Chuckanut
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
+1 on the junk and international bonds.
TIPS? Individually held? Yes, you are going to be on my list of Dangerous Radicals Who Infest This Site.
What's so bad about bond funds?
- Thread starter lucky penny
- Start date
+1 on the junk and international bonds.
TIPS? Individually held? Yes, you are going to be on my list of Dangerous Radicals Who Infest This Site.
NateW
Recycles dryer sheets
- Joined
- Jul 30, 2011
- Messages
- 425
I have not noticed anyone mentioning the following in this thread: But isn't one of the reasons to hold bonds (or a bond fund) is to temper the price swings of your portfolio or limit the loss when stock prices decline?
njhowie
Thinks s/he gets paid by the post
- Joined
- Mar 11, 2012
- Messages
- 3,931
Historically, the thinking has been that regardless of what stocks do, the bonds will be throwing off interest and be more stable as a result. Further, when stocks decline, you'd suspect that flight to safety would increase fund flows to bonds and bond funds - pushing their prices/NAV higher.
However, consider where we are today. Stocks are still within 10% of all-time highs and at the same time, the Fed has forced yields lower, buying bonds in the open market (via ETFs). Normally, when stocks go higher (during times of economic strength) logic would indicate that yields should go higher (bond prices lower). The Fed has altered these dynamics. What we've seen is as the stock market has gone higher, the Fed has continued pushing yields lower (bond prices even higher). On the flip side, when the stock market has fallen, the investors have raced towards bonds alongside the Fed and pushed yields even lower. So, when do yields go higher and what happens at that point?
Does anyone actually believe that yields will never go higher again? There are some who do make that case. The Fed has said they will be keeping rates at the current level through 2021. Can the Fed continue maintaining control over interest rates and keeping them unrealistically low? If they continue running the monetary printing presses at full throttle to do it, inflation will surely kick in and in a major way. Something's got to give.
TechLead
Recycles dryer sheets
- Joined
- Jul 14, 2020
- Messages
- 100
We are in the greatest recession since Great Depression. Unemployment is actually higher.
One would believe that something will have to go. Some people believe that stock market will crash and some people believe that dollar will be devalued. If you think first option is more likely buy bonds.
Historically Central Banks save companies (stock market) and destroy peoples savings accounts and with that bonds. Else country has nothing to go back to. BTW they will also have give some money (Print it) to all those unemployed, else we will have revolution.
Last time this happened is Argentine 2018.
One would believe that something will have to go. Some people believe that stock market will crash and some people believe that dollar will be devalued. If you think first option is more likely buy bonds.
Historically Central Banks save companies (stock market) and destroy peoples savings accounts and with that bonds. Else country has nothing to go back to. BTW they will also have give some money (Print it) to all those unemployed, else we will have revolution.
Last time this happened is Argentine 2018.
Last edited:
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Great post... but I did want to mention that there a narrow niche of ETFs that are target maturity date bond funds... many bonds like a bond fund but in the terminal year the portfolio of bonds mature and the proceeds are paid out similar to individual bonds maturing.
Bulletshares are one brand and IIRC Blackrock has some too. Various flavors... corporates, high-yield, muni and of course various target maturity dates.
I have owned some of these in the past.
They're ok but the one thing that I dislike about them is that the yields in the terminal year are pathetic because they have bonds maturing throughout the year and reinvest the proceeds in low yielding short-term bonds until the terminal distribution in December.... however and fairly easy way around it is to just sell in January.
Sunset
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I notice the BND has risen a lot, from roughly $79 to $89 in value.
I've been thinking of selling it to capture the 12% increase, as that seems to be equal to many years of interest earnings, and avoid the drop should interest rates rise.
Of course each week I think this, it goes up in value another 25 cents or so...
Am I totally wrong in thinking it is overpriced, and in reality the new normal price for this ETF should be $88 to $89
I've been thinking of selling it to capture the 12% increase, as that seems to be equal to many years of interest earnings, and avoid the drop should interest rates rise.
Of course each week I think this, it goes up in value another 25 cents or so...
Am I totally wrong in thinking it is overpriced, and in reality the new normal price for this ETF should be $88 to $89
njhowie
Thinks s/he gets paid by the post
- Joined
- Mar 11, 2012
- Messages
- 3,931
I notice the BND has risen a lot, from roughly $79 to $89 in value.
I've been thinking of selling it to capture the 12% increase, as that seems to be equal to many years of interest earnings, and avoid the drop should interest rates rise.
Of course each week I think this, it goes up in value another 25 cents or so...
Am I totally wrong in thinking it is overpriced, and in reality the new normal price for this ETF should be $88 to $89
No - your thinking is spot on. In a scenario as we have today, selling and taking the capital gain is the only way to benefit from the rise in bonds. It's the same whether holding a fund or individual bonds.
Of course, you'll need to decide where to reinvest the proceeds. However, having captured many years of yield, there is no particular hurry in my view.
Midpack
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I’m sure you’ll be right one day, but people have been saying similar things for 10+ years - sorta like perma bears who’re wrong for years and finally have a turn in the sun eventually, and want us to forget all the years their advice was ill timed. The Fed did some abnormal things after the 2008-09 financial crisis too, yet index bond funds have beaten any cash alternative over the past 10 years. There are no good alternatives and haven’t been for about 10 years, bonds and cash are a choice between two sad options. I’m not saying their isn’t NAV risk in bond funds, but some people have been on the sidelines making much less for 10 years...
Last edited:
Pb4uski,
Does Fidelity offer any of these ETF target maturity date bond funds?
Thanks,
JP
Out-to-Lunch
Thinks s/he gets paid by the post
He is talking about these: https://www.invesco.com/us/financial-products/etfs/strategies/bulletshares?audienceType=Investor#tab_tab3-products
They can certainly be purchased in a brokerage account at Fidelity, but they are not Fidelity funds.
As PB4 says, BlackRock also offers funds like these: https://www.ishares.com/us/strategies/bond-etfs/build-better-bond-ladders However, I don't believe anyone else does.
There are also high-yield versions, muni versions, and Treasury versions.
They can certainly be purchased in a brokerage account at Fidelity, but they are not Fidelity funds.
As PB4 says, BlackRock also offers funds like these: https://www.ishares.com/us/strategies/bond-etfs/build-better-bond-ladders However, I don't believe anyone else does.
There are also high-yield versions, muni versions, and Treasury versions.
38Chevy454
Thinks s/he gets paid by the post
I notice the BND has risen a lot, from roughly $79 to $89 in value.
I've been thinking of selling it to capture the 12% increase, as that seems to be equal to many years of interest earnings, and avoid the drop should interest rates rise.
Of course each week I think this, it goes up in value another 25 cents or so...
Am I totally wrong in thinking it is overpriced, and in reality the new normal price for this ETF should be $88 to $89
Is this in effect an illustration of the supply and demand equation? There is enough demand that prices are rising, even though there is not any real underlying financial reason for it to be happening.
jazz4cash
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
If you hold bonds and need to sell before maturity you can select issues that are not impaired but If you have a fund you will have to sell some of the impaired bonds along with non impaired.
Nothing, as long as you're willing to stay invested for several years.
If "parking money there" implies a short time frame, then no, bond funds aren't a good option. Just use online savings for that purpose.
Last edited:
stephenson
Thinks s/he gets paid by the post
- Joined
- Jul 3, 2009
- Messages
- 1,610
Broad numbers ... VFSUX NAV is about $0.25 higher now than just prior to C19 turbulence?
So, figure 2.5% increase? If bought now, and the NAV goes back to 10.75, then you lose 2.5%, and the underlying interest rate does not increase?
I’m sitting on way too much low interest MM cash right now ... but, other than picking solid, dull companies like ATT for the dividend, don’t know what else to do.
So, figure 2.5% increase? If bought now, and the NAV goes back to 10.75, then you lose 2.5%, and the underlying interest rate does not increase?
I’m sitting on way too much low interest MM cash right now ... but, other than picking solid, dull companies like ATT for the dividend, don’t know what else to do.
+1
I just took a peak at my short and mid term bond ETF performance. YTD... from 2% - 6%+ in total returns. I get all the talk interest rates have no where to go but up, but short of individual bonds, CDs, MMs, and high yield savings accounts, just not sure where to go, so I sit on my hands and stay put.
I hear some talk about buying high quality dividend paying stocks (or funds/ETFs) and or blended funds structured to minimize volatility that pay higher dividends as the new alternative to bonds, but not sure how that will really work as a ballast in a down market??
What to do... what to do
??
OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
John Bogle: "Don't just do something. Sit there."... What to do... what to do
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."
It wouldn't work, which is why it shouldn't be done.
Equities are never a suitable replacement for fixed income.
Markola
Thinks s/he gets paid by the post
Great string. We are 50/50 in our long-term money, all indexed. I’m happy to keep our bond index funds, because:
1) All the “ifs, ands, buts and maybes” mentioned in this string reaffirm my conviction that the bond environment is complex and unpredictable and, therefore, a great thing to index and ignore.
2) A primary benefit of owning bond funds is for ballast with the stock fund allocation. That benefit hasn’t changed. If bond fund prices fall 2% and stock fund prices fall 20%, I will be elated to own bond funds. Investors love to focus on growth but it is equally important to one’s net worth to avoid loss.
3). I don’t think many here have mentioned bond fund prices as a beneficiary of an emotional “flight to safety” if things get too nutty. In fact, I believe but can’t prove that this is already happening and is one of the main reasons the VG Total Bond Index price is up 8% YTD, which is equivalent to a normal year for stock returns. It is also up 3.84% over the last 10 years, which beat the heck out of cash and even inflation.
YMMV
1) All the “ifs, ands, buts and maybes” mentioned in this string reaffirm my conviction that the bond environment is complex and unpredictable and, therefore, a great thing to index and ignore.
2) A primary benefit of owning bond funds is for ballast with the stock fund allocation. That benefit hasn’t changed. If bond fund prices fall 2% and stock fund prices fall 20%, I will be elated to own bond funds. Investors love to focus on growth but it is equally important to one’s net worth to avoid loss.
3). I don’t think many here have mentioned bond fund prices as a beneficiary of an emotional “flight to safety” if things get too nutty. In fact, I believe but can’t prove that this is already happening and is one of the main reasons the VG Total Bond Index price is up 8% YTD, which is equivalent to a normal year for stock returns. It is also up 3.84% over the last 10 years, which beat the heck out of cash and even inflation.
YMMV
Last edited:
stephenson
Thinks s/he gets paid by the post
- Joined
- Jul 3, 2009
- Messages
- 1,610
Markola,
Sure, but the bonds you compare to the equities are very short term to have dropped only 2% right? Longer term are much more volatile - or, at least were recently?
BND fell about 8.5% (someone check my math) in March 2020 ... OTOH, high quality dividend paying stocks in same period got hammered 20-30% - both stocks and bonds have recovered.
I guess if I understood better, I might be willing to postulate that bonds once were a great counter-cyclical offset to stocks, but don't know if this makes as much sense as it once did?
Sure, but the bonds you compare to the equities are very short term to have dropped only 2% right? Longer term are much more volatile - or, at least were recently?
BND fell about 8.5% (someone check my math) in March 2020 ... OTOH, high quality dividend paying stocks in same period got hammered 20-30% - both stocks and bonds have recovered.
I guess if I understood better, I might be willing to postulate that bonds once were a great counter-cyclical offset to stocks, but don't know if this makes as much sense as it once did?
OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
One of the things that the behavioral finance people like Thaler and Kahneman talk about is we humans' "recency bias." "https://en.wikipedia.org/wiki/Recency_bias) WADR, this statement shows that bias -- looking back a few months and concluding that a long-term trend may no longer exist. Five years from now we might be able to look back and test that thesis. But not now.
Markola
Thinks s/he gets paid by the post
I’m not seeing the 8.5% drop you mentioned. The ETF fell a tad more than the mutual fund version, probably due to active traders of the ETF.
stephenson
Thinks s/he gets paid by the post
- Joined
- Jul 3, 2009
- Messages
- 1,610
Hmmm ... perhaps my math off ...
1 Mar closed 86.53
12 Mar closed 80.33
So, closer to 7.1%?
Whoops ...
I guess my point was that bonds, especially right now - admittedly, right now - are generally following the market - sure, not as erratic as the equity market, but they don't seem like the safe counter-cyclical product that they used to be.
1 Mar closed 86.53
12 Mar closed 80.33
So, closer to 7.1%?
Whoops ...
I guess my point was that bonds, especially right now - admittedly, right now - are generally following the market - sure, not as erratic as the equity market, but they don't seem like the safe counter-cyclical product that they used to be.
GravitySucks
Thinks s/he gets paid by the post
I keep a chunk in an Intermediate Treasuries fund since you will see BND and AGG often fall for a bit when stocks are troubled. FUAMX rose as the others fell. Downside is less growth = less height to fall from and it still has interest rate sensitivity risk.
GravitySucks
Thinks s/he gets paid by the post
Well, might as well stay here instead of opening a new thread.
I see a few posts on selling all equities this year, I just sold a bond fund that did well - up 12% last 12 months, up 27% over the 3 years owned and punted by buying a 3 year MYGA at 1.5%. I also bought 1 year CDs with a bit of individual bonds that came due. I'm keeping my bullet/date ending funds that make up a 6 year ladder. Not sure if I should punt with FUAMX also. FUAMX is up about 8% over the year and its tempting to take the profit, but my plan is to keep most FI in five year treasuries or a intermediate Treasury Fund.
Anyone else just pushing the issue down the road by going short term in maturing issues? How long do you think we have till rate hikes erode the bond fund principle. Thinking at least another year and that fund is earning more than 5 year Ts are now.
If course my interest rate predictions have been way off since I've started in bonds. What do you think? Punt now or try to stick with the intermediate term product as my plan has been?
I see a few posts on selling all equities this year, I just sold a bond fund that did well - up 12% last 12 months, up 27% over the 3 years owned and punted by buying a 3 year MYGA at 1.5%. I also bought 1 year CDs with a bit of individual bonds that came due. I'm keeping my bullet/date ending funds that make up a 6 year ladder. Not sure if I should punt with FUAMX also. FUAMX is up about 8% over the year and its tempting to take the profit, but my plan is to keep most FI in five year treasuries or a intermediate Treasury Fund.
Anyone else just pushing the issue down the road by going short term in maturing issues? How long do you think we have till rate hikes erode the bond fund principle. Thinking at least another year and that fund is earning more than 5 year Ts are now.
If course my interest rate predictions have been way off since I've started in bonds. What do you think? Punt now or try to stick with the intermediate term product as my plan has been?
Last edited:
Similar threads
