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Which are cheaper? Stocks or Bonds?
12-09-2014, 02:27 PM
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#1
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Thinks s/he gets paid by the post
Join Date: Apr 2011
Location: Madison
Posts: 1,337
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Which are cheaper? Stocks or Bonds?
I keep trying to pull the trigger and sell stocks to buy bonds. But, bonds seem to be more expensive right now than a good dividend stock. Everybody is crying that stocks are expensive right now and I agree.
But shesh, bonds ain't exactly cheap right now either.
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Wild Bill shoulda taken more out of his IRA when he could have. . . .
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12-09-2014, 02:37 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Jun 2010
Posts: 2,301
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I'd say stocks because I can always buy some beat down international indexes.
Not sure where to find the PE10 numbers but P/E P/B are very low.
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12-09-2014, 03:12 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2013
Location: Limerick
Posts: 5,655
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Do you have an asset allocation strategy? If you do, just rebalance as is needed to maintain the allocation. However, I'm personally avoiding most bonds and use CDs in lieu of them. At least I can get ~2.3% without risk of losing principle. I also just recently started putting a little into the TIP ETF.
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12-09-2014, 03:13 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
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Wait until interest rates, or inflation, rises in late 2015. Bonds will get very cheap.
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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!!
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12-09-2014, 04:02 PM
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#5
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Recycles dryer sheets
Join Date: Apr 2011
Location: Front Range
Posts: 150
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International Stocks have lagged this year. I used this to my advantage this year and converted my tIRA Vanguard Small Stock Index fund to my Roth IRA Vanguard Small Stock Index Fund.
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"Our lives are what our thoughts make them" - Marcus Aurellius
FIRE'd on 1 June, 2013 at age 48, DW FIRE'd with me on same day at age 47.
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12-09-2014, 04:13 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
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I hold my nose and rebalance.
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Retired since summer 1999.
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12-09-2014, 04:22 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Apr 2011
Location: Madison
Posts: 1,337
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Quote:
Originally Posted by audreyh1
I hold my nose and rebalance.
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I just can't do that. Would rather wait through a downturn in stocks than have a permanent loss in bonds. My feeling is that bonds have had a great 30 year run up. Now they may have a poor 10 to 15 year downturn.
__________________
Wild Bill shoulda taken more out of his IRA when he could have. . . .
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12-09-2014, 04:31 PM
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#8
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gone traveling
Join Date: Sep 2013
Posts: 1,248
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1) For short term investment go with Short Term Bond.
2) If you want longer term bond accumulate cash and wait for rates to come up.
3) For Long term investment equities are the way to go. I would wait for some kind of pullback.
In 15 years you will generally collect much higher dividend yield then bond yield (on your initial investment)
Time is a friend of equities.
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12-09-2014, 04:52 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by Senator
Wait until interest rates, or inflation, rises in late 2015. Bonds will get very cheap.
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since 1980 the fed raised interest rates by more than 1% as many times as they cut rates yet in only 1 year 1996 did bonds lose money.
where short term rates go more often than not are not where longer term rates go.
raising short term rates to squelch inflation can be looked at as a positive for bonds many times. since 1980 most fed increases had the opposite effect on bond rates.
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12-09-2014, 05:23 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
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Quote:
Originally Posted by dtbach
I just can't do that. Would rather wait through a downturn in stocks than have a permanent loss in bonds. My feeling is that bonds have had a great 30 year run up. Now they may have a poor 10 to 15 year downturn.
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I'm not so convinced that bonds are going to take a "permanent" drubbing for a few years yet. The global economy is too weak, and inflation keeps dropping. There may be a few interest rate spikes in the near future - but I bet they'll be short-lived, and affect short-term bonds more than intermediate and long.
I do take some comfort in the fact that I bought the bulk of my bond portfolio when interest rates were much higher. Things go up, thing go down, I rebalance periodically.
A lot of folks seem convinced of what is going to happen next year. Look back - how convinced were you that X would happen in 2014, or Y in 2013? Did it work out exactly like you anticipated? If not, you might want to be careful making a specific bet. That's why I like holding a well-diversified portfolio, rebalance periodically, and not try to predict or time things.
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Retired since summer 1999.
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12-09-2014, 07:01 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Location: Seattle
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Well, lets see. After losing money on bonds last year in my 401K I went 100% stocks. Now I am up 13% for the year in the same 401K. I don't know what the bonds did, but I doubt they did 13%.
I have no plans to change back to money losing bonds. Well, I might look at them when they start paying 6% or so.
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12-09-2014, 07:50 PM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Bond funds have done quite well this year. I have a long muni bond fund up well over 10% YTD, and several intermediate bond funds up well over 5%. You never expect them to gain as much as stocks unless stocks have a flat or losing year.
Going 100% stocks can maximize your long term return, as long as you aren't withdrawing, but be prepared for a very volatile ride.
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12-10-2014, 05:57 AM
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#13
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Gone but not forgotten
Join Date: Jul 2012
Location: Peru
Posts: 6,335
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Re: Bonds and then IBonds: Depending on tax, understanding the difference can be very important, especially in a volatile market.
Series I savings bonds effectively gives you the benefit of up to 30 years compounding without any bond duration. That means if rates increase drastically, you still won’t see a capital loss, whereas with an ordinary 30-year municipal bond or corporate bond, you could see a 50% or more paper loss that could take years to regain.
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12-10-2014, 06:54 AM
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#14
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Thinks s/he gets paid by the post
Join Date: Apr 2011
Location: Madison
Posts: 1,337
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Quote:
Originally Posted by imoldernu
Re: Bonds and then IBonds: Depending on tax, understanding the difference can be very important, especially in a volatile market.
Series I savings bonds effectively gives you the benefit of up to 30 years compounding without any bond duration. That means if rates increase drastically, you still won’t see a capital loss, whereas with an ordinary 30-year municipal bond or corporate bond, you could see a 50% or more paper loss that could take years to regain.
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I'll take a look at these. Is there a ibond fund or ETF?
__________________
Wild Bill shoulda taken more out of his IRA when he could have. . . .
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12-10-2014, 07:25 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
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Quote:
Originally Posted by mathjak107
since 1980 the fed raised interest rates by more than 1% as many times as they cut rates yet in only 1 year 1996 did bonds lose money.
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According to the data I have, Bonds lost money in 2013, 1999, and 1994. I do not show them at a loss in 1996.
Interest rates have generally been declining since 1980, so generally Bonds have done OK.
Interest rates are now generally going to climb, that means the bond values should go down. Or we could be like Japan and stay low. If we have high inflation and higher interest rates, TIPS might protect you.
I view my rental property as my bond fund. I am near 100% in stocks otherwise. And the economy is now structurally different and is ready to begin a long climb back up that might last 10+ years.
__________________
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!!
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12-10-2014, 07:40 AM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by dtbach
I'll take a look at these. Is there a ibond fund or ETF?
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No, you have to buy directly from the US Treasury (treasurydirect.gov). These act like CDs with 1 year minimum holding period, and 3 month interest penalty if you withdraw before 5 years. You don't have to pay taxes on interest income until you withdraw funds - so some tax deferral. You can withdraw partial amounts. Purchases are limited to 10K a year per individual.
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12-10-2014, 07:44 AM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by Senator
According to the data I have, Bonds lost money in 2013, 1999, and 1994. I do not show them at a loss in 1996.
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My intermediate bond funds did not lose money in 2013. You have to look at the total return.
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Retired since summer 1999.
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12-10-2014, 07:48 AM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by Senator
Interest rates are now generally going to climb, that means the bond values should go down. Or we could be like Japan and stay low. If we have high inflation and higher interest rates, TIPS might protect you.
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We just don't know. It might be so gradual that it might not really be that noticeable, as the interest earned makes up for a small NAV loss each year. Long-term interest rates might not rise at all.
If you look at history, once interest rates were very low, they stayed low for quite a while before rising very, very gradually.
That doesn't mean there won't be a spike here and there as the markets anticipate and adjust, but I expect these to be short-lived unless the economy takes off.
With the drop in oil prices, inflation will probably continue to drop for another year.
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Retired since summer 1999.
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12-10-2014, 08:00 AM
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#19
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Administrator
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Location: Chicagoland
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Interest rates can remain low for an extended period, simply reflecting a surplus of savings and weak aggregate demand, either US or globally. What is more unusual, and less likely, is for US real rates to be negative for a long time. More likely os low but positive, which means they will rise from their current levels.
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12-10-2014, 03:39 PM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
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Recently I researched a variable maturity bond strategy. Did well in up and down rate environments over the last 60 years. I might start a thread on this. Right now it strongly leans to intermediate bonds over short term bonds.
Regarding stocks or bonds, I agree with others this is just set by your AA (risk tolerance).
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