RetireJapan

There is also the potential problem with bonds that, if interest rates rise, prices are going to fall, no?

RetireJapan wrote: ↑Tue Oct 06, 2020 4:28 am There is also the potential problem with bonds that, if interest rates rise, prices are going to fall, no?

This is my biggest worry about bonds. I think the general question is whether stock and bond prices are positively correlated (so if one falls in price the other does as well and you don't benefit from diversification) or negatively correlated (so a fall in stock prices is offset by a rise in bond prices). My understanding is that during the March peak of the COVID-19 crash government bond prices rose while corporate bond prices fell along with stocks. The academic research suggests there is not a standard correlation which is always true. Look for instance at the graph of correlations in this link which shows negative correlations since 2000 but largely positive correlations in the decades before that (note how the correlations tend to change during periods of deflation vs inflation:

https://quantpedia.com/what-affects-the ... and-bonds/

OkLah! wrote: ↑Tue Oct 06, 2020 5:11 am I would assume that in retirement most people would hold bond to maturity hence any volatility in between is not relevant?

If you hold a bond fund the NAV adjusts as interest rates do even though you don't sell so in effect you can't automatically avoid losses by extending your holding period.

RetireJapan wrote: ↑Tue Oct 06, 2020 4:28 am There is also the potential problem with bonds that, if interest rates rise, prices are going to fall, no?

That can be a factor, but it all depends on the product. If rising rates are something you are worried about, which all signs point strongly against for US bonds, you would move to short term bonds.

However, there are a lot of factors. Do you own, medium or long term bonds? Are you using a bond fund? Are you using a multi-country fund? Are these bonds hedged? This again, is not even touching corporate bonds.

Someone in retirement is not going to panic too much over rising interest rates! Their cash savings are now going to be increasing year to year.

Look at the approach for an Index Fund like ｅＭＡＸＩＳ Ｓｌｉｍ 先進国債券インデックス
https://emaxis.jp/pdf/koumokuromi/25266 ... 200723.pdf

Very stable approach.

I'll offer the option C alternative: gold/silver/bitcoin to replace the bond % of your portfolio. This is happening now... bond yields are too low and are expected to go negative. So an example 60/40 portfolio of stocks/bonds could be stocks/bitcoin instead.

7-seasons.com wrote: ↑Tue Nov 03, 2020 8:59 am I'll offer the option C alternative: gold/silver/bitcoin to replace the bond % of your portfolio. This is happening now... bond yields are too low and are expected to go negative. So an example 60/40 portfolio of stocks/bonds could be stocks/bitcoin instead.

I strongly disagree with this take.

Holding gold, silver and cyber currencies is not investing, it is speculation.

These commodities have inherently unstable prices, they in no way replace the role of bonds in a portfolio.

The main role of bonds in a balanced portfolio is not to earn income through yield or coupons. Rather they act as a ballast.

.....

A better alternative would be simple to hold your bond allocation in cash considering the current low inflation.

OkLah! wrote: ↑Tue Nov 03, 2020 10:39 am It is very interesting in those discussions that we put on same level government bonds and stock/dividends and gold and Bitcoin. No one every talks about corporate/convertible bonds as alternative to other risky investments.

I am must be missing the point.

When it comes to risk, this is how I view things currently.

(LOW)

Cash
.......
Advanced Economy Government bonds
.....
World Market Index Funds
Developed Countries Index Funds
US Index Funds
......
AA/AAA Corporate Bond Index Fund
Sector ETFs
Bluechips
.....

Single holdings
"A< investment-grade bonds"
..........

Commodities
Junk Bonds
........
Crypto

(HIGH)

Kanto wrote: ↑Tue Nov 03, 2020 9:10 am

7-seasons.com wrote: ↑Tue Nov 03, 2020 8:59 am I'll offer the option C alternative: gold/silver/bitcoin to replace the bond % of your portfolio. This is happening now... bond yields are too low and are expected to go negative. So an example 60/40 portfolio of stocks/bonds could be stocks/bitcoin instead.

I strongly disagree with this take.

Holding gold, silver and cyber currencies is not investing, it is speculation.

These commodities have inherently unstable prices, they in no way replace the role of bonds in a portfolio.

The main role of bonds in a balanced portfolio is not to earn income through yield or coupons. Rather they act as a ballast.

.....

A better alternative would be simple to hold your bond allocation in cash considering the current low inflation.

Ah, found an Investopedia article on it, but have heard this a few times now from investors: https://www.investopedia.com/articles/i ... suries.asp

Well, stocks/bonds/real estate/commodities/cash... And each of those can be further sliced and diced.

BTC and gold are easy to fit in there, and adding a new category (or few) to those five is also common.

Bottom line is that (as in many things) investors are also 'condemned' to making choices. (And if you don't throw some darts, that's an existential thing, too.) The moving hand writes on, and all that.

captainspoke wrote: ↑Tue Nov 03, 2020 11:54 pm Well, stocks/bonds/real estate/commodities/cash... And each of those can be further sliced and diced.

I agree. However, Bitcoin and other cyber currencies have more inherent risk due to the issue of physical storage and the lack of government-insured trading platforms.

MT.GOX and similar incidents show how careful the average investor needs to be with cyber.

Currency speculation and commodities trading are famously risky, and I think should be viewed in the same light as cyber currency trading.

.....

I DO think this will change one day though.