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Getting the same return on a bond investment as a stock investment is not the goal. Diversification into fixed income reduces risk (specifically volatility) whi

by tacos 12y ago

Getting the same return on a bond investment as a stock investment is not the goal. Diversification into fixed income reduces risk (specifically volatility) which is important when you need the money at a predicted date. See this link, provided elsewhere in this thread: http://bucks.blogs.nytimes.com/2011/09/06/why-and-how-diversified-investors-win/ http://bucks.blogs.nytimes.com/2011/09/06/why-and-how-divers... Sorry to ding, but "I don't think bonds are a good investment for most people" is exactly the type of MattCuttsian financial generalization I'm trying to discourage in my little corner of this thread.

Retric 12y ago
Bonds are paying way less than stocks. If you think there a good idea feel free to defend them but consider this: First off most methods of diversifying bonds (bond funds) add interest rate risks so there not predictable returns. Which means you can buy specific bonds. A 1 year T-Bill pays under 1% before taxes which is hardly worth the hassle for most people. To get better returns in the short term your stuck with increased risks. Sure, longer term bonds have higher returns but not all that high and your still stuck with inflation risks. As to the classic advice of sticking 50% of your portfolio into bonds your basically getting negative risk adjusted returns. If you want liquidity just hold cash it's safer and more flexible. As to being an inflation hedge I don't see how we can have less inflation in the future. PS: There are edge cases, but as long as interest rates are this low their fairly rare. Edit: I do agree it's a good idea to keep some liquidity, but nothing is wrong with just holding some cash.
- tacos 12y ago
  Worldwide bond market is $82 trillion. Larger than the entire stock market. Meanwhile "Retric" on HN says bonds are pointless. Hmm.
  - Retric 12y ago
    Because clearly individual small time investors make the majority of all investments... Err, wait no. Sure, there is also a huge market for elemental fluorine that does not mean it's something you want in your house. Don't get me wrong there generally small risk adjusted net gain in any portfolio if you spend the effort picking the correct set of bonds. The problem is there a far more complex financial instrument than stocks which makes them really easy to mess up. Add to that the current returns and it's just a poor bet for most people. Also, I note you in no way actually defended them. In there defense a condo association saving up for known long term repairs are basically an ideal bond invester. PS: A 1/10 th percent gain on 50 billion is worth a lot of effort a 1% percent gain on 50k is not worth much.
    - tacos 12y ago
      Matt Cutts bought federal tax-free and California muni (also tax free for him) bonds. The point of my speaking up was pointing out how odd, narrow, and narrowly-specific his recommendations are. You've now added your voice to the chorus. Your recommendations are also -- narrow and a little odd. If you're a Googler with a 3% Cali muni, that's equivalent to a taxable 6.07% yield. Beats cash.
      - Retric 12y ago
        Long term capital gains is 15% not 50+%. Also, California bonds are far from a risk free investment which is why they pay more than 1%. Remember a 5+ year bond can have negative real returns if inflation increases. EX: People have paid 50 k for a 30 year T bill, waited 5 years and sold that for less than 50k. The important thing to remember in such situations is just because you did not sell the bond does not mean you did not lose money. Also The tax-exempt status of municipal bonds does not extend in all instances to the alternative mininimum tax. - See more at: http://www.investinginbonds.com/learnmore.asp?catid=8&subcatid=60#sthash.MmcpEyCC.psah6wgQ.dpuf http://www.investinginbonds.com/learnmore.asp?catid=8&subcat... "Under some circumstances, a taxpayer who receives tax-exempt interest will have a greater portion of his - See more at: http://www.investinginbonds.com/learnmore.asp?catid=8&subcatid=60#sthash.MmcpEyCC.dpuf http://www.investinginbonds.com/learnmore.asp?catid=8&subcat... ". So that tax free bond might not actually be tax free.
        tacos 12y ago
        Muni bond interest is interest dividend income; has nothing to do with capital gains or AMT or whatever else you Googled. I lived in California and received 1099-DIV -- have you? For a Googler making a big salary, that's 39.6% Federal plus 11% California state. Matt didn't say this in his post, you obviously don't know what you're talking about in your comment, and we've once again proven why giving investment advice on the internet is stupid. It's either so general to be obvious, or so specific to an individual that it risks misleading people in similar (but not similar enough) scenarios. Matt did the world no favors with his post and you're not doing much with your comments.

by tacos 12y ago

Retric 12y ago

Bonds are paying way less than stocks. If you think there a good idea feel free to defend them but consider this: First off most methods of diversifying bonds (bond funds) add interest rate risks so there not predictable returns. Which means you can buy specific bonds. A 1 year T-Bill pays under 1% before taxes which is hardly worth the hassle for most people. To get better returns in the short term your stuck with increased risks. Sure, longer term bonds have higher returns but not all that high and your still stuck with inflation risks. As to the classic advice of sticking 50% of your portfolio into bonds your basically getting negative risk adjusted returns. If you want liquidity just hold cash it's safer and more flexible. As to being an inflation hedge I don't see how we can have less inflation in the future. PS: There are edge cases, but as long as interest rates are this low their fairly rare. Edit: I do agree it's a good idea to keep some liquidity, but nothing is wrong with just holding some cash.

tacos 12y ago
Worldwide bond market is $82 trillion. Larger than the entire stock market. Meanwhile "Retric" on HN says bonds are pointless. Hmm.
- Retric 12y ago
  Because clearly individual small time investors make the majority of all investments... Err, wait no. Sure, there is also a huge market for elemental fluorine that does not mean it's something you want in your house. Don't get me wrong there generally small risk adjusted net gain in any portfolio if you spend the effort picking the correct set of bonds. The problem is there a far more complex financial instrument than stocks which makes them really easy to mess up. Add to that the current returns and it's just a poor bet for most people. Also, I note you in no way actually defended them. In there defense a condo association saving up for known long term repairs are basically an ideal bond invester. PS: A 1/10 th percent gain on 50 billion is worth a lot of effort a 1% percent gain on 50k is not worth much.
  - tacos 12y ago
    Matt Cutts bought federal tax-free and California muni (also tax free for him) bonds. The point of my speaking up was pointing out how odd, narrow, and narrowly-specific his recommendations are. You've now added your voice to the chorus. Your recommendations are also -- narrow and a little odd. If you're a Googler with a 3% Cali muni, that's equivalent to a taxable 6.07% yield. Beats cash.
    - Retric 12y ago
      Long term capital gains is 15% not 50+%. Also, California bonds are far from a risk free investment which is why they pay more than 1%. Remember a 5+ year bond can have negative real returns if inflation increases. EX: People have paid 50 k for a 30 year T bill, waited 5 years and sold that for less than 50k. The important thing to remember in such situations is just because you did not sell the bond does not mean you did not lose money. Also The tax-exempt status of municipal bonds does not extend in all instances to the alternative mininimum tax. - See more at: http://www.investinginbonds.com/learnmore.asp?catid=8&subcatid=60#sthash.MmcpEyCC.psah6wgQ.dpuf http://www.investinginbonds.com/learnmore.asp?catid=8&subcat... "Under some circumstances, a taxpayer who receives tax-exempt interest will have a greater portion of his - See more at: http://www.investinginbonds.com/learnmore.asp?catid=8&subcatid=60#sthash.MmcpEyCC.dpuf http://www.investinginbonds.com/learnmore.asp?catid=8&subcat... ". So that tax free bond might not actually be tax free.
      - tacos 12y ago
        Muni bond interest is interest dividend income; has nothing to do with capital gains or AMT or whatever else you Googled. I lived in California and received 1099-DIV -- have you? For a Googler making a big salary, that's 39.6% Federal plus 11% California state. Matt didn't say this in his post, you obviously don't know what you're talking about in your comment, and we've once again proven why giving investment advice on the internet is stupid. It's either so general to be obvious, or so specific to an individual that it risks misleading people in similar (but not similar enough) scenarios. Matt did the world no favors with his post and you're not doing much with your comments.