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Bonds would include long term bonds, and they literally cannot get any higher in price. Rates are zero, long term rate expectations are zero for a while. This

Bonds would include long term bonds, and they literally cannot get any higher in price. Rates are zero, long term rate expectations are zero for a while. This is horrible advice. The only way to go is down.

YZF 11y ago
First thing, never say never. They could still get higher in price. I agree it's less likely then the other direction so for today you'd want to have less bonds in your portfolio. Over the long term however, which is what we're talking about, a mixed portfolio beats 100% stocks with less volatility. EDIT: If you look at buying a 10 year bond right now you get ~2.2% interest per year guaranteed today. If you buy the total US stock index it's hard to tell with any degree of certainty given today's high P/E ratios that the stock market will beat that. It might. But it's more risky. Hence there's a premium you're paying for risk. It's true that yields are likely (but not certain) to go up and so over time your new investments + rebalancing will buy you into those higher yields. Otherwise you're just trying to time the bond and stock markets which isn't simple, you can play a little of timing game (e.g. saying you think stocks are cheap and bonds are expensive today) but you can't usually predict better than the market already does.
- YZF 11y ago
  Another important thing to keep in mind is that as yields go up stocks also go through a repricing, not just bonds. The interest rate is the measuring tape for all investments, if you can get a safe high return in bonds you don't go into stocks. If dividend yields are lower than bond yields you don't buy dividend stocks that are subject to other risks... EDIT: And while we're talking about this it helps to recall that there's a continuum that goes beyond 100% stocks. If you're so sure interest rates are going up and stocks are going up then you can borrow money at today's rates and invest it in stocks. I.e. use leverage. If you're right your returns will be much higher...

YZF 11y ago

First thing, never say never. They could still get higher in price. I agree it's less likely then the other direction so for today you'd want to have less bonds in your portfolio. Over the long term however, which is what we're talking about, a mixed portfolio beats 100% stocks with less volatility. EDIT: If you look at buying a 10 year bond right now you get ~2.2% interest per year guaranteed today. If you buy the total US stock index it's hard to tell with any degree of certainty given today's high P/E ratios that the stock market will beat that. It might. But it's more risky. Hence there's a premium you're paying for risk. It's true that yields are likely (but not certain) to go up and so over time your new investments + rebalancing will buy you into those higher yields. Otherwise you're just trying to time the bond and stock markets which isn't simple, you can play a little of timing game (e.g. saying you think stocks are cheap and bonds are expensive today) but you can't usually predict better than the market already does.

YZF 11y ago
Another important thing to keep in mind is that as yields go up stocks also go through a repricing, not just bonds. The interest rate is the measuring tape for all investments, if you can get a safe high return in bonds you don't go into stocks. If dividend yields are lower than bond yields you don't buy dividend stocks that are subject to other risks... EDIT: And while we're talking about this it helps to recall that there's a continuum that goes beyond 100% stocks. If you're so sure interest rates are going up and stocks are going up then you can borrow money at today's rates and invest it in stocks. I.e. use leverage. If you're right your returns will be much higher...