Bonds Suc&k...

[Texas Proud]

, no matter what, unless the issuer goes bankrupt and then you are at the front of the line in bankruptcy. That's a lot more security than you will ever have from a stock.
!

Actually you are not even close to the front of the line with normal unsecured bonds...



You have DIP financing, secured loans, administrative costs, tax liens, employee claims and maybe more before getting to unsecured claims...


You are above preferred and common stock but that is about it...

 

[Gumby]

Actually you are not even close to the front of the line with normal unsecured bonds...



You have DIP financing, secured loans, administrative costs, tax liens, employee claims and maybe more before getting to unsecured claims...


You are above preferred and common stock but that is about it...

And unsecured claims include a lot more than just bonds. There could be bank loans, trade creditors, tort creditors and deficiency claims of secured creditors, among others. In most cases, you will share and share alike with all those other unsecured creditors, absent any subordination agreements or guarantees.

 

[audreyh1]

Oh ok. You mean the 2 or 3 fund portfolio that includes Bonds? How close?

I don’t understand your question.

 

[JOBO]

How close?

The green line show No bonds right up until the end which happened to be Dec '19 for me.

 

[F.I.R.E User]

I don’t understand your question.

Which bond fund and when did you transition?

 

[Chuckanut]

Bond transition syndrome. Now there's a new economic disease that will immerse us in a toxic environment that promotes our self destructive behavior in an addictive display of dysfunctional investing. I had never thought of it in that way.


Sorry, I could not resist a chance for some humour.

 

[audreyh1]

Which bond fund and when did you transition?

We transitioned around retirement back in 1999. We averaged in over 2-3 years from our all equities portfolio. These days we mostly hold Fidelity bond index funds, short-term and intermediate (US Bond Index).

 

[Wile E. Coyote]

We transitioned around retirement back in 1999. We averaged in over 2-3 years from our all equities portfolio. These days we mostly hold Fidelity bond index funds, short-term and intermediate (US Bond Index).

Sorry to interrupt. How do you allocate that? Enough fixed income to fund 10-15 years of retirement and the rest in stocks? (or 50/50; 60/40 or 75/25)?

 

[mathjak107]

We transitioned around retirement back in 1999. We averaged in over 2-3 years from our all equities portfolio. These days we mostly hold Fidelity bond index funds, short-term and intermediate (US Bond Index).

one of my favorite fidelity bond funds is ffrhx floating rate high uncome.

i use two others ,one is a short term bond and the other a intermediate term bond with under a 4 year duration .

so very low interest rate sensitivity

my experimental carolina reaper portfolio which is a leveraged risk parity portfolio uses a 3x bond fund tyd along with a 3x stock fund upro and a managed futures fund dbmf

 

[mathjak107]

The green line show No bonds right up until the end which happened to be Dec '19 for me.

that isn’t kitces green line is it ? that is your doing , correct ?

 

[mrfeh]

one of my favorite fidelity bond funds is ffrhx floating rate high uncome.

FFRHX is not a bond fund - it is a bank loan fund, investing in fairly risky loans.

It won't behave like a bond fund in the event of a recession. Don't consider it an alternative to a total bond fund like FXNAX/VBTLX.

 

[mathjak107]

FFRHX is not a bond fund - it is a bank loan fund, investing in fairly risky loans.

It won't behave like a bond fund in the event of a recession. Don't consider it an alternative to a total bond fund like FXNAX/VBTLX.

i agree , it’s a fixed income fund like a high yield fund and you wouldn’t own this if recession was looming … but it has been very well behaved thru what we did have recently.

it goes with my other bond funds , which by the way unless treasuries likely won’t hold up in a recession.

most bond funds today are concentrated in BBB which is the sweet spot for non govt bond investing

it is the last rung of investment grade before junk .

any slip in credit rating and those holdings can no longer be held by any fund , pension , fund , insurer or institution that is required to hold investment grade bonds and will be dumped with few takers

moodys calls it the next disaster in a down turn . there is 10x the money in that segment today then 2008 and represents 78% of the non govt bond market dollars wise

 

[FLSUnFIRE]

if you are still a long term investor it makes little sense to use bonds to mitigate temporary short term dips with less capable assets and permanently hurt long term growth.

unless you don’t have at least a decade left until you hit that proverbial red zone.

for those who will follow the red zone glide path here is a guide

This is a useful construct but it is viewing retirement date as "fixed," if shooting for FIRE the retirement date is a bit more flexible so if there is a drop there is less risk since the retirement date can also be moved (to the right potentially even to the left). It's also viewing the withdrawal rate as constant and the higher the WDR the more risk there is and thus more need to mitigate that risk -possibly with bonds. With an ultra-low WDR, say 3% or less, and a flexible retirement date, adding more fixed income may not be necessary as there is a bit less risk exposure due to the low WDR and ability to mitigate by shifting the retirement date. There is also potential flexibility in spending.. if a fairly "FAT" FIRE there is room to adjust spending without much pain if SORR bites the early retiree. If it's a "lean" retirement with a 4% or higher WDR and the date is inflexible for some reason I would be more conservative in the equity allocation and even perhaps in the fixed income portfolio (CDs/individual treasuries).

 

[audreyh1]

Sorry to interrupt. How do you allocate that? Enough fixed income to fund 10-15 years of retirement and the rest in stocks? (or 50/50; 60/40 or 75/25)?

50/50

 

[mrfeh]

it goes with my other bond funds , which by the way unless treasuries likely won’t hold up in a recession.

I don't believe total bond funds drop during recessions. In the last 2 ('09 and '20) they didn't.

 

[audreyh1]

Right. What hits bond funds is rising interest rates. Interest rates are usually lowered during a recession.

 

[mathjak107]

I don't believe total bond funds drop during recessions. In the last 2 ('09 and '20) they didn't.

many total bond funds did little in 2008 and some like mine were down .

on the other hand long term treasuries soared

vanguard total bond bnd was down .48 in 2009

fidelity total bond was down 5.56%

agg bond down 4.70

 

[Route246]

As a neophyte bond dabbler I find that bond funds kinda suck as you end up with behaviors that affect a group of bonds. The only bonds I deal with now are only those I plan to hold to maturity, PERIOD. That way, I don't end up paying for others' redemptions and don't suffer from capital loss or gain.

But, I'm not an expert.

 

[njhowie]

As a neophyte bond dabbler I find that bond funds kinda suck as you end up with behaviors that affect a group of bonds. The only bonds I deal with now are only those I plan to hold to maturity, PERIOD. That way, I don't end up paying for others' redemptions and don't suffer from capital loss or gain.

But, I'm not an expert.

You are way ahead of most folks when it comes to bonds. You understand more than you believe you do.

 

[GravitySucks]

many total bond funds did little in 2008 and some like mine were down .

on the other hand long term treasuries soared

vanguard total bond bnd was down .48 in 2009

fidelity total bond was down 5.56%

agg bond down 4.70

IEF -Intermediate treasury fund- zigged when S&P zagged in most cases. I still have an intermediate treasury fund that I’m planning to use for rebalancing purposes.


Bonds may suck compared to equities on returns but they do buy sleep at night and keep me from doing stupid things.

 

[mrfeh]

IEF -Intermediate treasury fund- zigged when S&P zagged in most cases. I still have an intermediate treasury fund that I’m planning to use for rebalancing purposes.


Bonds may suck compared to equities on returns but they do buy sleep at night and keep me from doing stupid things.

+1

This board is often a prime example of recency bias when it comes to bond funds.

 

[audreyh1]

What 2008 showed was that credit quality matters with bonds during a financial crisis driven recession. During a credit crisis corporate bonds can be hit hard due to increased default risk concerns. Venerable funds like DODIX got hit hard but it was for a brief period and recovered very quickly, much faster than equities. Higher credit quality bond funds with plenty of govt debt held steady or even appreciated.

IEF -Intermediate treasury fund- zigged when S&P zagged in most cases. I still have an intermediate treasury fund that I’m planning to use for rebalancing purposes.


Bonds may suck compared to equities on returns but they do buy sleep at night and keep me from doing stupid things.

+1

This board is often a prime example of recency bias when it comes to bond funds.

+2

 

[mathjak107]

IEF -Intermediate treasury fund- zigged when S&P zagged in most cases. I still have an intermediate treasury fund that I’m planning to use for rebalancing purposes.


Bonds may suck compared to equities on returns but they do buy sleep at night and keep me from doing stupid things.

looking at treasuries they really have no see saw link with equities for the most part .

different underlying economic conditions produce different results


the correlation between stocks and treasury bonds in the
1970s was 0.51
1980s was 0.32
1990s was 0.54
2000 to 2009 was -0.83, and
40-year period from 1972-2011 was 0.06.

 

[RobLJ]

At age 46. I still have no bonds in my portfolio. I am not sure if I should have some in the future?

I was 90-95% stocks at your age. I ran some extrapolations when I was 2 years older, realized a good retirement could be had, and then cranked back to 67-30-3. Then 2008 hit. Timing is a form of luck. But when I hear the 100% stock people, I kind of flash back to 2008 and the what-ifs. Better to be lucky than good, I guess.

If you have a huge margin of success, there isn't anything wrong with 90-100% stocks, which is the case of a good number of posters here; they aren't wrong. That wasn't my case and I'm glad I didn't listen to them. If I would have been 100% stock in 2008, I would not have early retired. With a different sequence of years/time, that of course would be different, perhaps I would be spending 20-30k more a year. But reducing risk as you get closer to achieving your goal is not the worse path. But no-one knows.

 

[F.I.R.E User]

I was 90-95% stocks at your age. I ran some extrapolations when I was 2 years older, realized a good retirement could be had, and then cranked back to 67-30-3. Then 2008 hit. Timing is a form of luck. But when I hear the 100% stock people, I kind of flash back to 2008 and the what-ifs. Better to be lucky than good, I guess.

If you have a huge margin of success, there isn't anything wrong with 90-100% stocks, which is the case of a good number of posters here; they aren't wrong. That wasn't my case and I'm glad I didn't listen to them. If I would have been 100% stock in 2008, I would not have early retired. With a different sequence of years/time, that of course would be different, perhaps I would be spending 20-30k more a year. But reducing risk as you get closer to achieving your goal is not the worse path. But no-one knows.

Unless you had a Pension you could live on for few years until market recovered. So what was your Bonds exposure in 2008?