*Investors Blog*

[Pablo]

My bond investments have not been good. They still haven't recovered from the big drop a few years ago. I keep about 25% in cash and bonds though sometimes I wonder why.

I guess I'll know the next time the equity markets "go South". I don't think bonds helped very much last time.

Lots of people found out about a rising rate "environment". Many (here as well) got creative and bought preferred stocks cheap, inverse funds, all in for short term bonds and bond funds. I've done just OK even when some stupid fund choices (that's on me) dragged my performance down like a 2 metric ton anchor on a 7 foot dinghy.

I think the 10yr USA rates spiking - there may be some small opportunities was the reason I mentioned it for the older folks.

I don’t think bonds/cash are supposed to ever fully recover themselves. Inflation eats them up. You are supposed to recover them by rebalancing with some of your gains in equities. Like replenishing emergency saving after using it. It’s there for stability and to realize gains. Not for growth potential. Well at least how it use it anyways.

One other thing I learned from my dad, buying good individual bonds and holding to maturity won't make you rich (well it did him, oddly enough) but it won't burn you either. That said again, yes NOT for the younger folks here.

Hey @Pablo I just looked up Everson, Washington. We live a bit South of you, and over a bit, but we're practically neighbours.

I figured.........but south of us? you indeed are really close!

 

[Astro14]

Bonds have been problematic for a decade or more. Low ROI, and a potential loss in value when interest rates rise. They’re just unattractive and have been for a while. Difficult for folks wanting a fixed income position in a portfolio. Dividend paying stocks are a better bet, for most people, rather than locking in a low yield with potential loss. This is part of why the stock market has done so well over the past decade - where else can you reasonably put your money?

 

[Pablo]

Bonds have been problematic for a decade or more. Low ROI, and a potential loss in value when interest rates rise. They’re just unattractive and have been for a while. Difficult for folks wanting a fixed income position in a portfolio. Dividend paying stocks are a better bet, for most people, rather than locking in a low yield with potential loss. This is part of why the stock market has done so well over the past decade - where else can you reasonably put your money?

You meant to write bond FUNDS.

Good bonds (not FUNDS), yes value may fall or rise. But held to maturity, are a stabilizer and decent source of income.

This is not putting down, or even comparing to stocks. It's just a fact. No argument. Lots of people lose money with stocks and stock funds too - especially those trying to chase yield - but for anyone under 55 or so and in a true accumulation phase, there really is indeed no reason to buy bonds, or especially bond funds. I was pretty clear on that or so I thought.

 

[Astro14]

Please allow me to add that we sidestep this bond conundrum in two ways:

1. We own dividend paying stocks, e.g. DUK, MO, PM, CAT and others.
2. We have pensions, earned through military service.

The pensions are, quite literally, fixed income.

So, we already have a fixed income allocation in our portfolio, and it’s enough of the overall allocation that our remaining investment allocation is all equities with just a bit of cash (dry powder for the next purchase, or room for liquidation if we need it).

In another thread, I stated that I wouldn’t count a car as part of net worth, but I would absolutely count a pension as such. Pretty easy to apply the 4% rule and come up with a value of a pension.

E.g. I get $12,000/year from a pension. The portfolio balance I would need to generate that would be $300,000. (0.04 x 300,000 =$12,000) So, my pension would reasonably be considered as being worth $300,000.

 

[Astro14]

You meant to write bond FUNDS.

Good bonds (not FUNDS), yes value may fall or rise. But held to maturity, are a stabilizer and decent source of income.

This is not putting down, or even comparing to stocks. It's just a fact. No argument. Lots of people lose money with stocks and stock funds too - especially those trying to chase yield - but for anyone under 55 or so and in a true accumulation phase, there really is indeed no reason to buy bonds, or especially bond funds. I was pretty clear on that or so I thought.

Well, it applies to individual bonds, unless held to maturity.

And that’s really the key point - most bonds are pretty long time horizon. 30 years. Most folks won’t hold them to maturity, most folks own funds, not individual issues, and unless you hold them to maturity, that interest rate risk is very real.

Finally, and this is relevant, I have on my wall at home, two $1,000 War Bonds (sequential numbers) from the Confederate States of America. They’re complete. The bond holder never clipped that January, 1865 coupon.

Owning individual bonds carries specific issuer risk - not all entities who issue bonds will survive long enough for the bond holder to redeem the bond. That risk, the risk of default, should keep most investors out of buying specific bonds. The individual investor, in general, is not equipped to accurately assess default risk.

 

[Pablo]

Well, it applies to individual bonds, unless held to maturity.

And that’s really the key point - most bonds are pretty long time horizon. 30 years. Most folks won’t hold them to maturity, most folks own funds, not individual issues, and unless you hold them to maturity, that interest rate risk is very real.

Finally, and this is relevant, I have on my wall at home, two $1,000 War Bonds (sequential numbers) from the Confederate States of America. They’re complete. The bond holder never clipped that January, 1865 coupon.

Owning individual bonds carries specific issuer risk - not all entities who issue bonds will survive long enough for the bond holder to redeem the bond. That risk, the risk of default, should keep most investors out of buying specific bonds. The individual investor, in general, is not equipped to accurately assess default risk.

You use CSA bonds as an example? OK. Wow. That was interesting.

Your points about income are valid. We have pensions as well, nice income and I agree with your thought process.

I assume you hold cash in different forms, money held for future deployment into ANYTHING. From checking and savings accounts to short term funds that actually do hold all sorts of notes like SGOV, BILS, BUXX, GSST, JPST, VNLA, BOXX and out to FAAA, JAAA, PAAA - There are many 1 yr-5yr-10yr bills and bonds. Most are not 30 year, but yes I'm NOT telling people to buy 30 year bonds. You reply as if I'm telling you to buy LT bonds, You come across as so argumentative to my posts? Why?

I say even if you don't buy bonds and I certainly am not telling EVERYONE they should do so. I mean I can use examples of people buying bonds at peak interest rates and making big money (well at least until redemption), but that's as useless as telling people bonds should be completely avoided. I do think people can and should educate themselves on most all aspects of bonds. Some really good books out there on the subject.

 

[ecotourist]

I figured.........but south of us? you indeed are really close!

View attachment 337515

We're south of the yellow marker on the map, neighbours practically.

 

[Pablo]

We're south of the yellow marker on the map, neighbours practically.

Yes indeed. PM me if in the area, also we've not been on the island for a few years.

 

[Pablo]

Full disclosure.

I own this short term fund stuff: SGOV, BILS, BUXX, GSST, JPST, OBIL, PULS, VNLA, BOXX, FAAA, JAAA, PAAA
Mixed fund stuff: BINC, BNDI, BNDS, TLT, WEA, FBND

And a variety of other mixed preferred stocks and income type funds which serve as excellent anchors (volatility smoothing) to my otherwise stock/stock fund portfolio.

 

[JRHAWK9]

As someone who is, admittingly, not exactly knowledgable on the investing side of things. About 15 years ago I just looked at our companies 401K prospectus and picked one that had low fees and decent returns and went with it. I have not changed it since. These are the returns of my 401K the past 5 years. and YTD. I'm assuming these are good returns. If so, this is proof that a blind squirrel can find a nut once in awhile. LOL

 

[Pablo]

As someone who is, admittingly, not exactly knowledgable on the investing side of things. About 15 years ago I just looked at our companies 401K prospectus and picked one that had low fees and decent returns and went with it. I have not changed it since. These are the returns of my 401K the past 5 years. and YTD. I'm assuming these are good returns. If so, this is proof that a blind squirrel can find a nut once in awhile. LOL

View attachment 337533

You are smarter than you know!

 

[ecotourist]

I've made actual folding money on fixed income twice in my life.

When interest rates were very high, I bought 20 and 25 year strip coupons that paid 10 1/4% and 10 1/2% compound interest. A strip coupon pays nothing until the day it comes due, compounding interest the whole time. I sold them about half way through the term at a massive capital gain. Strip coupons are very risky but I bought them at a really good time. I didn't know what I was doing. I was just lucky.

The second time was another time I didn't know what I was doing. When I started investing (about 1980) I didn't know what percentage to put in fixed income. After some deliberation (as a 30 year old) I put 50% in bond funds. Crazy I know but I didn't know any better. Interest rates were high back then and slowly declined over the next 25 or 30 years. Declining interest rates are good for bonds. Even with all the bumps and starts I made out quite well, nearly as well as if I had been in equities actually.

I don't recommend investing when you don't know what you're doing but both of these crazy fixed income moves worked out pretty well for me.

 

[Pablo]

As someone who is, admittingly, not exactly knowledgable on the investing side of things. About 15 years ago I just looked at our companies 401K prospectus and picked one that had low fees and decent returns and went with it. I have not changed it since. These are the returns of my 401K the past 5 years. and YTD. I'm assuming these are good returns. If so, this is proof that a blind squirrel can find a nut once in awhile. LOL

View attachment 337533

Have you been increasing your 401K and other savings % over these years? Paid off well for me. It hurts for awhile (like 1 paycheck!) All raises, in the pot!!

 

[Pablo]

I've made actual folding money on fixed income twice in my life.

When interest rates were very high, I bought 20 and 25 year strip coupons that paid 10 1/4% and 10 1/2% compound interest. A strip coupon pays nothing until the day it comes due, compounding interest the whole time. I sold them about half way through the term at a massive capital gain. Strip coupons are very risky but I bought them at a really good time. I didn't know what I was doing. I was just lucky.

The second time was another time I didn't know what I was doing. When I started investing (about 1980) I didn't know what percentage to put in fixed income. After some deliberation (as a 30 year old) I put 50% in bond funds. Crazy I know but I didn't know any better. Interest rates were high back then and slowly declined over the next 25 or 30 years. Declining interest rates are good for bonds. Even with all the bumps and starts I made out quite well, nearly as well as if I had been in equities actually.

I don't recommend investing when you don't know what you're doing but both of these crazy fixed income moves worked out pretty well for me.

One of my lucky smart moves during C-19 was allocating a HUGE (risky!!!) % (think millions) of my retirement savings to some "too big to fail" preferred stocks that needlessly were in the toilet. One of those every bone in my body and brain knew the market was wrong moves that happen very infrequently. (same with the flash crash) . I still own a couple, sold most. Large niceness.

 

[JRHAWK9]

Have you been increasing your 401K and other savings % over these years? Paid off well for me. It hurts for awhile (like 1 paycheck!) All raises, in the pot!!

I've been doing Roth IRA contributions and also hi yield savings account contributions in addition to 401K.

 

[Pablo]

I've been doing Roth IRA contributions and also hi yield savings account contributions in addition to 401K.

Just keep increasing and use the (55?+) catch-up clause max as well when you get there. I don't advise my wife on investment choices and she chose two funds like yours on her own (sort of a diversification thing for us as a couple). OK I did tell her to max out saving in every way because, well because we lived on my income alone for years (during kids) and hers was best best saved.

Very cool to see you on a great path. I suppose things like this shouldn't make you "feel good", but they do. I have a couple accounts that I don't watch that closely and when I check the balances, it's usually pretty pleasant! (Pablo don't meddle so much!!)

 

[ecotourist]

One of my lucky smart moves during C-19 was allocating a HUGE (risky!!!) % (think millions) of my retirement savings to some "too big to fail" preferred stocks that needlessly were in the toilet. One of those every bone in my body and brain knew the market was wrong moves that happen very infrequently. (same with the flash crash) . I still own a couple, sold most. Large niceness.

I made a similar move during the early Covid pandemic. Shell Oil stock was down, down, down so much that the resulting high dividend looked like a warning. I couldn't imagine Shell Oil failing so I bought some. That stock has since recovered nicely resulting in a large capital gain. I should have bought more!

It would be nice if my "good ideas" worked out more often. Like a lot of investors I remember the ones that work out and don't talk about the rest.

 

[Pablo]

Writing above, seems like yesterday to me, I mentioned The Flash Crash.

2010. Yesterday!

https://en.wikipedia.org/wiki/2010_flash_crash
https://corporatefinanceinstitute.com/resources/equities/2010-flash-crash/

I was sitting at my work desk, not checking the market too much, but all of a sudden, death dive. Quick told my buddies at work. It was quick. But what USUALLY gets me in trouble (buying too soon, lack of patience) - despite this I threw a bunch of cash in. BINGO. I held most all those index funds that basically I scored at a great sale price. You can't time the market, you can't know where the tops and bottoms are and certainly can't sit on cash or cash equivalents (see above) if you are under 50-55 or so (I was 52) or you risk definite underperformance. Maybe the lesson (for me even today) is don't fear the dips, but sometimes "singularities" happen.

I've had a few.

I can talk of my losers. Of course we all except @Zee09 have had our downers. LINE and SDRL were my worst all time picks, I readily admit. Threw good money after bad. So stupid and cost me probably $50K all totaled. I ignored the risk, the signs, I chased yield. There was one other, the grocery delivery company years ago. WEBVAN! That cost me $5K or so. Dot.com bust, gone. 2001.

 

[Zee09]

I escaped death this morning as I dumped last night...it dropped to a $1.18 record low...I did get back in again...lol

 

[ecotourist]

As this market goes along I'm getting worried. People think down days are just dips on the way up. From long experience, I know it isn't always so.

So I'm holding to my asset allocation plan quite rigidly - 30% cash and bonds, 25% Canadian equity, 25% US equity, 20% International equity. That means I keep selling the stuff that has gone up and investing in the stuff that's falling behind.

We live very comfortably on our pensions, so our investments aren't critical. If they were, at my age, I'd be cutting back on the equities and buying more fixed income - which has gone nowhere lately. After taxes and inflation, I doubt fixed income even breaks even. But safe, yes. So I have the luxury of being seriously over-invested in equities - for someone my age that is.