Permanent Portfolio Forum
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https://www.gyroscopicinvesting.com/forum/viewtopic.php?t=4533
If I were inclined to risk money on a speculation, which is what owning individual securities of any kind other than treasuries is, I think I would look for something where I had a chance to hit a home run or maybe even a grand slam. But that's just me.1NV35T0R (Greg) wrote: The question also comes to how likely is it that the individual bond will default. I know there are tables for this, but you could potentially cross your fingers and chase for that luscious yield...mmm...
You could also use 10 year treasury notes to get a little bit of yield. In other words, you might keep 1/2 of your cash in T-bills and the other half in 10 year notes (as long as you have enough in T-bills to use in an emergency situation).1NV35T0R (Greg) wrote: What do people think for a younger 1NV35T0R with a long time horizon to make their cash-section a little more risky. I was thinking perhaps of purchasing short term (<5 year to maturity) for corporate bonds and holding them to maturity. You could then create a corporate bond ladder for maturities as well. Any thoughts on this?
There's a couple of threads where this was brought up before, search for 'em. But my two cents is what you think is the wrong way to look at corporate bonds, irregardless of the grade. They are a Prosperity kicker not Tight Money and right now yields are so low for the risk, they are simply not worth doing unless you have the skill or advisor to pick out individual bonds as they become available and have enough capital to adequately diversify. The default rate went up to about 15% with about a 50% loss after recovery during the 2008-2009 crisis so adequate diversification by sector is prudent. The problem is you'll be lucky to find several bonds paying a yield commensurate with the risk right now, so you'll still be mostly in cash allocated to it. Corporate bond funds are a waste of time because they are so diluted, the yield is not worth the perpetual duration with no guarantee of your principal getting back by a specific date. However, I like the BulletShares ETF's even if the yields are a bit low.1NV35T0R (Greg) wrote: What do people think for a younger 1NV35T0R with a long time horizon to make their cash-section a little more risky. I was thinking perhaps of purchasing short term (<5 year to maturity) for corporate bonds and holding them to maturity. You could then create a corporate bond ladder for maturities as well. Any thoughts on this?
Vanguard Wellesley invests 65% in investment grade corporate bonds and the other 35% in dividend paying stocks - and returned 10.5 percent over the past three years.Ad Orientem wrote: I have to agree with MG. The US corporate bond market right now is about as unattractive in terms of risk reward as I can ever remember. If you want to speculate in bonds I would look outside the US.
I don't really consider VWINX to be speculative. It's very conservative and it holds stocks. That said if/when interest rates and or inflation start to rise it could take a nasty hit. But for a 401K if that's an available choice I would be fine with it.notsheigetz wrote:Vanguard Wellesley invests 65% in investment grade corporate bonds and the other 35% in dividend paying stocks - and returned 10.5 percent over the past three years.Ad Orientem wrote: I have to agree with MG. The US corporate bond market right now is about as unattractive in terms of risk reward as I can ever remember. If you want to speculate in bonds I would look outside the US.
I just rolled a Roth IRA out of my PP and into this fund and will call it my Variable Portfolio. Based on the subject of this thread can someone tell me that this was a bad decision.
Ad Orientem wrote: I don't really consider VWINX to be speculative. It's very conservative and it holds stocks. That said if/when interest rates and or inflation start to rise it could take a nasty hit. But for a 401K if that's an available choice I would be fine with it.
You need to distinguish between investment grade which is a general waste of time on a net basis and high yield which goes in and out of extreme [over/under]valuations. As well as holding individual bonds vs a bond fund. A bond fund is riskier because it has a perpetual duration. There's no way to guarantee your principal for reinvestment purposes. Say you wanted to minimimze your exposure to raising interest rates, then you would want to have a 5-7 year corporate bond ladder not a bond fund. The catch is you probably need more than 5-7 individual bonds for adequate diversification unless you were stick to triple AAA or other investment grade yields that don't really compensate you for the risk. In other words, look at the BulletShares ETF's and imagine that the yields were higher such as back in 2008-2009 and you had a ladder of them out to 7 years. Perfecto! Even now its hard to see what is wrong with the BulletShares 2013 fund because the yield still seems high compared to everything else and the duration is mega-ultra-short. The problem is these funds have to continually be generated each year so that implies they will buy above par to get the maturity needed, i.e. its not value weighted as opposed to doing it yourself. So this will drag down the return. I believe double digits is the minimum yield to maturity anyone should accept for the risk of high yield bonds. But for getting such wide diversification, BulletShares might be acceptable at cost of lower yield. In the corporate bond market, you cannot wait for bonds to come to your valuation target as with stocks because it is very dynamic and what is offered changes day to day. You never know what will pop up and you have to act immediately because of the general lack of liquidity. It may be hard to stay fully invested without using a fund.notsheigetz wrote: My point was if Corporate Bonds are as bad as most of this thread seems to think why do they do so well - and have for 40 years?
[/align]MachineGhost wrote:You need to distinguish between investment grade which is a general waste of time on a net basis and high yield which goes in and out of extreme [over/under]valuations. As well as holding individual bonds vs a bond fund. A bond fund is riskier because it has a perpetual duration. There's no way to guarantee your principal for reinvestment purposes. Say you wanted to minimimze your exposure to raising interest rates, then you would want to have a 5-7 year corporate bond ladder not a bond fund. The catch is you probably need more than 5-7 individual bonds for adequate diversification unless you were stick to triple AAA or other investment grade yields that don't really compensate you for the risk. In other words, look at the BulletShares ETF's and imagine that the yields were higher such as back in 2008-2009 and you had a ladder of them out to 7 years. Perfecto! Even now its hard to see what is wrong with the BulletShares 2013 fund because the yield still seems high compared to everything else and the duration is mega-ultra-short. The problem is these funds have to continually be generated each year so that implies they will buy above par to get the maturity needed, i.e. its not value weighted as opposed to doing it yourself. So this will drag down the return. I believe double digits is the minimum yield to maturity anyone should accept for the risk of high yield bonds. But for getting such wide diversification, BulletShares might be acceptable at cost of lower yield. In the corporate bond market, you cannot wait for bonds to come to your valuation target as with stocks because it is very dynamic and what is offered changes day to day. You never know what will pop up and you have to act immediately because of the general lack of liquidity. It may be hard to stay fully invested without using a fund.notsheigetz wrote: My point was if Corporate Bonds are as bad as most of this thread seems to think why do they do so well - and have for 40 years?
But also we've been in a disinflationary bond bull for 30 of those years. Look at the performance of bonds between 1940 and 1980 before you make up your mind. It won't look so hot nor be so "conservative" because to get higher returns with investment grade, bond funds have to go to longer and longer durations which then becomes a triple or quadruple whammy under rising inflation. Mom and Pop apparantely don't understand this risk and will get massacred.