond funds as well as of individual stocks and individual bonds?...

Yes.

Stocks/Equities = individual stocks as well as stock funds
Bonds/Fixed income = individual bonds as well as bond funds

Of course balanced funds like Wellesley, Wellington, Dodge&Cox Balanced hold a mixture of stocks and bonds.

And same as earlier posters, I count I-bonds as cash, because unlike ordinary bonds, there is no loss of principal if interest rate rises. I guess I would also count short-term CDs as cash, although I do not have any at this point.

 

[obgyn65]

I always thought that municipal bonds were part of 'bonds' in this forum...

 

[Original Wally]

ob - yes, of course munis bonds are bonds too.

 

[ERhoosier]

I think in terms of equities (stocks, stock mutual funds) and fixed income (bonds, bond funds, CD's). However that may be overly simplistic. For example many preferred stocks act more like long term bonds, and even bonds (long vs short term, investment grade vs junk) can act very differently when market conditions change quickly.

 

[Original Wally]

***many preferred stocks act more like long term bonds***

yup

***bonds (long vs short term, investment grade vs junk) can act very differently when market conditions change ***

yup too

The questions are always easier than the answers

 

[brewer12345]

junk) can act very differently when market conditions change quickly.

Personally, I always go through the exercise of what a junk issuer would look like as an equity if they went bust, wipe out the existing equity holders and swapped my bonds for the equity. If it does not work as an (extremely) cheap equity, I am not interested in the bonds.

 

[audreyh1]

I treat cash and bonds separately in my asset allocation (because they behave differently*), but I only own bond funds. If I refer to fixed income - that includes both.

*Bonds can have capital appreciation or loss. Cash does not.

 

[palomalou]

I've been classing as "bonds" bond funds, savings bonds, and T-bills and bonds.No idea how valid it is.

 

[easysurfer]

I consider both bond funds (I own these) and bonds (I do not own these) in the same way. I count them both as my fixed income asset class.

Actually, I do have some old US EE Savings bonds (that I consider as fixed income), but I heard somewhere they should be counted in the cash asset class.

 

[scrabbler1]

I treat cash and bonds separately in my asset allocation (because they behave differently*), but I only own bond funds. If I refer to fixed income - that includes both.

*Bonds can have capital appreciation or loss. Cash does not.

Although I own very little cash in my portfolio, I treat cash differently from bonds in my AA. I also consider CDs as cash, not bonds. Bonds include individual bonds and bond funds, just as stocks include individual stocks and stock funds. My friend whom I help with his mostly inherited portfolio has investments in everything I listed above, so I have to narrow it down to 3 categories (stock, bond, cash) to keep it simple and explainable to him.

I recognize that bonds rated at or just below investment grade may have traits which resemble stocks more than higher rated bonds, just as preferred stocks may act more like bonds than more typical common stocks. The grey areas can be pretty wide in places.

 

[brewer12345]

I guess I look at portfolio cash as fixed income because it is basically bonds with a zero or near zero duration. I don't normally hold cash, but for me this is an alternative to buying what I consider to be badly overpriced treasuries.

 

[Retire2013]

Thank you EVERYONE for your explanations and comments. Have a great day!

 

[Midpack]

I treat cash and bonds separately in my asset allocation (because they behave differently*), but I only own bond funds. If I refer to fixed income - that includes both.

*Bonds can have capital appreciation or loss. Cash does not.

Not that there's a wrong way but me too, ie my current AA is 56:39:5. YMMV