Equity dividends tend to be relatively stable, but the P/E multiples for equities fluctuate much faster than bond yield does. It is often the fluctuating P/E multiples that lead to bonds outpacing equities during equity P/E contraction periods.
The value of Stocks
- Thread starter jefipius
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Equity dividends tend to be relatively stable, but the P/E multiples for equities fluctuate much faster than bond yield does. It is often the fluctuating P/E multiples that lead to bonds outpacing equities during equity P/E contraction periods.
unclemick
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Cap gains/losses also occur in bond FUNDS as well as yield. So a bond held to maturity if it doesn't default has no cap gain/loss. Bond funds are a different animal. In some cases you want interest to rise for longer durations.
cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
My understanding (a nebulous statement on its own) is that bond funds held for the average duration of the bonds held have roughly the same "nav stability" as a bond of the same duration held separately. Rising interest rates also create a rise in dividend yield as new bonds are added.
Hence bond funds held for long periods of time (3 years for short, 10 years for intermediate, 20-30 for long term) should produce comparable "price protection" to owning the same duration bonds, and the yields will slowly ebb and flow with interest rates.
So owning bonds directly makes sense if you put enough dough into them to diversify and rates are good. Buying a bond fund is a good idea if you dont have the money to diversify, you think rates will rise, and you dont intend on selling for the length of the funds average duration as protection from short term NAV dents due to daily bond fluctuation. Oh yeah, and if you dont mind losing a quarter of a percent of dividend yield for the convenience.
Hence bond funds held for long periods of time (3 years for short, 10 years for intermediate, 20-30 for long term) should produce comparable "price protection" to owning the same duration bonds, and the yields will slowly ebb and flow with interest rates.
So owning bonds directly makes sense if you put enough dough into them to diversify and rates are good. Buying a bond fund is a good idea if you dont have the money to diversify, you think rates will rise, and you dont intend on selling for the length of the funds average duration as protection from short term NAV dents due to daily bond fluctuation. Oh yeah, and if you dont mind losing a quarter of a percent of dividend yield for the convenience.
