Bonds

[crew]

Again apologies if this was posted before, but as usual the search function does not allow me to search for conversations about "bonds".

What are your bonds, or Bonds ETFs of choice in the Japanese market? Considering local bonds rate are extremely low, or even negative, would going for foreign sovereign bonds (bought locally) make better sense (SBI offers South African bonds at 7%, and Turkey ay 15%!(but Turkey) make more sense? Then again with the currency risk and what not, I think this becomes less characterizable as a bond (safe, low yield) and more of a stock.

What are your investment of choice for your bond/safe allocation?

[TokyoWart]

I don’t buy bonds or bond funds in this era of artificially low interest rates and of the bonds I wouldn’t buy, Japanese bonds are probably my least favorite. The traditional argument against emerging market bonds is that you face exchange rate risk, economic default risk and an additional I-have-decided-not-to-pay risk (because the legal jurisdiction may be local and unfriendly to foreign creditors). I think those risks are very hard for retail investors like us to evaluate.

[crew]

Where do you allocate investments in place of bonds? I.e. low risk, liquid? Keep it in cash?

[TokyoWart]

I have cash on hand for the next few years of expenses. Depends on what role you wanted those bonds or bond funds to play in your portfolio. If you needed income, in many cases high dividend stock funds can beat current bond rates. If you want them for rebalancing a fixed equity/bond allocation (which I think is very hard to do in practice) you would want to look at a very short term bond fund at this point in the interest rate cycle. Personally I think bonds have become a poor hedge for equities for some years now and if you’re young I don’t think you need them.

[crew]

Just for diversification of risk levels, allotting a portion for use in the near future or when close to retirement.

[TokyoWart]

If you are far from retirement your “near future” is really just an emergency fund and I think of those funds as money market account assets which could cover 3-6 months of expenses if I lose my job or have to leave Japan. I am closer to retirement age (many my age have a lot of trouble finding a comparable job if they are let go) and I am facing US college tuition fees for the next 9 years so I’ve really stocked up on that emergency fund. Those funds are insurance and don’t make money (insurance always costs money) so you want to maximize your investments in equities so you share in the overall growth of the economy.

[crew]

Yeah, I have diversified my allotments but at a loss as to where to invest my allotment for the low risk allotments. Bonds would be the common sense answer, but the interest rates these days don't make sense, hence I was wondering what else is out there. I am not that near retirement age but not that far off either (about 15 years more).

You mentioned college tuition fees, I assume these are for your kids? I had a question in another thread about how to factor this in into insurance coverage, in terms of determining how much coverage I need. Factoring it in just blows up my insurance costs.

[TokyoWart]

You mentioned college tuition fees, I assume these are for your kids? I had a question in another thread about how to factor this in into insurance coverage, in terms of determining how much coverage I need. Factoring it in just blows up my insurance costs.

Yes for my kids. I saw that discussion and wish I had useful advice for you. Term life insurance is so much more expensive in Japan that it’s hard to even cover lost income much less additional expenses for college.