(It's always nice to read a little confirmation bias, but I don't think there are many comments like this about high-bond portfolios.)
Roy Weitz posted these thoughts on his monthly FundAlarm Highlights & Commentary:
"This is the seventh year in a row that I don't show any bond funds in my portfolio and, from time to time, FundAlarm readers ask me why I've left such a gap......
In general, I feel that bond fund managers don't do a great job managing interest rate risk, which means that bond funds often suffer during periods of rising interest rates (like now).....
Bond funds also help cushion the bumps in a portfolio, which are typically caused by stock funds.....But if you can handle the bumpy ride that comes with owning an all-stock fund portfolio -- and I think I can -- then bond funds don't serve much purpose.....
Another reason for taking a pass on bond funds is suggested by Canadian finance professor Moshe Milevsky.....I can't say that I knew about Milevsky's work before I stopped owning bond funds, but what Milevsky says makes sense......Basically, Milevsky believes that each person's human capital -- which he defines as the present value of future earnings, net of income taxes and expenses -- should be viewed as an asset class, and considered in every personal portfolio allocation......
A person who has a relatively secure job (and I'm fortunate to be in that category, I think) can look forward to an assured income stream for a predetermined number of years, which is essentially the description of a high-quality bond.....In a sense, people with secure jobs are bonds, and if they add traditional bonds or bond funds to their portfolios they risk being too heavily invested in that category.....
On the other hand, people who work in volatile industries, like technology or finance, are more like growth stocks, and a generous helping of traditional bonds (or bond funds) could help dampen volatility and diversify their portfolios.....
Milevsky is still refining his concept of human capital by profession and asset category, to the point where he'll be able to describe a tenured university professor (for example) as "70% inflation-indexed bond, 30% nominal bond".....We're not sure that this level of precision will do much to help the average investor.....But Milevsky's big-picture insight is a good one, and relatively easy to understand: Each investor's employment situation should be considered as part of his or her portfolio design.
"Gauging whether a client is a stock or a bond," Rick Miller, InvestmentNews, February 7, 2005; an introductory article by Milevsky ("Is Your Client a Bond or a Stock?") can be found at http://www.ifid.ca/pdf_newsletters/NL_AE2003NOV.pdf"
(Edited to correct the last URL.)
Roy Weitz posted these thoughts on his monthly FundAlarm Highlights & Commentary:
"This is the seventh year in a row that I don't show any bond funds in my portfolio and, from time to time, FundAlarm readers ask me why I've left such a gap......
In general, I feel that bond fund managers don't do a great job managing interest rate risk, which means that bond funds often suffer during periods of rising interest rates (like now).....
Bond funds also help cushion the bumps in a portfolio, which are typically caused by stock funds.....But if you can handle the bumpy ride that comes with owning an all-stock fund portfolio -- and I think I can -- then bond funds don't serve much purpose.....
Another reason for taking a pass on bond funds is suggested by Canadian finance professor Moshe Milevsky.....I can't say that I knew about Milevsky's work before I stopped owning bond funds, but what Milevsky says makes sense......Basically, Milevsky believes that each person's human capital -- which he defines as the present value of future earnings, net of income taxes and expenses -- should be viewed as an asset class, and considered in every personal portfolio allocation......
A person who has a relatively secure job (and I'm fortunate to be in that category, I think) can look forward to an assured income stream for a predetermined number of years, which is essentially the description of a high-quality bond.....In a sense, people with secure jobs are bonds, and if they add traditional bonds or bond funds to their portfolios they risk being too heavily invested in that category.....
On the other hand, people who work in volatile industries, like technology or finance, are more like growth stocks, and a generous helping of traditional bonds (or bond funds) could help dampen volatility and diversify their portfolios.....
Milevsky is still refining his concept of human capital by profession and asset category, to the point where he'll be able to describe a tenured university professor (for example) as "70% inflation-indexed bond, 30% nominal bond".....We're not sure that this level of precision will do much to help the average investor.....But Milevsky's big-picture insight is a good one, and relatively easy to understand: Each investor's employment situation should be considered as part of his or her portfolio design.
"Gauging whether a client is a stock or a bond," Rick Miller, InvestmentNews, February 7, 2005; an introductory article by Milevsky ("Is Your Client a Bond or a Stock?") can be found at http://www.ifid.ca/pdf_newsletters/NL_AE2003NOV.pdf"
(Edited to correct the last URL.)