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I'm going to buy some bonds - am I insane?

Including Financial Independence and Retiring Early (FIRE)
AWOL
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Re: I'm going to buy some bonds - am I insane?

#490181

Postby AWOL » March 30th, 2022, 3:29 am

absolutezero wrote:What are bonds going to give you that cash* doesn't?

*Cash = anything cash like - cash, bank deposit, savings accounts, Premium Bonds etc


Bonds give the potential to benefit from falling rates. However in a rising rate environment they give the opposite which is why i don't good any and if i did i would certainly not want a bond fund.

There is a reason short dated bond funds are popular at the moment, it is because they are a cash proxy. However if your platform allows it i would good cash. I hold premium bonds as a buffer. Cash gives optionality in return for inflation risk.

If you want to bet against the Fed then bonds and bond funds are the way to go. You may even be lucky.

I wouldn't ask about whether bonds have been better than cash (they have) but will cash beat bonds if the bond really era is over and we are in a rising rate and value period for the markets.

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Re: I'm going to buy some bonds - am I insane?

#490182

Postby AWOL » March 30th, 2022, 4:16 am

*good should read hold, damn autocorrect

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Re: I'm going to buy some bonds - am I insane?

#490213

Postby absolutezero » March 30th, 2022, 9:15 am

AWOL wrote:I wouldn't ask about whether bonds have been better than cash (they have) but will cash beat bonds if the bond really era is over and we are in a rising rate and value period for the markets.

This is the point.
Whether bonds have been any good not is irrelevant. What matters is whether you think they WILL be any good.

In my view, I don't see what upside bonds have compared to cash.
(Unless index linked and the indexing bears any reality to the actual inflation rate and you can buy them at a price that will allow you to enjoy that return.)

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Re: I'm going to buy some bonds - am I insane?

#490235

Postby 88V8 » March 30th, 2022, 10:01 am

farwide wrote:I think I've decided to buy into a bond fund for the first time. Am I insane?

Fixed interest may be OK provided, first, that you can recycle the income into more Fixed Interest.
And secondly, that you live long long enough to reach the bottom, by which time you will have accumulated a huge pile of Fixed Interest paying a stonking yield.
At your age, if you are willing to play that decades-long game, time is on your side.

Not so much on mine, so I am trying to wean myself off buying more Fixed Interest, even though some yields look attractive. I should say that my FI portfolio has been Prefs, Pibs, a few corp bonds, and more recently some ITs.

One's tax position is also relevant; trying to generate positive TR by offsetting a falling SP with taxed income is not such a great idea.

V8

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Re: I'm going to buy some bonds - am I insane?

#491264

Postby vand » April 3rd, 2022, 3:23 pm

Over the years that I have studied the literature for retirement (and to vehemently disagree with one of the previous post suggesting dropping your small gold allocation), I have generally formed the conclusion that 75/15/10 stocks/bonds/gold is very hard to beat in terms of a being a simple yet effective asset allocation for a passive drawdown portfolio. The small allocation to gold has served as the life boat that kept the portfolio afloat during the time periods where all traditional stock/bond mixes have struggled, and this holds true if you are talking about 100/0 modified to a 90/0/10 or a 0/100 modified to a 0/90/10.

One can play with cFiresim to try verify or disprove this
Some common base asset allocations modified with the gold allocation:
Stocks Bonds  Gold	Success Rate
100 0 0 95.04
75 25 0 95.87
60 40 0 95.04
0 100 0 47.11

90 0 10 99.17
70 20 10 99.17
55 35 10 98.35
0 90 10 50.47


based on 4% initial WR, adjusting with historical CPI over a 30yr drawdown

https://cfiresim.com/

For fans of cash... sorry, but it has no place in my portfolio AA because there is no historic timeframes where an allocation to cash would have improved your success rate.

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Re: I'm going to buy some bonds - am I insane?

#494035

Postby Jon277 » April 13th, 2022, 3:42 pm

I'm interested in this topic - and like OP keep thinking I must be missing something.

Yet whenever I look at the numbers they never really stack up - in some instances they are marginally better than cash, but it's pretty marginal. If investing for the long term as I assume many are then there are bettter options - buying more pension, paying off more mortgage, or even index trackers.

I just can't see what the appeal is here - the example given higher up this thread had a gross yield last year of 1.35%

Happy to be corrected....

Jon

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Re: I'm going to buy some bonds - am I insane?

#495277

Postby Gilgongo » April 19th, 2022, 7:20 pm

Jon277 wrote:If investing for the long term as I assume many are then there are bettter options - buying more pension, paying off more mortgage, or even index trackers.


I think (as the OP says) the thinking is that bonds provide a "smoothing" effect on a mixed portfolio - if a mixed portfolio is what you think is best of course. So it's not about growth, it's about hedging your bets really. And from what I can tell, cash is seen to have too much "smoothing" in the sense that it's not negatively correlated to stocks in the way that bonds are - if you believe that bonds will in fact be so correlated in the future.


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