Bonds Suc&k...

[RobLJ]

I'm kind of the reverse of the OP, in that for a long time we (DW and I) had a portfolio of 85-90% mutual stock funds, until I got close to 50 in 2007, realized we were doing well, changed to 70-30 and then....... the 2008 crash happened. If I hadn't been getting older, I probably wouldn't have changed much. I was lucky.

I will say that the next 3 years are likely, but not assured, of being relatively good for bonds, rather diametrically opposite to the 2022 with the Fed hike. All of this pales next to the Volker raise, but then I had no money whatsoever back then in early 1980s. It was good to have bonds when the Fed started lowering rates. But I had no money; was just barely making it in graduate school.

 

[kgtest]

How do you win?

Since I started investing at age 22 in 1987 I have been preached to include bonds as a part of my portfolio. Now at age 59 I am supposed to have about 40% of my money in bonds.

The 10 year rate of return for bonds is 1.61. SP 500 is 12.58.

So 40% of my portfolio is a boat anchor. I realize the SP 500 funds are more volatile. But not as risky over 5 or more years.

I think bond issuers are laughing at people who buy them. I knew a wealthy, wise old man tell me "If you like a business enough to buy their debt....you should buy their equity instead."

You buy a bond at a nice interest rate. Rates go down and they call in your bond. You buy a bond and rates go up and you're stuck with a lower performing fixed income instrument. Neither are FDIC insured and when a company declares bankruptcy does anyone know when a bond holder actually collected more than a stockholder? Down the drain is down the drain..... Bond or stock.

For those that need fixed income I'd recommend VG MM fund. 5% plus is pretty darn good.

I know many, many people who have gotten wealthy investing in stock equities and real estate. Not a one by investing in bonds.


My rant on bonds is over. I'll duck now.

I agree. Bonds suc%K and they are not and have not been part of my investing strategy. I am still accumulating. But for reference, my DF is 72 and he does not own any bonds either.

 

[Time2]

there are no rules that require you to buy bonds or hold 40%. There are no rules.

At 68 yrs old, I don't have any bonds. The only bond fund I ever owned was a few years with a minimal $10k or so.

 

[njhowie]

I agree. Bonds suc%K and they are not and have not been part of my investing strategy. I am still accumulating. But for reference, my DF is 72 and he does not own any bonds either.

I am 59, have the 99% bond portfolio, and loving it.

 

[sengsational]

Having a "bond" allocation allows me to buy equities when they go on sale, but I'm not at all likely to be forced to sell my equities at a low point to fund living expenses.

 

[Onda]

100% equities require 2 things:
1) Stomach to handle ups and downs.
2) Ability to survive on dividends only during a down cycle.

Not many people can do it.

 

[WhenIsItTime]

I'm kind of the reverse of the OP, in that for a long time we (DW and I) had a portfolio of 85-90% mutual stock funds, until I got close to 50 in 2007, realized we were doing well, changed to 70-30 and then....... the 2008 crash happened. If I hadn't been getting older, I probably wouldn't have changed much. I was lucky.

I will say that the next 3 years are likely, but not assured, of being relatively good for bonds, rather diametrically opposite to the 2022 with the Fed hike. All of this pales next to the Volker raise, but then I had no money whatsoever back then in early 1980s. It was good to have bonds when the Fed started lowering rates. But I had no money; was just barely making it in graduate school.

Did you need the bond money in 2008?

Following are S&P returns since. Avoiding 2008 was a good thing. I know others who were in accumulation years and got out of equities for too many years. I feel lucky I stayed in at 85% equity.

2023 26.29
2022 -18.11
2021 28.71
2020 18.40
2019 31.49
2018 -4.38
2017 21.83
2016 11.96
2015 1.38
2014 13.69
2013 32.39
2012 16.00
2011 2.11
2010 15.06
2009 26.46
2008 -37.00


Of course, my comments are hindsight.

 

[Chuckanut]

The experienced old investor in me tells me that when everybody is convinced that “Bonds S**k”, it’s probably time to buy medium and long term bonds. Somebody wrote about buying your parkas in Summer and your straw hats in Winter, as I recall.

Not that I would be the farm on them. My Time Machine remains busted.

 

[lawman]

Did you need the bond money in 2008?

Following are S&P returns since. Avoiding 2008 was a good thing. I know others who were in accumulation years and got out of equities for too many years. I feel lucky I stayed in at 85% equity.

2023 26.29
2022 -18.11
2021 28.71
2020 18.40
2019 31.49
2018 -4.38
2017 21.83
2016 11.96
2015 1.38
2014 13.69
2013 32.39
2012 16.00
2011 2.11
2010 15.06
2009 26.46
2008 -37.00


Of course, my comments are hindsight.

While those numbers are impressive it still amounts to less than 10% compound annual growth rate.. CAGR of the Stock Market: Annualized Returns of the S&P 500

 

[GravitySucks]

I know a lot of people who got rich running their own businesess. buying equity. ...in Stocks and real estate. Farm land. SP500 and such. Nobody has told me "I got rich buying bonds!" These people let me loan them money and I WON!!!


Has anyone else ?

Someone once said:

Buy stocks to get rich; Buy bonds to stay rich.

 

[FREE866]

While those numbers are impressive it still amounts to less than 10% compound annual growth rate.. CAGR of the Stock Market: Annualized Returns of the S&P 500

You say that as if it's a bad thing.



Almost 10% during a time of three bear markets, recession , inflation and a worldwide pandemic!

 

[pb4uski]

I've recently been on a buying spree of (mostly) investment grade preferred stocks and have a weighted average yield of about 7%. Interestingly, while I think of preferreds as fixed income, Schwab shows them on my dashboard as equities. The way I look at it if I can get 70% of the historical 10% annual return of US stocks with less volatility then that is good.

P.S. I do have a small amount of US common stock investments and will be expanding that in the coming months as some of my 2024 rung matures.

 

[jldavid47]

A lot of time this kind of thinking is mental accounting. Yes, you may have to sell down equity for living expenses at times but that is a fraction of your total portfolio. The idea is that the previous gains of the equity portfolio outweighs the return of bond/balanced portfolio and hence the "loss" is really not there. The total equity portfolio will be ahead to bond/balanced portfolio after everything is said and done.

If you really believe that, I suggest you read this:

https://www.schwab.com/learn/story/timing-matters-understanding-sequence-returns-risk?cmp=em-XCU

 

[ERhoosier]

No one knows what the future holds.
Quality bonds provide stability of principle and predictable income, which can be very useful for meeting financial obligations due at known point(s) in the future. Having the college fund in 100% equities in 2000 on your kid started school in 2004 did not work out so well. (Sequence of returns risk applies to retirement funds too).

And there have been many rolling decade+ periods where stocks lost money, and no guarantee the US market my not see a 30+ year downturn like the Nikkei did post-1989.
The past is no guarantee of future results.

 

[FREE866]

And there have been many rolling decade+ periods where stocks lost money .

I see comments like this and I just shake my head.
Please list the “ many decade + periods” where stocks have lost money.

 

[WhenIsItTime]

While those numbers are impressive it still amounts to less than 10% compound annual growth rate.. CAGR of the Stock Market: Annualized Returns of the S&P 500

My point was it seems to be clearly stronger than bonds during the same period.

Give me 6% forever and I'll . 3% and I

 

[WhenIsItTime]

No one knows what the future holds.
Quality bonds provide stability of principle and predictable income, which can be very useful for meeting financial obligations due at known point(s) in the future. Having the college fund in 100% equities in 2000 on your kid started school in 2004 did not work out so well. (Sequence of returns risk applies to retirement funds too).

And there have been many rolling decade+ periods where stocks lost money, and no guarantee the US market my not see a 30+ year downturn like the Nikkei did post-1989.
The past is no guarantee of future results.

Do you mean "stock" or "stocks"? Curious to know last time the S&P 500 index had a down 10 year period? It recovered between 2000 and 2008 crashes and recovered after great depression w/in 10years. Nearly all 20+ crashes recovered within 3 years.

I agree with your last sentence.

 

[pb4uski]

I see comments like this and I just shake my head.
Please list the “ many decade + periods” where stocks have lost money.

For the S&P 500 with dividends reinvested.

The 10 years ended in 1937, 1938, 1939, 1940, 2008, 2009 had total returns that were less than 0%.

The other thing to consider is also decades where returns have been low which would include the 10 years ended in 1941, 1946, 1974, 1975, 1977, 1978, 2010 and 2011.

https://lederer-associates.com/wp-content/uploads/2018/05/10-Year-Annualized-Rolling-Return.pdf

 

[Phroig]

Bonds and bond funds sucked in 2021-22; that does not equate to bonds suck.

 

[FREE866]

For the S&P 500 with dividends reinvested.

The 10 years ended in 1937, 1938, 1939, 1940, 2008, 2009 had total returns that were less than 0%.

With 2008 and 2009 if you had a diversified stock portfolio of large and small stocks they weren't negative.


Regardless, even examining the “flat” or “down” periods, none saw stocks fall and remain “flat” for 10 years straight. A pure, L-shaped decade never happened. After 1929 – 1932’s monster bear market, stocks soared 324% in price-only terms through 1937. Nor was 2000 – 2009 L-shaped. It was a “flat decade” by chance—by the “chance” of picking the bear market end point to show it. One bull market peaked in the decade’s first year and a bear market bottomed in its last. Both downturns happened to be bigger than average, too. Calling that a “lost decade” glosses over the bull market in between.



I've said this before, could the next ten years be flat? sure, but looking at history the probability is very very low and for me, investing is a probabilities game.

 

[pb4uski]

...Please list the “ many decade + periods” where stocks have lost money.

With 2008 and 2009 if you had a diversified stock portfolio of large and small stocks they weren't negative. ....

Now you're changing the question... you asked about stocks. I gave you information on stocks showing that there were indeed numerous periods when stocks were negative or flat, answering your question. Now you want to change the question.

...Regardless, even examining the “flat” or “down” periods, none saw stocks fall and remain “flat” for 10 years straight. A pure, L-shaped decade never happened. After 1929 – 1932’s monster bear market, stocks soared 324% in price-only terms through 1937. Nor was 2000 – 2009 L-shaped. It was a “flat decade” by chance—by the “chance” of picking the bear market end point to show it. One bull market peaked in the decade’s first year and a bear market bottomed in its last. Both downturns happened to be bigger than average, too. Calling that a “lost decade” glosses over the bull market in between. ...

Shape doesn't have anything to do with it... if for a 10 year period total return of the S&P 500 is zero or less then it qualifies. Again, you are are changing the question. From Jan 1, 1999 to Dec 31, 2008 the S&P 500, with dividends reinvested, had a total return of -1.49%. VTI was -0.66%. It wasn't L-shaped... it was up-down-up-down.. but for that particular decade the total return was negative. Again now you are wanting to change the question.

.... I've said this before, could the next ten years be flat? sure, but looking at history the probability is very very low and for me, investing is a probabilities game.

I agree that it is unlikely that the next 10 years will be negative or flat, but it might well be lower than the historical average.

 

[FREE866]

Now you're changing the question... you asked about stocks. I gave you information on stocks showing that there were indeed numerous periods when stocks were flat, answering your question. Now you want to change the question.



Shape doesn't have anything to do with it... if for a 10 year period total return of the S&P 500 is zero or less then it qualifies. Again, your are changing the question. From Jan 1, 1999 to Dec 31, 2008 the S&P 500, with dividends reinvested, had a total return of -1.49%. VTI was -0.66%. It wasn't L-shaped... it was up-down-up-down.. but for that particular decade the total return was negative. Again now you are wanting to change the question.



I agree that it is unlikely that the next 10 years will be negative or flat, but it might well be lower than the historical average.

I wouldn't say I'm "changing the question"...I'm just offering a different way to look at it. I don't only look at S and P. And I don't look at 2 time frames since 1940 as "numerous" either. I think making investment decisions based on fear of what has happened historically very little of the time is unwise.

 

[Route246]

Agree bonds in general are not for me. I prefer zero coupon treasuries held to maturity.

 

[pb4uski]

I wouldn't say I'm "changing the question"...I'm just offering a different way to look at it. I don't only look at S and P. And I don't look at 2 time frames since 1940 as "numerous" either. I think making investment decisions based on fear of what has happened historically very little of the time is unwise.

No, you ARE changing the question because you made an erroneous postulation and were proven wrong with facts. So rather then say something like... ah, I didn't know that... you changed the question.

You said "Please list the “ many decade + periods” where stocks have lost money." I provided some information that there were indeed numerous decades where stock total returns have been negative and others decades where stocks total retuns have been low. It doesn't matter whether it was L shaped or not or whether you include just the S&P or all stocks since the result will be the same.

I don't see anywhere that anyone was making investment decisions based on fear... it was just an observation that happens to be a factual observation.
If you have evidence that anyone was suggesting not investing in stocks today because there have been some decades of negative or flat stock returns then put up the quotes. There was an observation made and you posted a rant that was off-base... it's just that simple.

 

[pb4uski]

You relied on a salespersons promise? You thought a 9% return was safe and reliable? It’s fine to think bonds suck and exclude them but painting with such a broad brush usually is not constructive. I love my non callable bonds paying 4-7% because the income is reliable for a few years expenses. I don’t need to worry about selling stocks in a down market.

Please give us more information on a non callable bond paying 7%.

There are numerous corporate bonds in the 4-7% range that, while technically callable, the first call is only a couple months before maturity so they aren't really callable for all intent and purposes. I think they include these short call provisions to make it easier when an issue matures and they refinance it.

I did find one investment grade issue that did recently trade at 7%... 74348TAW2 Prospect Capital Man 3.437% 10/15/2028 Callable which is "Callable in whole or part Daily beginning 08/15/2028 with 30 days notice."

But there are many investment grade issues maturing in 2028 that are yielding between 5.5% and 6.0%.

I have a portfolio of 23 corporate bonds, all investment grade or better and over half A rated or better that have a weighted average yield of 5.64%.