Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 10-12-2020, 10:25 AM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: NC
Posts: 18,644
There have been countless articles since 2008 “warning” about bonds. Eventually I’m sure they’ll come true, but we’ve gotten decent returns in the “ballast” portion of our AA holding on all this time. Glad we didn’t listen in 2008. Was there a better place to hold low risk non-equity assets over the past 12 years? Is there now (equivalent risk)?
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 50% equity funds / 30% bonds / 20% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-12-2020, 10:39 AM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 32,326
Quote:
Originally Posted by Markola View Post
2) Those who lived through the 70s and 80s tend to naturally mitigate against future inflation but the current super-low interest rate and inflation environment and Covid recession may well mean that deflation is the bigger risk. If so, Iím glad to own bond funds and am not ready to pile into more stocks to chase yield.
Agreed - economic weakness seems more likely regardless of the current close to all time highs equity market. And you donít want chase yields in fixed income either by going for lower credit quality like junk or even mostly corporate bonds. Those are very economically sensitive.

Pretty much rock and a hard place conditions right now.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 10-12-2020, 10:53 AM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 8,727
Quote:
Originally Posted by audreyh1 View Post
Agreed - economic weakness seems more likely regardless of the current close to all time highs equity market. And you donít want chase yields in fixed income either by going for lower credit quality like junk or even mostly corporate bonds. Those are very economically sensitive. Pretty much rock and a hard place conditions right now.
Yup.

John Bogle: "Don't just do something. Sit there."

Warren Buffet: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell. ... Lethargy bordering on sloth should remain the cornerstone of an investment style."

zzz ...
__________________
Ignoramus et ignorabimus
OldShooter is offline   Reply With Quote
Old 10-12-2020, 11:14 AM   #24
Full time employment: Posting here.
 
Join Date: Apr 2005
Posts: 772
To your point Markola: Clements has about 67% of his portfolio invested in a fully internationally diversified (i.e. ~55% US/45% Int'l), small-cap and value-tilted equity portfolio and is comfortable with at least that much in equities in retirement.

And to OldShooter's comment about TIPS being the best inflation protection, here's Wade Pfau's concise summary of William Bernstein's analysis of that topic in his essential (IMHO) recent booklet "Deep Risk:"

"First in terms of the probabilities that each threat will manifest, inflation is high, confiscation is medium, and deflation and devastation are low. Inflation, though high in probability, has a lower cost for protection. It is the most relevant for retirees to worry about, but it is also the least catastrophic for a globally diversified investor. It is the easiest to protect against with international [equity] diversification, TIPS held to maturity to match spending needs, delaying Social Security, and an inflation-adjusted annuity. A globally diversified stock portfolio is most effectively protected from the deep risk of inflation, though stocks do exacerbate shallow risk. Meanwhile, unexpected inflation devastates traditional bonds."

My take is that globally-diversified equities are the most important inflation hedge. Cash in the form of Tbills has also historically been a surprisingly good hedge. iBonds up to one's annual limit are a no-brainer but won't help much in a larger portfolio in less one got started long ago (or has decades until retirement).

As for TIPS, who knows? If one was wise enough to buy them back when their coupons offered a positive return sure, but now? Personally I'd rather have more international equity exposure and a slice of gold for SHTF and further currency debasement (aka "quantitative easing") antics from the Fed. YMMV. A couple of articles back Clements said he was keeping all his "cash" in a barbell of equal parts short TIPS and short-term Treasuries.
kevink is offline   Reply With Quote
Old 10-12-2020, 11:42 AM   #25
Confused about dryer sheets
 
Join Date: Sep 2017
Posts: 5
I remember 5 to 10 years ago, I donít remember when it was. My dad lamenting the fact that his 12% 30 year treasury bond paid off.
Abe Frohman is offline   Reply With Quote
Old 10-12-2020, 12:12 PM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 8,727
Well, the answer of course is that nobody knows.
Quote:
Originally Posted by kevink View Post
... Cash in the form of Tbills has also historically been a surprisingly good hedge. ... If one was wise enough to buy [TIPS] back when their coupons offered a positive return sure, but now? ...
I'm not so sure about bills. It may be like being nibbled to death by ants. By definition they are short term, so inflation won't take a big bite out of any one, but the long term is just a bunch of short terms stacked together. So a lot of little bites stacked together, no?

Re TIPS coupons offering a positive return, I have mentioned this before but many people seem to miss the subtle point that there isn't really a "coupon" return on the original investment. The coupon rate is applied to the current, inflation-adjusted, value of the TIPS every six months. So for example, using the Fed's 2% rate for 20 years, the security will be "worth" 150% of face value at the end and the "coupon" will be paying 150% of the nominal coupon rate.

A TIPS YTM rate you get with the usual calculations is really only a lower bound, implicitly assuming no inflation. I am too lazy to do a lot of calculations on present TIPS prices because that's really not where I am focused. I accept that if inflation stays low the TIPS we have will probably not have beaten straight govvies but that is not the point. When we bought in the winter of 2006/7 (2s of 2026) it was because we determined that high inflation (like 1980 +/-) was the major threat to our retirement. So we bought the inflation insurance without worrying too much about the premium cost over govvies.
__________________
Ignoramus et ignorabimus
OldShooter is offline   Reply With Quote
Old 10-12-2020, 12:14 PM   #27
Thinks s/he gets paid by the post
Markola's Avatar
 
Join Date: Nov 2013
Location: Twin Cities
Posts: 3,282
Quote:
Originally Posted by kevink View Post



My take is that globally-diversified equities are the most important inflation hedge.


And VTIAX international index fund yields 2.51% at present and with a lower P/E multiple vs. VTSAXí 1.68%.


https://www.morningstar.com/funds/xnas/vtiax/quote
Markola is offline   Reply With Quote
Old 10-12-2020, 03:54 PM   #28
Full time employment: Posting here.
 
Join Date: Apr 2005
Posts: 772
Quote:
Originally Posted by OldShooter View Post
Well, the answer of course is that nobody knows. I'm not so sure about bills. It may be like being nibbled to death by ants. By definition they are short term, so inflation won't take a big bite out of any one, but the long term is just a bunch of short terms stacked together. So a lot of little bites stacked together, no?

Re TIPS coupons offering a positive return, I have mentioned this before but many people seem to miss the subtle point that there isn't really a "coupon" return on the original investment. The coupon rate is applied to the current, inflation-adjusted, value of the TIPS every six months. So for example, using the Fed's 2% rate for 20 years, the security will be "worth" 150% of face value at the end and the "coupon" will be paying 150% of the nominal coupon rate.

A TIPS YTM rate you get with the usual calculations is really only a lower bound, implicitly assuming no inflation. I am too lazy to do a lot of calculations on present TIPS prices because that's really not where I am focused. I accept that if inflation stays low the TIPS we have will probably not have beaten straight govvies but that is not the point. When we bought in the winter of 2006/7 (2s of 2026) it was because we determined that high inflation (like 1980 +/-) was the major threat to our retirement. So we bought the inflation insurance without worrying too much about the premium cost over govvies.
Excellent explanation of the complexities of TIPS. You were certainly prescient to buy them when you did.

Regarding cash, this piece from Portfolio Charts is the best I've found for explaining how it can be part of one's inflation-hedging assets, as well as serving other vitally important functions. I think it's especially worth revisiting in light of the Clements article and other pieces that are essentially saying the only bonds worth holding now are Treasuries of such short duration that they're close to being cash anyway.

https://portfoliocharts.com/2017/05/...pier-investor/
kevink is offline   Reply With Quote
Old 10-12-2020, 04:17 PM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 8,727
Quote:
Originally Posted by kevink View Post
Excellent explanation of the complexities of TIPS. You were certainly prescient to buy them when you did. ...
Thanks, but nope. Just lucky. Beginning in 2010 they started to climb in value, reaching about 150% of our cost by 2012. Even now with less than 6 years left they are close to 150% as inflation has grown the underlying value, offsetting the YTM factor. All pure luck.

" prescient: ... having knowledge of things or events before they exist or happen; having foresight ..."

I think that being prescient in the investment context is planning a diversified portfolio knowing that the future will be largely random. That's more or less what Clements is about.
__________________
Ignoramus et ignorabimus
OldShooter is offline   Reply With Quote
Old 10-12-2020, 04:18 PM   #30
Thinks s/he gets paid by the post
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 4,839
Quote:
Originally Posted by audreyh1 View Post
One reason I donít worry about bonds is that I have owned the bulk of my fixed income for over 20 years. It has appreciated as interest rates dropped, it occasionally drops as interest rates rise. I rebalance, buying more when down or after a strong equity year. A year after bonds have been ďclobberedĒ, and compared to stocks itís a mild clobbering, they tend to recover strongly. Interest rates jump around so much and so unpredictability that rebalancing seems the best management tool.

I understand someone looking to buy into bonds today, it perhaps looks a little bleak as they are highly valued. But it doesnít mean you should sell bonds you already own and buy IMO riskier also fully valued stocks. John Clements agrees that stocks are riskier.

We are simply in another extreme QE environment where the Fed funds rate is pushed to zero and the Fed is buying bonds to boost market liquidity, and as a result there has been asset inflation in both stocks and bonds as investors take advantage.

I just keep rebalancing.
Stocks are riskier, but far more rewarding. Trouble with bonds here is that there is essentially no upside, but downside is massive.
Montecfo is offline   Reply With Quote
Old 10-12-2020, 04:27 PM   #31
Thinks s/he gets paid by the post
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 4,839
Quote:
Originally Posted by pb4uski View Post
Boy, that article makes me feel really good about gourging out on 3.0%-3.5% 4-5 year CDs in 2019 (40% of portfolio). I just hope that things normalize before they mature in 2023-2024.
I also went heavily into these. Some have started to mature this year. Best thing I did is go out 6 years on a large tranche of 3.5 percent CDs. Now of course I wish I had even more of those.

My bond holdings are mainly corporates and short to midterm. That's where the cash will go as they mature as well as into selected REITS and preferreds.

I do not rely on my cash/bond portfolio for income but I do require a reasonable return.
Montecfo is offline   Reply With Quote
Old 10-13-2020, 06:00 AM   #32
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 2,755
While I don't rely on my bond funds and cds for income i do realize that in the long run it is the interest paid that determines total return. Both my bond funds and CD ladders show significant market value gains. However I'm seeing a steady decline in interest which will eventually negate the gains. On the bright side I don't feel like I'm missing out by letting my cash pile grow. Maybe I'll even get to spend some in the next year or so.☺
__________________
Took SS at 62 and hope I live long enough to regret the decision.
foxfirev5 is offline   Reply With Quote
Not Likely
Old 10-16-2020, 05:05 PM   #33
Recycles dryer sheets
 
Join Date: Nov 2010
Location: Crossville
Posts: 281
Not Likely

Quote:
Originally Posted by pb4uski View Post
Boy, that article makes me feel really good about gourging out on 3.0%-3.5% 4-5 year CDs in 2019 (40% of portfolio). I just hope that things normalize before they mature in 2023-2024.
If by normalizing you mean higher rates, that likelihood is not high. The world's economies have become addicted to artificially low rates to spur spending. With the major economies needing to recover from the losses incurred from the foolish shutdowns of whole nations, it will take years of continually low rates to help right the ship.
ychuck46 is offline   Reply With Quote
Old 10-16-2020, 06:06 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RobbieB's Avatar
 
Join Date: Mar 2016
Location: Central CA
Posts: 8,412
Yeah. Normalize? What is normal? This is the new normal.

We're all gonna be wearing masks and social distancing for a long long time me thinks.
__________________
Retired at 59 in 2014. Should have done it sooner but I worried too much.
RobbieB is online now   Reply With Quote
Old 10-16-2020, 06:35 PM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 33,418
Quote:
Originally Posted by rayvt View Post
The money you get from selling options isn't income, it is investment profits.

If the IRS calls it income and taxes it as income, and I can use it to buy bread as I do with income...

Well, I will just call it money. I love money.

And today being the 3rd Friday of the month, a bunch of put options just expired worthless, and I got to keep my money, plus the put option premium.

On the other side of the option coin, a bunch of covered calls will get exercised because the shares went crazily high just in this week, and I am forced to sell them for less than today's price.

That's all right. This happens many times before. People do not go broke for selling high.

I suspect that people who get these shares will be sorry next week when the share prices drop back to where I think they should be. Next week, I will be selling puts to buy them back at lower prices than I sold.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)

"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
NW-Bound is offline   Reply With Quote
Old 10-16-2020, 09:03 PM   #36
Full time employment: Posting here.
 
Join Date: Dec 2018
Posts: 966
The elephant in the room is inflation and high government debt. The federal government is currently spending trillions to prop up the economy and the USA is expected to be one of the top 10 countries with the highest debt/GDP ratio which includes Japan, Greece, Venezuela.

Venezuela has hyper-inflation while Japan and Greece has austerity programs and the economy of both Japan and Greece is not expanding. Unless the next administration raises taxes we will have either inflation or austerity programs to cut back on government spending but this will lead to a stagnant economy.

One reason why the US stock market is going up is because Japan and Europe has negative interest rates which means foreign investors rather invest in the US stock market than Japan and Europe. The Fed wants to increase inflation because inflation benefits the US debt since inflation translate to increased wages which in turn increases taxes. This also means a $1M portfolio will lose relative value unless the portfolio's return is more that inflation. Investing in both bonds and equities will be more difficult than in the past.

There is no easy solution. However, if the economy turns south in 2021 or 2022 and the price of real estate crashes due to high unemployment, I intend to buy low price real estate as a hedge against inflation. You get rental income since people still have to have a house to live in. When the economy recovers and we have low unemployment, the price of real estate is expected to rise. I was a former landlord so I know how to manage rental property. If the income from rental property covers inflation, then that is all I need. This is because I had purchased houses for $250K after the 2008 crash and they are now worth $500K. I only suggest monitoring the price of real estate in your area since real estate can be an alternative to bonds and equities.
2177V is offline   Reply With Quote
Old 10-16-2020, 10:59 PM   #37
Recycles dryer sheets
 
Join Date: Nov 2019
Location: Jersey City
Posts: 362
I'm betting on another market crash followed by Fed panicking and going negative on the rates. Given that they have no other place to go but below zero and the fact that market and politicians are addicted to Fed's intervention, it's not unlikely. All we need is a failed vaccine and we're in the dumpster. And that's the only reason I hold on to some LT US treasuries. Otherwise I'd buy more Chinese government bonds.
tenant13 is offline   Reply With Quote
Old 10-17-2020, 05:14 AM   #38
Dryer sheet aficionado
 
Join Date: Jan 2018
Posts: 37
I feel like I'm missing something major here, the Fidelity Total Market Bond Fund is up 7.04% and 10 year is 3.60%, far and above what the article mentions?

https://fundresearch.fidelity.com/mu...mary/316146356
lsimpson33 is offline   Reply With Quote
Old 10-17-2020, 08:21 AM   #39
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 32,326
Quote:
Originally Posted by lsimpson33 View Post
I feel like I'm missing something major here, the Fidelity Total Market Bond Fund is up 7.04% and 10 year is 3.60%, far and above what the article mentions?

https://fundresearch.fidelity.com/mu...mary/316146356
That’s past performance - no future guarantees. If you ALREADY owned bond funds, you did very well this year due to the sudden drop in rates. But that will not be repeated, unless rates go negative.....

Also, Total Bond Fund holds a lot of corporate debt, whereas Clements was focusing on treasuries.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 10-17-2020, 08:31 AM   #40
gone traveling
 
Join Date: Sep 2014
Posts: 225
Quote:
Originally Posted by audreyh1 View Post
Thatís past performance - no future guarantees. If you ALREADY owned bond funds, you did very well this year due to the sudden drop in rates. But that will not be repeated, unless rates go negative.....

Also, Total Bond Fund holds a lot of corporate debt, whereas Clements was focusing on treasuries.
Simple... the Bond managers will just supplement low yld bond issues for high yld bond issues and thus prop up the fund ylds.... its not like those 30yr high yld bonds just went away... they still pay high coupons..
dixter is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Jonathan Clements on Delaying Soc. Security and Annuties............. Cut-Throat FIRE and Money 13 06-18-2007 01:08 PM
An article by JONATHAN CLEMENTS for all you real smart investors out there. Cut-Throat FIRE and Money 20 04-10-2007 04:24 AM
Jonathan Clements Article today - Contrary Advice Cut-Throat FIRE and Money 3 10-22-2006 08:45 AM
Jonathan Clements Touts Firecalc in WSJ grumpy FIRE and Money 0 05-21-2006 01:01 PM
Jonathan Clements Article today...... Cut-Throat Other topics 17 07-14-2004 05:36 PM

» Quick Links

 
All times are GMT -6. The time now is 03:26 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2022, vBulletin Solutions, Inc.