Time to say goodbye to the notion of a safe yield?

[Chuckanut]

One of the financial writers who I have followed and respected for many years is Jonathan Clements. In today's article tell us that he believes we finally hit the time when finding a safe and descent yield is gone. And he gives us four strategies for the future (assuming you agree with him beliefs).

https://humbledollar.com/2020/06/fa..._RilH8G7RXjjUVYDm7L9qBQHAK8uNsH89GT3DboOkS9Vk

THEY’VE LONG BEEN endangered, but 2020 may mark their demise: After four decades of falling interest rates, it seems safe investments offering attractive yields have finally disappeared.

He discusses four areas of change:

1. Abandon bonds.

2. Delay Social Security.

3. Bet your life.

4. Revisit tax efficiency.

 

[aja8888]

Thanks! I forwarded it to some friends.

Good article, spend less, reduce debt, buy treasuries, maybe buy annuities, stocks for the long term, delay SS.

 

[lordjust]

One of the financial writers who I have followed and respected for many years is Jonathan Clements. In today's article tell us that he believes we finally hit the time when finding a safe and descent yield is gone. And he gives us four strategies for the future (assuming you agree with him beliefs).

https://humbledollar.com/2020/06/fa..._RilH8G7RXjjUVYDm7L9qBQHAK8uNsH89GT3DboOkS9Vk



He discusses four areas of change:

1. Abandon bonds.

2. Delay Social Security.

3. Bet your life.

4. Revisit tax efficiency.

*sigh* I needed this article like a month or two ago. I literally am just finishing up balancing my account to 60/40...

"That brings me to an idea advanced in 1989 by the late Peter Bernstein. Instead of the classic balanced portfolio with 60% stocks and 40% bonds, perhaps investors should opt for 75% stocks, with the other 25% in cash investments like money market funds and high-yield savings accounts. Bernstein found that the latter investment mix had a similar risk level to the classic balanced portfolio, but higher returns."

 

[mrfeh]

Didn't read the article...does he look at nominal rates or real? Because while rates are down, and will probably stay down for a long time, so is inflation.

Increasing risk of your portfolio in order to goose returns doesn't seem like solid advice to me.

 

[gerntz]

Loved his columns in the WSJ back in the day. Sorry he left. Thanks.

 

[gerntz]

Didn't read the article...

LOL

 

[samm]

Vanguard Muni Bond Funds Yield More Than Treasuries

Vanguard Muni Bond Funds Yield More Than Treasuries with no tax on income.

There are some risks, but the default rate has been quite low.

https://investor.vanguard.com/mutual-funds/list#/mutual-funds/asset-class/month-end-returns

 

[kevink]

There's a long and substantive thread on this Clements article on the Bogleheads site:

https://www.bogleheads.org/forum/viewtopic.phpf=10&t=317555&sid=0896601e1255967af97b04a3fa1e1fca

Like others here I've long had great respect for Jonathan Clements but I also disagree with him from time to time and wish he'd do a better job of fessing up when his recommendations don't pan out. As cases in point he continues to trumpet big allocations to international stocks and small cap and value tilts.....maybe one of these decades he'll be right but someone following his advice for the past 25 years would've had about a third more money by just sticking with a classic 60:40 TSM:TBM approach.

As for the "no bonds" idea, I agree with many of the posters on the Boglehead's thread. Clements is looking at bonds in isolation rather than at how they perform as part of a portfolio, dampening volatility and providing a considerable boost during times of market panic - provided that one has the good sense to invest ONLY or primarily in Treasuries. Clements himself lacks such sense as shown by his consistent choice of corporates with their equity-like risks for his own investments. I give a lot more credence to writers like Annette Thau and Rick Ferri who when it comes to bond investing have forgotten more about the topic than Clements will ever know.

 

[Midpack]

As for the "no bonds" idea, I agree with many of the posters on the Boglehead's thread. Clements is looking at bonds in isolation rather than at how they perform as part of a portfolio, dampening volatility and providing a considerable boost during times of market panic - provided that one has the good sense to invest ONLY or primarily in Treasuries. Clements himself lacks such sense as shown by his consistent choice of corporates with their equity-like risks for his own investments. I give a lot more credence to writers like Annette Thau and Rick Ferri who when it comes to bond investing have forgotten more about the topic than Clements will ever know.

+1, pretty much my thoughts, thanks for writing it out. “Experts” have been eschewing bonds since 2009, I’ve had decent returns on our bond holding since then, and that allocation is there to reduce portfolio volatility, not outperform.

 

[audreyh1]

Yeah, I’m not giving up high quality bond funds. I don’t hold them for yield, and I don’t chase yield. I see them as ballast in my portfolio.

 

[Closet_Gamer]

I think the notion that stashing bonds in a tax deferred accounts may not be as smart as it once was is very interesting. I was just looking at that today.

 

[Dtail]

The percentage of Treasury vs. Corporate bonds in a bond portfolio becomes a lot more interesting when we are in a recession type mode.
I believe yields could shoot up a bit more, then head much lower.

 

[2017ish]

I think the notion that stashing bonds in a tax deferred accounts may not be as smart as it once was is very interesting. I was just looking at that today.

We have no taxable accounts to speak of, so all of our bonds/cash type investments are part of our tax deferred accounts. Roths, OTOH, are 100% stock.

Agree with others, that Clements is well worth subscribing to the newsletter, but there is no one that I blindly follow....

 

[Chuckanut]

*sigh* I needed this article like a month or two ago. I literally am just finishing up balancing my account to 60/40...

"That brings me to an idea advanced in 1989 by the late Peter Bernstein. Instead of the classic balanced portfolio with 60% stocks and 40% bonds, perhaps investors should opt for 75% stocks, with the other 25% in cash investments like money market funds and high-yield savings accounts. Bernstein found that the latter investment mix had a similar risk level to the classic balanced portfolio, but higher returns."

Clements brings up Bernstein's idea of using cash instead of bonds:

That brings me to an idea advanced in 1989 by the late Peter Bernstein. Instead of the classic balanced portfolio with 60% stocks and 40% bonds, perhaps investors should opt for 75% stocks, with the other 25% in cash investments like money market funds and high-yield savings accounts. Bernstein found that the latter investment mix had a similar risk level to the classic balanced portfolio, but higher returns.

I imagine that using cash and cash like investments would provide the ballast and balance we seek with bond funds.

Keep in mind that Clements' audience is most likely people still in the acquisition mode of investing - building up their asset base for future use. Many of us here are in the 'creative destruction' mode of burning up our assets for current use.

IIRC, when I first considered retiring (but not actually retired) I was still using about 4-5% as my interest rate on FDIC deposits. After I retired, getting 3% on CD's made me feel like a champ. Today, my 2.4% CD's have my gloat-o-meter pegged on the high end.