Balance is overrated

[braumeister]

To have outperformed the S&P during that time period and avoided the catastrophe of 2008 is enough spin for me..

Avoided?

 

[lawman]

Yea, with pensions coming in you're all set. But I do have what I believe would be a much better idea on what to do with the rest of your gambling money. Instead of spinning the roulette wheel by market timing and playing the craps tables by reading the "financial" business press/newsletters, why don't you just throw it all my way. Everybody wins once in a great, great, great while in The Wall Street Casino, but why not blow it all on me instead?

LOL....That's funny...I'll gamble on bond funds while others place their bets on the surety of the stock market..

 

[ERD50]

LOL....That's funny...I'll gamble on bond funds while others place their bets on the surety of the stock market..

I don't think too many here 'place their bets on the surety of the stock market.' Most keep a balanced approach, and the few with a very high weighting in equities have ways to deal with the volatility.

-ERD50

 

[samclem]

I think since you said you don't need to sell shares when they are down for 20 years, the more important question is: Has there even been a 20 year period where stocks did not out perform bonds?

Or, since lawman says he's most worried about protecting his spending power, and he won't need to sell for 20 years, how well have stocks and bonds done against inflation?

Per this article (emphasis added)

Stocks beat inflation during each and every overlapping 20-year period between 1950 and 2005, but bonds beat inflation only 70% of the time. Second, bonds return far less than stocks -- on average, just 2.3% a year after inflation between 1987 and 2006, compared with 7.4% for stocks. Even in bad times, stocks tend to beat bonds. Between 1967 and 1986, bonds actually lost an annualized 0.5% after inflation; stocks gained 2.1%. The tax treatment of bond income (except for municipals, which have very low yields) is unfavorable compared with that of capital gains and dividends on stocks. For tax-deferred accounts, this deficiency can be overlooked, but most of us also have taxable savings for retirement.

Now, that was a 2007 article, but as we know unless an investor entirely bailed out of the market in the aftermath of 2007-2008, he has done pretty darn well despite the "crash".

LOL....That's funny...I'll gamble on bond funds while others place their bets on the surety of the stock market..

Laugh it up. Which approach provided more historical "surety"? You've got a long time horizon, and year-to-year volatility is not your biggest risk.

 

[lawman]

Slightly switching gears here ...Without regard to the disadvantages of bond funds vs. individual bonds doesn't a bond fund offer the same advantage that bond ladders do?

 

[lawman]

I'm somewhat skeptical of cherry picked data one uses to try to prove a point. As shown by using this chart CAGR of the Stock Market: Annualized Returns of the S&P 500

If one had invested in the S&P on Jan 1 2000 and remained invested through Dec. 31, 2008 he would have realized an annual rate of return of -3.7%.

 

[samclem]

I'm somewhat skeptical of cherry picked data one uses to try to prove a point. As shown by using this chart CAGR of the Stock Market: Annualized Returns of the S&P 500

If one had invested in the S&P on Jan 1 2000 and remained invested through Dec. 31, 2008 he would have realized an annual rate of return of -3.7%.

Are you 9 years from needing the money? Who cherry-picked that single 9 year period? I used the 20 year window you specified earlier.

Do 20 year overlapping periods, compare the performance of stocks (with dividends re-invested) and bonds. Be surprised.

 

[lawman]

Are you 9 years from needing the money? Who cherry-picked that single 9 year period? I used the 20 year window you specified earlier.

Do 20 year overlapping periods, compare the performance of stocks (with dividends re-invested) and bonds. Be surprised.

good point

 

[dtbach]

We seem to be beating a dead horse here.

 

[Ready]

Slightly switching gears here ...Without regard to the disadvantages of bond funds vs. individual bonds doesn't a bond fund offer the same advantage that bond ladders do?

Yes. And bond funds typically have more than 1,000 bonds in them. So unless you have a very large bond portfolio, it is difficult to achieve the same level of diversification achieved by a bond fund versus building your own bond ladder.

As mentioned earlier, target date bond funds can also reduce the volatility associated with bond funds by limiting the bonds to only those with the same maturity date within the fund and not reinvesting them once they are due.

 

[lawman]

I may be wrong but I'm more concerned about inflation than I am about rising rates. I would actually like to see rates rise as I believe the market has already priced in some amount of rate hike..The sooner rates go up the sooner my dividends will increase..And if I understand correctly inflation or perceived inflation largely dictates interest rates required by lenders so even though there may be somewhat of a lag I think interest rates do and will exceed inflation over the long term..The big unknown for me is to what extent the Fed's purchases are distorting the market and to what extent and for how long it will interfere with the free market..

 

[samclem]

The sooner rates go up the sooner my dividends will increase.

The OP said you are going to 90-95% bond funds, so these dividends are coming from the whopping 5-10% equity allocation remaining? And you are hoping that rates rise, and you believe the Fed is suppressing them (I agree)--so you put most of your money into intermediate bond funds?

Lawman, put your funds into a well chosen target-date fund, or just park it in a 1 year CD or a MM fund while you do some research. There are lots of good resources here. You don't need Hussman or any other guru, but you also don't need to be making allocation decisions on your own without a bit more background. I think that would be your best long-term course of action.

 

[brewer12345]

I may be wrong but I'm more concerned about inflation than I am about rising rates.

And you want to go heavily into bond funds? You don't happen to live in Colorado or Washington state, do you?

 

[lawman]

The OP said you are going to 90-95% bond funds, so these dividends are coming from the whopping 5-10% equity allocation remaining? And you are hoping that rates rise, and you believe the Fed is suppressing them (I agree)--so you put most of your money into intermediate bond funds?

Lawman, put your funds into a well chosen target-date fund, or just park it in a 1 year CD or a MM fund while you do some research. There are lots of good resources here. You don't need Hussman or any other guru, but you also don't need to be making allocation decisions on your own without a bit more background. I think that would be your best long-term course of action.

You lost me..Bonds pay dividends..

 

[brewer12345]

You lost me..Bonds pay dividends..

Nope. Stocks pay dividends. Bonds pay interest.

 

[lawman]

I guess I must be a contrarian but that's okay.. The last time I was subjected to so much ridicule was many years ago when I invested in gold and I bonds which I still own..

 

[lawman]

Nope. Stocks pay dividends. Bonds pay interest.

You're right..I stand corrected...

 

[samclem]

I guess this would be a good time for me not to make a wisecrack.

Really, just park your money in a safe place (it's not there now), and read up on this stuff a bit. It will be well worth your time.

 

[brewer12345]

I guess I must be a contrarian but that's okay.. The last time I was subjected to so much ridicule was many years ago when I invested in gold and I bonds which I still own..

Then it is time to "nut up or shut up." If you have the courage of your convictions then buy with both hands, damn the torpedoes and don't even bother asking anyone else's opinions. If not, them perhaps you should not be making big bets.

 

[lawman]

Then it is time to "nut up or shut up." If you have the courage of your convictions then buy with both hands, damn the torpedoes and don't even bother asking anyone else's opinions. If not, them perhaps you should not be making big bets.

Thanks for your help.

 

[samclem]

This board would be perfect if somehow we could short sell the portfolios of other posters. The quality of the advice might go down, but the entertainment value would go up.

 

[brewer12345]

Thanks for your help.

Any time.

Seriously, I do not worship at the altar of St. Bogle the Indexer. What kind of reception do you think most of my schemes would get here? I don't bother asking. If I have the courage of my convictions I invest, if not I wait a while and think about it.

 

[daylatedollarshort]

Slightly switching gears here ...Without regard to the disadvantages of bond funds vs. individual bonds doesn't a bond fund offer the same advantage that bond ladders do?

The problem with bond funds is they never mature. In most years, this isn't as big an issue because some years rates go down, some years they go up so you just get a rolling average. But right now there is very little room for rates to go down and a lot of space as well as a high probability rates will increase over the next couple of years, and if that happens you may never get your principal back.

You might want to check into a TIPS ladder if you can buy TIPS within a retirement account. There is relatively little risk of default with TIPS, so you don't really need to pay for ongoing fund management fees. With a ladder you get a rolling average of yields, though for our portfolio we aren't buying the maturities with negative yields right now.

There is a book by Annette Thau called The Bond Book that has pretty good explanations of the pros and cons of bond funds.

 

[lawman]

This time may be different.....Most seem to think it will be..Myself, I dunno..

Hussman Funds - Weekly Market Comment: Do Foreign Profits Explain Elevated Profit Margins? No. - March 3, 2014

 

[EastWest Gal]

Bonds aren't all that great right now IMO

Haven't checked in here for quite a while but now that I'm re adjusting my portfolio I'm interested in other points of view..I'm 57, have three pensions, a modest lifestyle and no debt for the last 30 years..I've saved up a sizable amount of money..Preservation of this capital is all that matters..I don't need more money I just need to be able to maintain my purchasing power..The stock market valuations are not justified at these levels... .I'm going to a 90 - 95 % bond funds position..Tell me why I'm making a mistake..Thanks

Bond funds have risk too. Also with interest rates insanely low for years, annual inflation means you lose money every year. Be sure to include inflation risk in your calculations.