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Bonds aren’t for young people

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Bonds aren't for young people

Seriously, they’re not. Read more at All about stocks and bonds.

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  1. Bonds are wicked awesome. They are a stable income stream, plus the bonds themselves can change in value.

    The most conservative government bonds are the ones that pay a few percent, but corporate bonds are readily available for 7% coupon rates from chase and citicorp, and I even found one for over 12% from primus. Those are decent rates, far better than cash in the bank.

    The other trick is that bonds can be sold like a stock. This is fantastic if you buy a bond and then interest rates go down, all of a sudden you can sell your bond for more than you paid.

    Stock market is pure gambling. Most stocks don’t even pay a dividend. With a bond, at least you’re buying something real — the income stream.

    I’m not recommending bonds over stocks, but they are at least worth considering. If you’re into “diversification” like all the good portfolio theorists then bonds are a fantastic way to achieve that.

  2. Maybe I should rethink their place in my portfolio.

    I use a small position in a corporate bond ETF to balance out the stock ETFs, and also to get some nice gains in case interest rates are lowered.

  3. Common advice is to take 100 minus your age, and have that percentage in stocks.

    If you’re 25, invest 75% stocks and 25% bonds.

    Of course this all depends on your risk tolerance. Some people will never invest in anything riskier than CDs, and that’s fine if it’s all they can handle. At least they’re investing something which is better than what most people do.

    Another good “safe” investment is in yourself or in your home. Many people invest primarily in their own real estate.

  4. Bonds are the new stocks.

    What is more convential wisdom, than stocks outperforming bonds?

    Who holds the most bonds, elderly, back in the 70s who held the most equity, elderly.

    Why do they now hold bonds more than youth because they just might be wiser and more up on the long-term stock-bond tango?

    Read the Four Pillars of Investing, besides being a great investement tome by Bernstien, it’ll send shivers up our collective backs with regards to our faiths in equities (as now is a period of stability, and high prices, probably not a great time to buy…) I’ve recently converted from a 5 year love affair with equity to a new love affair with bonds…

    Okay, I’m still only going to be max at 35% in bonds…but that’s only because its so hard to leave the comfort of convention.

  5. I’ve heard from various sources that with today’s lifespan growing that we should subtract our age from 120 and that percentage should be in stocks.

    As far as bonds go, sure 12% is good … if the company doesn’t renig. Sure you can sell your bonds when the interest falls … if someone wants to buy it.

    -Erich

  6. Hey Geoff,

    What kind of bonds are you getting 35% in?

    Elderly hold the most equity because they’ve had the most time to save and invest.

  7. Bill Gross… enough said. He’s run circles around plenty of stock fund managers.

  8. Bonds can also be free money. Individuals can borrow from the bank on their homes usually for less than the bond return. Investing home equity in stocks can be very risky, but far less so with a bond. Get a mortgage at 5%, buy bonds yielding 7 or 8 with the same maturity as the mortgage.

  9. Bonds are bad for basically everyone (expect for special short term needs). Bond Funds, however, are great for basically everyone. How much of your portfolio you allocate to fixed income such as bond funds or equity such as index funds is all based on your risk tolerance. The younger you are, generally, the higher your risk tolerance and hence you will hold a smaller percent of fixed income (this is more than just bonds, but usually is a majority of bonds).

    There are no hard set rules on what allocation a person should have really, but almost no one can handle a pure equity portfolio. The volatility is just too great, and unless you’re trying to fooling yourself, don’t do it.

    Also, there are some advantages in holding bond funds as they are not correlated with movements (volatility) in equity, and this provides the benefit of greater diversity, lowering risk, while increasing the return on a portfolio. However, you need to be careful with what class of bonds you are buying because in the case that Transcendental brings up with corporate or high yield bonds that provide higher returns, they also act more like equity meaning that they’re creating a less diversified portfolio, and should almost be considered equity even though they are technically fixed income.

    I disagree that bonds are the “new stock”. Bond funds are simply being reconsidered (after being forgotten by Wall Street) as an essential part of a person’s portfolio. This has come to light at this time because of the large number of retirees coming up who are all really interested in fixed income providing regular income when they retire. However, that doesn’t mean that everyone should sell their equity for bonds. Still, bond funds are an essential part of a properly diversified asset allocated portfolio (even if you only hold 10% fixed income).

  10. Bill Gross? Isn’t that the guy who almost went bankrupt because of his overspending? I don’t want advice from him.

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