odiousgambit
odiousgambit
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January 14th, 2015 at 1:43:38 PM permalink
Do not think bonds carry no risk, and I don't mean risk of default.

Right now I would say the risk of getting creamed in bonds is much higher than in equities. The latter, when slipping in the long awaited correction, probably, as reflected in the Dow, only get down to something like 16,000. Being an active investor with control over my allocations and living through the worst possible time in recent memory for stocks, 2007-8, does give me the confidence to say that should it be worse than that, make yourself start buying for sure [I will be buying before we get to that point myself]

Bonds, on the other hand, if you want to talk about "due", are heading for a much more painful correction.

As for re-balancing, definitely go for it. It'll be the only time you can do market-timing [essentially] and get the blessings of the conservative pundits.

As for the proportion of bonds being equal to your age; I personally don't believe there is a magic formula, and I also think it is too conservative, especially now while they are at such risk and pay crap. I think even in the best of times, assuming your not cashing out big chunks constantly, a case can be made that equities can be no lower than 30% of your portfolio no matter how old you are. In the case of needing big chunks all the time, though, "your age" might work pretty well.
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!” She is, after all, stone deaf. ... Arnold Snyder
Asswhoopermcdaddy
Asswhoopermcdaddy
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January 14th, 2015 at 9:48:20 PM permalink
The interesting thing about bonds is that assuming the issuer is creditworthy and does not default, you get your principal back. A couple of investor presentations came out by Gundlach of Doubleline Capital Mgmt, Gross of Janus, and others that suggest bond prices could continue to appreciate in value. I thought this was an interesting point especially with the expectation that rates are suppose to increase since that is the baseline for the Fed.

Suppose the economy weakens or the Fed holds off further on rate increase, or some global macro event sinks the economy, bonds continue to be default fear trade.

Either way, the market is inflated so invest with caution.
Intheknow
Intheknow
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January 14th, 2015 at 10:07:00 PM permalink
Where am I investing? Not from any suggestions from a Vegas forum. Put it all on black!
RaleighCraps
RaleighCraps
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January 15th, 2015 at 1:20:53 PM permalink
Quote: Asswhoopermcdaddy

The interesting thing about bonds is that assuming the issuer is creditworthy and does not default, you get your principal back. A couple of investor presentations came out by Gundlach of Doubleline Capital Mgmt, Gross of Janus, and others that suggest bond prices could continue to appreciate in value. I thought this was an interesting point especially with the expectation that rates are suppose to increase since that is the baseline for the Fed.

Suppose the economy weakens or the Fed holds off further on rate increase, or some global macro event sinks the economy, bonds continue to be default fear trade.

Either way, the market is inflated so invest with caution.



I'm not sure, but I think this holds true only if you actually buy a true bond. When you invest in a mutual bond fund, one that is buying and selling bonds before they reach maturity, you can lose value. At least this is my limited understanding. How else can you explain how a bond fund can have a -10% yearly return, like many did in 2008?
If they had been holding bonds to maturity, there shouldn't have been a loss, no?

If I have this wrong, please feel free to correct me, as I will be the first to admit I don't fully understand these things.
Always borrow money from a pessimist; They don't expect to get paid back ! Be yourself and speak your thoughts. Those who matter won't mind, and those that mind, don't matter!
RaleighCraps
RaleighCraps
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January 15th, 2015 at 1:24:07 PM permalink
Quote: Intheknow

Where am I investing? Not from any suggestions from a Vegas forum. Put it all on black!



I can understand your post, since you just joined this month.

Spend a year here, and once you understand how intelligent many of the members are here, you will understand why I started this thread. Short of a mensa group, I think you would be pretty hard pressed to come close to the collective IQ that is on this board, and quite frankly, some of the mensa groups haven't really impressed me all that much.
Always borrow money from a pessimist; They don't expect to get paid back ! Be yourself and speak your thoughts. Those who matter won't mind, and those that mind, don't matter!
odiousgambit
odiousgambit
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January 15th, 2015 at 1:33:00 PM permalink
Quote: RaleighCraps

I'm not sure, but I think this holds true only if you actually buy a true bond. When you invest in a mutual bond fund, one that is buying and selling bonds before they reach maturity, you can lose value. At least this is my limited understanding. How else can you explain how a bond fund can have a -10% yearly return, like many did in 2008?
If they had been holding bonds to maturity, there shouldn't have been a loss, no?

If I have this wrong, please feel free to correct me, as I will be the first to admit I don't fully understand these things.



This might be a good one for some "Wizard of Investing" to explain.

Instead you get me LOL.

My limited understanding is that, yes, you can just hold on to the bonds if you own them [rather than funds] and then you can't realize a capital loss, assuming defaults don't happen [I do not do corporate debt myself*]. But apparently you are just kidding yourself. The investor who takes the loss and buys the newer, better issue is presumably better off. Otherwise, why would the bond funds shoot themselves in the foot?

I figure if you can and should realize capital gains with bonds, it must be true that you can and should realize capital losses.

at least I don't think so, the funds aren't described that way. I suppose they could invest in "some". Damn, I really should read those prospectives they send LOL
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!” She is, after all, stone deaf. ... Arnold Snyder
odiousgambit
odiousgambit
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January 15th, 2015 at 1:40:49 PM permalink
Quote: Asswhoopermcdaddy

bond prices could continue to appreciate in value.



I think they will. The 10 yr might hit 1%. I have so much in bonds, though, I am getting out slowly as we approach that.

I picture the 2% threshold as probative. You can get 2% with stock dividends pretty easy. If the 10 yr is going to go lower than 2%, I am going to lower my exposure. There are a lot of buyers just getting treasuries for safety, foreign governments even. In that situation, they don't care what the yield is.

10 year went from about 1.85% yesterday to 1.77% today. I sold some again.

PS: just saw that it settled at 1.726%
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!” She is, after all, stone deaf. ... Arnold Snyder
Asswhoopermcdaddy
Asswhoopermcdaddy
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January 15th, 2015 at 3:36:49 PM permalink
Bond funds can actually hold bonds to maturity and still incur a 10% loss in the interim They have to mark to market and revalue their portfolio every day and changes in interest rates and credit will create fluctuations in portfolio values.

Most people who buy bonds individually on a retail level ignore these daily pricing changes.

To Odiousgambit's point, it is scary to think of a 10yr bond hitting 1%. That means the risk free rate of funding is marginal. How does an investor get compensated for 10yrs worth of risk? There are plenty of alternative investments that have better cash flows than your government issued debt. But then again, when you see stocks dropping 1% a day, bonds are a place to hide.
RaleighCraps
RaleighCraps
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January 15th, 2015 at 7:33:16 PM permalink
Quote: Asswhoopermcdaddy

Bond funds can actually hold bonds to maturity and still incur a 10% loss in the interim They have to mark to market and revalue their portfolio every day and changes in interest rates and credit will create fluctuations in portfolio values.



Thanks for the bond 101 class AWMD (I would have just gone with A$$, but don't want a timeout...... ;-)

So, let's see if I have this right......

Say fund xyz holds 100% of their funding in a 10 yr bond at 2%.
Because they are doing mark to market, the value of their portfolio at the end of year 1 could be down 5%. Therefore I would have 5% less value in my xyz holdings.
Assuming the fund did no buying or selling, over the next 9 years they could have up and down years.
However, at the end of year 10, wouldn't the overall fund have to be in positive territory, at the 2% rate for the bonds they were holding (assuming 0% fees)?
I realize this is not practical, I am just trying to make sure I understand the basic principle of a bond fund.
Always borrow money from a pessimist; They don't expect to get paid back ! Be yourself and speak your thoughts. Those who matter won't mind, and those that mind, don't matter!
Asswhoopermcdaddy
Asswhoopermcdaddy
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January 16th, 2015 at 8:51:06 AM permalink
Quote: RaleighCraps

Thanks for the bond 101 class AWMD (I would have just gone with A$$, but don't want a timeout...... ;-)

So, let's see if I have this right......

Say fund xyz holds 100% of their funding in a 10 yr bond at 2%.
Because they are doing mark to market, the value of their portfolio at the end of year 1 could be down 5%. Therefore I would have 5% less value in my xyz holdings.
Assuming the fund did no buying or selling, over the next 9 years they could have up and down years.
However, at the end of year 10, wouldn't the overall fund have to be in positive territory, at the 2% rate for the bonds they were holding (assuming 0% fees)?
I realize this is not practical, I am just trying to make sure I understand the basic principle of a bond fund.



That is exactly correct. Assuming no buying, selling, redemptions, and only hold to maturity, the fund would be up 2%=your interest at the end of 10yrs. Not very realistic, but that's the jist. Managers need to earn their fees so they will trade, hedge, etc.

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