Balance is overrated

[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]

Quote:

Originally Posted by lawman 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]

Quote:

Originally Posted by lawman 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]

Quote:

Originally Posted by samclem 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]

Quote:

Originally Posted by lawman 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]

Quote:

Originally Posted by brewer12345 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]

Quote:

Originally Posted by 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..

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]

Quote:

Originally Posted by brewer12345 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]

Quote:

Originally Posted by lawman 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]

Quote:

Originally Posted by 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?

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]

Quote:

Originally Posted by lawman 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.

[lawman]

Some here have suggested the certainty of rising interest rates is a good reason to avoid bond funds..I'll continue to show my ignorance but my logic for hoping for higher rates is best explained by example..If 10 year Treasuries are now set to return 2.6% interest as Hussman claims, I can certainly see how the value of that bond will decrease if rates rise rapidly but if that bond is held until maturity the value of that bond will steadily increase as the maturity date approaches. As long as one is willing to remain in the fund until that bond matures I don't see how there could be much risk. I also understand that as bonds in that fund mature the capital will be invested in other bonds at higher rates and the whole thing starts over again.. I suppose if one sold his positions during a time of rapidly rising rates he could lose principal but I don't see myself having to do that..Sitting on the sidelines with cash waiting for rates to go up seems like a losing proposition to me...If my logic is flawed I'm sure some here will be happy to tell me why and I appreciate your help...

[daylatedollarshort]

Quote:

Originally Posted by lawman As long as one is willing to remain in the fund until that bond matures I don't see how there could be much risk.

From: Sometimes You Should Buy The Bonds Directly - Sun Sentinel

"...in bond funds, share price volatility doesn't change no matter how long you hold the shares. That's because the fund manager tries to keep the portfolio at the same average maturity -- typically, less than three years for a short-term bond fund, between three and 10 years for an intermediate-term fund, and as long as 20 or more years for a long-term bond fund.

Therefore, your risk of having to sell your fund shares at a loss does not diminish with time. The way to minimize share price swings with bond funds is to buy those with short maturities."

Lawman, it sounds like you won't go broke either way, so if you want to buy your intermediate bond funds, go ahead. But this article may explain better why some people here are holding off on your strategy, or else buying bonds funds where all the bonds mature as of a set target date.

[samclem]

Quote:

Originally Posted by lawman As long as one is willing to remain in the fund until that bond matures I don't see how there could be much risk.

If rates go to 5% (and inflation might be 4% at that point, a normal spread), then by holding that 2.6% Treasury the bond fund (and you) will be missing out on an additional 2.4% of interest they could be making, and in real terms you will losing spending power at a rate of 1.4% per year. That's a loss. That's some of the risk you are taking by being "safe". Sure, they'll buy more bonds at higher rates, but as long as they hold that Treasury it is a drag on your performance. And they will sell the 10 year treasury, because the bond manager needs to maintain the maturity he promised, so you'll lose more money when that happens.

You have a 20 year time horizon. Over that timeframe, stocks have historically done a much better record of protecting your spending power than bonds do. And a balanced portfolio of stocks and bonds, rebalanced mechanically without any reference to Mr Hussman's musings and often-wrong predictions, did better still (and much better than his fund--how does he stay in business? He's like Radio Shack.). Forget about short-term volatility until it's much closer to the time you need the money, the annual gyrations of the market (stocks and bonds) should be of only passing interest.

[lawman]

Quote:

Originally Posted by samclem If rates go to 5% (and inflation might be 4% at that point, a normal spread), then by holding that 2.6% Treasury the bond fund (and you) will be missing out on an additional 2.4% of interest they could be making, and the in real terms you will losing spending power at a rate of 1.4% per year. That's a loss. That's some of the risk you are taking buy being "safe". Sure, they'll buy more bonds at higher rates, but as long as they hold that Treasury it is a drag on your performance. And they will sell the 10 year treasury, because the bond manager needs to maintain the maturity he promised, so you'll lose more money when that happens. You have a 20 year time horizon. Over that timeframe, stocks have historically done a much better record of protecting your spending power than bonds do. And a balanced portfolio of stocks and bonds, rebalanced mechanically without any reference to Mr Hussman's musings and often-wrong predictions, did better still (and much better than his fund--how does he stay in business? He's like Radio Shack.). Forget about short-term volatility until it's much closer to the time you need the money, the annual gyrations of the market (stocks and bonds) should be of only passing interest.

I agree with you. However of course there are always exceptions as is shown here..
https://www2.troweprice.com/iws/wps/...58dfe7296ee75c

I just am not willing to experience the volatility and uncertainty that goes with stocks. Also, I want to be in a position to withdraw my dividends on a regular basis if I want to.. My logic is that I'm much less likely to experience loss over the next 20 years in good bond funds as opposed to good stock funds..I know many think I'm wrong that's just my thinking..

[REWahoo]

Quote:

Originally Posted by lawman My logic is that I'm much less likely to experience loss over the next 20 years in good bond funds as opposed to good stock funds..I know many think I'm wrong that's just my thinking..

It isn't so much that "many" think you are wrong - it's the fact that history says you are.

Quote:

Originally Posted by lawman I just am not willing to experience the volatility and uncertainty that goes with stocks.

I can understand where you are coming from here. Each of us has our own risk tolerance and limits on how comfortable we are in riding the equity rollercoaster.

Still, I have to ask the question: if this is the bottom line - my mind is made up, I'm sticking with bonds no matter what - why did you start this thread?

Quote:

Originally Posted by lawman I'm interested in other points of view..

It doesn't appear that this is the case.