Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
The only caveat is perhaps when you buy a bond ETF/fund, you cannot control the daily NAV prices and managements can buy or sell as they pleased. Whereas if you buy individualized corp bonds you 'wait' until the bond mature and gets the whole price back; it's nice to get the annual return prior to the sale. I, imho, personally prefer to buy corp bonds. AS long as you pick the 'safer' bonds I think they will mature and you get a nice yields from them. For examples, I've bought Continental airlines 4 yrs ago at 80 cents on dollars [rated BB by sp500], it just matured last Oct, got a nice check back w/ 100 cents, and made 7% annually as well prior to the due date. You need to perform diligent research prior to buying these bonds. If you have Schwab or Edward Jones, they do sometimes have reasonable truthful research articles on these privatized stocks that sometimes are available in bonds in the bonddesk.
Per the original story: Statement #1: "Since most investors buy bonds for income and plan to hold them to maturity, they don't have to worry as much about the market's volatility or increased correlation. They also can buy cheaper illiquid bonds that fund managers avoid.
Statement #2: Many investors can't afford individual bonds or don't have access to them in 401(k) accounts. For them, funds and ETFs are the only alternative."
I will not take the time to discover real numbers regarding the above first statement; but I find it difficult to think that "most investors" buy individual bonds; which is noted with statement number 2.
I won't argue about the overall thoughts of the story; but will remain skeptical about the reported facts. I may be a "whiner" about this; but, it is either me changing or is it that we are finding more articles today that have some facts or numbers thrown into a story, but without any detail as to where or how the writer obtained the reported "facts".
I note this as related to a recent short column in a Detroit newspaper about a new tax law in Michigan. The article I stumbled across had been updated to correct previous errors (although there wasn't any link to the original story to discover what had been corrected); and the updated story still had errors. The writer's short bio indicated they had been writing for the paper, since 2004; and that the writer was a "social maven".......whatever the heck that is supposed to indicate.
I am beginning to wonder how much the "Twitter/Texting" world is finding its way into some writing; not unlike the broad based nightly news on major networks, where snippets are thrown out for a quick bite; but doesn't really do much for knowledge.
Catch, you are on target. It is the triumph of spectacle and sound-bites and snippets rather than literacy, learning and critical thinking. Deep thinking is disappearing. Consumerism used to be thought of as wrong, bad, detrimental and evil. Now, it's taken for granted. We can now do this or that, which the human race has not yet needed, ever since we got here. But we can download an "app" which will remind you to brush your teeth when you get off the plane in Mombasa next Tuesday. Everything tailor-made for my whims. We don't have to truly THINK anymore for ourselves. Thus, the sort of journalism you describe with such skepticism. AMEN. You touched a nerve, guy. But you are CORRECT.
Reply to @catch22: HI Catch...morning. You hit the hammer right on the nail. I do think that holding a diversed ETF/fund portfolio is much less risky than holding just one bond. Also, look at some of NAV of individual bonds around 2008-2009 before you decide which bond or ETFs to buy. This way you may have a better understanding how they perform during downturns. Personally, I would have the 'good's of both world and holding bond ETFs/funds as well as privatized individual bonds make sense for me/my portfolio. Bonds or Bonds portfolio performance are ALWAYS important vehicles to get you toward your investment goals in any portfolio and selling bonds at this juncture does not make much sense. Maybe selling 5 or 10% of portfolio makes sense but getting rid > 30 or 40% does not make sense to me at all.
Hey, Catch, you obviously haven't been paying attention to some of the latest developments brought to us by the wonderful internet technology. Facts for anyone on anything at anytime!
Reply to @catch22: " but I find it difficult to think that "most investors" buy individual bonds; which is noted with statement number 2. "
I would have to agree with you on that. I believe most investors access bonds through mutual funds/ETFs or in some other packaged form. And I think this is especially true in regards to the area they specifically were highlighting "corporate" bonds. Now if this was about Municipal Bonds then I might not be so quick to question it....but I most definitely question it in regards to corporate bonds. It's somewhat sad how little research seems to be done in this age of "reporting".
Reply to @johnN: I think that "diligent research" requirement is a hard thing for many people. I avoid buying individual corp bonds for the same reason I avoid buying individual stocks. If you were to ask me 4 years ago whether Continental Airlines would survive 4 years and be able to pay off a 7% bond, I don't think I could answer that and I certainly wouldn't bet X thousand dollars on it. In my mind I can't see any airline company as "safe" except maybe American and United and I probably wouldn't buy their bonds either. Instead I'm happy to pay Loomis Sayles or Doubleline or whoever to make those decisions for me as part of a diversified portfolio.
While I'm happy to criticize the shallowness and lack of thought that passes for "news" these days, and have certainly done so here, statement #1 is not an example of that. At best (or worst, I suppose) it is an example of poor sentence construction.
How about: Since most investors who buy bonds do so for income and plan to hold the bonds to maturity, they don't have to worry as much about the market's volatility or increased correlation.
The main point of the sentence (original or reformulated) - that if you buy planning to hold to maturity you don't have to worry much about price fluctuations - has merit.
As to whether most people who buy individual bonds buy them for the interest, that's another issue. There is a subtle difference between saying that most people who buy bonds plan to hold them to maturity (which I believe is true, and has certainly been advocated by posters here), and saying that most people who buy bonds do so because they are specifically interested in interest (as opposed to total return, or simply portfolio stability/peace of mind). Bond investors' interest in interest is less obvious. That's where I feel the writing/analysis falls short.
Reply to @Old_Joe: I've had a good laugh at that series of on-demand-truthiness Doones strips, but I've also been thinking it might not be a bad model for a real business, ya know? I mean, you can't rely on Fox to "cover" exactly what you need at the time you need it.
Reply to @AndyJ: Well, I've been known to invent a few "facts" when arguing with my wife, so you might just be right! But those arguments don't count, do they? At least I hope not.
This whole thing is really pretty depressing though. I knew we were in serious trouble many years ago when I first heard the term "true facts". I remember hollering at my wife over the breakfast table "what the hell other kind of facts are there, "false facts"??" Turns out that's pretty much the case. They've taken "fact", a perfectly good word in the English language, and rendered it worthless.
The link between the Fed’s policies and this undeniable effect is too direct and too obvious for anyone, including the Fed’s managers, to overlook or misunderstand. We may only conclude, then, that the Fed’s managers either: 1) want to wipe out the retirees and others who rely heavily on interest earnings, or 2) consider these people’s immiseration an acceptable price to pay in order to achieve other objectives.
It means that investors should not expect more than 2% annualized from your bond allocation over the next five years, UNLESS you are willing to reach for yield via lower quality credit, non-US exposure, or increased duration. It also means that if you have a 60% equity / 40% bond allocation, to reach an 8% all-in annualized return your equity allocation needs to return roughly 12% / year over the next 5 years.
Appreciate the notes and links. Have not visited Carpe Diem for some time; and used to run my writing there once in awhile. As has been noted previous at FA; the assumption that part of the Fed actions was to "force" investors into risk, with investments in equities. Mr. Bernanke currently professes as such today.
The perversion and ironic side of the low rates environment regarding the large sums of monies in CD's and related; and one may assume many of these monies to be with the retired and other senior citizens, is that tax revenue is reduced from these taxable sources of income and those holding CD's and related will not be forced into riskier investments and with the reduced income from the low rates will further tighten their spending belts and spending into local economies.
A most dangerous cycle policy and cycle experiment in modern economic theory.
I continue to feel that, in particular; Mr. Bernanke is deep into his thoughts regarding the history of the big depression and more recent, Japan.
All of this continues to weigh upon our thought processes and where to guide our monies.
On a global scale, which is all intertwined; our house still feels that the balance of where monies travel is still sitting firmly upon the middle, top of the fence and could move and fall to either side without great difficulty. Luck of the draw for where one may be invested at a particular cycle in the next few years; may indeed be only luck; as I do not find conclusive force of power to drive equity or bond markets in strong directions at this time. All of this, in spite of the central banks of the world plowing easy money into place. But, I am not convinced that "don't fight the Fed/central banks" has the same power and/or meaning as it did from only 5 years ago. These tools may indeed have some effect in 5 years.
Obviously, this is only my viewpoint; based upon my limited economic educational background. Our house may totally be out of place with our investments in the next few years.
"Luck of the draw for where one may be invested at a particular cycle in the next few years; may indeed be only luck"
Indeed. In hindsight the majority of my/our good fortune is rightly attributed to luck. Also believe that both lucks, good and bad, play a major factor in life's sorting process, randomness and serendipity...a bad marriage, a failed business, a tragic injury or affliction. Having had countless years of sustained good luck one rightly worries about regression to means...
In investing I've been right for the wrong reasons, wrong for the right reasons, wrong for the wrong reasons (that's real easy to do) and could provide lengthy examples of each. No single investment comes to mind that worked out swimmingly in which I was right for the right reasons. None. So I tell my wife we're switching this or that for this or that because I've never made any money being smart which she relays to her long retired father, a successful manager of his own finances. He says, "How do I get in."
Comments
Per the original story: Statement #1: "Since most investors buy bonds for income and plan to hold them to maturity, they don't have to worry as much about the market's volatility or increased correlation. They also can buy cheaper illiquid bonds that fund managers avoid.
Statement #2: Many investors can't afford individual bonds or don't have access to them in 401(k) accounts. For them, funds and ETFs are the only alternative."
I will not take the time to discover real numbers regarding the above first statement; but I find it difficult to think that "most investors" buy individual bonds; which is noted with statement number 2.
I won't argue about the overall thoughts of the story; but will remain skeptical about the reported facts. I may be a "whiner" about this; but, it is either me changing or is it that we are finding more articles today that have some facts or numbers thrown into a story, but without any detail as to where or how the writer obtained the reported "facts".
I note this as related to a recent short column in a Detroit newspaper about a new tax law in Michigan. The article I stumbled across had been updated to correct previous errors (although there wasn't any link to the original story to discover what had been corrected); and the updated story still had errors. The writer's short bio indicated they had been writing for the paper, since 2004; and that the writer was a "social maven".......whatever the heck that is supposed to indicate.
I am beginning to wonder how much the "Twitter/Texting" world is finding its way into some writing; not unlike the broad based nightly news on major networks, where snippets are thrown out for a quick bite; but doesn't really do much for knowledge.
Ted, thank you for the linked story about bonds.
Ok, off the stump.
Regards,
Catch
⇒ Da Link
Once there, check out the next 4 or 5 episodes also. Great commentary on our new "reality" manufacturing industry.
I would have to agree with you on that. I believe most investors access bonds through mutual funds/ETFs or in some other packaged form. And I think this is especially true in regards to the area they specifically were highlighting "corporate" bonds. Now if this was about Municipal Bonds then I might not be so quick to question it....but I most definitely question it in regards to corporate bonds. It's somewhat sad how little research seems to be done in this age of "reporting".
The Wall Street Ranter
Those few words pretty much cover the topic, eh? Thank you for sharing the wisdom of the cartoon.
Take care,
Catch
How about: Since most investors who buy bonds do so for income and plan to hold the bonds to maturity, they don't have to worry as much about the market's volatility or increased correlation.
The main point of the sentence (original or reformulated) - that if you buy planning to hold to maturity you don't have to worry much about price fluctuations - has merit.
As to whether most people who buy individual bonds buy them for the interest, that's another issue. There is a subtle difference between saying that most people who buy bonds plan to hold them to maturity (which I believe is true, and has certainly been advocated by posters here), and saying that most people who buy bonds do so because they are specifically interested in interest (as opposed to total return, or simply portfolio stability/peace of mind). Bond investors' interest in interest is less obvious. That's where I feel the writing/analysis falls short.
This whole thing is really pretty depressing though. I knew we were in serious trouble many years ago when I first heard the term "true facts". I remember hollering at my wife over the breakfast table "what the hell other kind of facts are there, "false facts"??" Turns out that's pretty much the case. They've taken "fact", a perfectly good word in the English language, and rendered it worthless.
http://finance.yahoo.com/news/bond-market-bulls-forever-hopeful-154518332.html
http://mjperry.blogspot.com/2012/02/higgs-on-immiseration-of-personal.html
Some More (Ugly) Bond Math
It means that investors should not expect more than 2% annualized from your bond allocation over the next five years, UNLESS you are willing to reach for yield via lower quality credit, non-US exposure, or increased duration. It also means that if you have a 60% equity / 40% bond allocation, to reach an 8% all-in annualized return your equity allocation needs to return roughly 12% / year over the next 5 years.
http://econompicdata.blogspot.com/2012/02/some-more-ugly-bond-math.html
Appreciate the notes and links. Have not visited Carpe Diem for some time; and used to run my writing there once in awhile.
As has been noted previous at FA; the assumption that part of the Fed actions was to "force" investors into risk, with investments in equities. Mr. Bernanke currently professes as such today.
The perversion and ironic side of the low rates environment regarding the large sums of monies in CD's and related; and one may assume many of these monies to be with the retired and other senior citizens, is that tax revenue is reduced from these taxable sources of income and those holding CD's and related will not be forced into riskier investments and with the reduced income from the low rates will further tighten their spending belts and spending into local economies.
A most dangerous cycle policy and cycle experiment in modern economic theory.
I continue to feel that, in particular; Mr. Bernanke is deep into his thoughts regarding the history of the big depression and more recent, Japan.
All of this continues to weigh upon our thought processes and where to guide our monies.
On a global scale, which is all intertwined; our house still feels that the balance of where monies travel is still sitting firmly upon the middle, top of the fence and could move and fall to either side without great difficulty. Luck of the draw for where one may be invested at a particular cycle in the next few years; may indeed be only luck; as I do not find conclusive force of power to drive equity or bond markets in strong directions at this time. All of this, in spite of the central banks of the world plowing easy money into place. But, I am not convinced that "don't fight the Fed/central banks" has the same power and/or meaning as it did from only 5 years ago. These tools may indeed have some effect in 5 years.
Obviously, this is only my viewpoint; based upon my limited economic educational background. Our house may totally be out of place with our investments in the next few years.
Take care,
Catch
Russia selling treasuries every month for over a year, while China continues to sell.
Indeed. In hindsight the majority of my/our good fortune is rightly attributed to luck.
Also believe that both lucks, good and bad, play a major factor in life's sorting process, randomness and serendipity...a bad marriage, a failed business, a tragic injury or affliction. Having had countless years of sustained good luck one rightly worries about regression to means...
In investing I've been right for the wrong reasons, wrong for the right reasons,
wrong for the wrong reasons (that's real easy to do) and could provide lengthy examples of each. No single investment comes to mind that worked out swimmingly in which I was right for the right reasons. None. So I tell my wife we're switching this or that for this or that because I've never made any money being smart which she relays to her long retired father, a successful manager of his own finances. He says, "How do I get in."
Wiseguy.