Who own Bonds instead of Stocks?

Read "Intelligent Asset Allocation"by Bernstein.

You need to make this decision based on risk tolerance, investment horizon and more.

Start studying. Your financial literacy is low but it can climb very quickly.

I am not a fan of bonds. 20 years out for sure not. If you want a few bonds within 5 years of retirement (I wouldn't do more than 25% of your investments) then ok. I will not own bonds. Stocks just kill bonds so much that over time it makes sense to just go with stocks. You need to be prepared though to stay in the market if it goes south for a while -- use Social Security money in retirement, have an emergency fund (cash) to dip into while the stocks recover, etc.

Flagpole, what about a person in their 70s or 80s?

Planning to retire this year, current asset allocation is 40% stocks, 40% bonds, 20% cash. Up unitl about 5 years ago it was all stocks all the time though.

Danny Bandana wrote:

Is there any reason to hold some bonds instead of all stocks/index funds if you don't plan on using any of the money for about 20 years?

U.S. bond markets are larger than U.S. equity markets. N.Y.S.E. place some of their best men and women as bond analysts. Bond trading in many ways is more complicated the equity trading. People with little knowledge state equities are better than bonds. Whales have bonds as a significant portion of their portfolios. Bonds are not to be merely viewed by their current bond interest. One does not have to buy at bond at issue and hold until maturity.

Bonds can actually be a much more aggressive investment than stocks if you get into higher yield bonds with low ratings. But these are short term and high risk bets for very aggressive investors.

If it were possible to time the market, you would move out of stocks and into bonds whenever you thought stocks were overvalued. This was something that people could do effectively in the olden days when the stock market actually reflected the value of the publicly traded companies. Now, the stock market really just reflects the movement of money based on interest rates. That is why you cannot time the market anymore.

coach wrote:

Flagpole, what about a person in their 70s or 80s?

I'm not against it if people want to do it. I understand why they do -- be more conservative in their later years to protect what they have. I won't do it. I would rather go big on dividend stocks to be conservative than but a lot of bonds. The return is just so low compared to stocks, and it's not like they are the antithesis of stocks either. If there is a big stock market crash, the bond market typically follows suit.

The best ways in retirement to protect against a stock market crash are:

1) Make sure to be debt free including owning your home before you retire. Need less to live on makes it easier to deal with bad market conditions.

2) Have enough in retirement savings so that you can take less than 4% of it (or nothing) for a few years if you need to to give the stock market time to recover after a crash.

3) Plan on Social Security to get you through any lean market times when you don't want to take from your stocks.

4) Have a 3 YEAR emergency fund liquid (cash, CDs,) that isn't influenced negatively by the market.

I did quite well in bonds.

Peter Lynch was once considered the best investment manager in the world. He headed the Fidelity Magellan fund which did a 29% return over like 13 years which was double what the average return of the market. 29% return over 13 years is like gold. He always said equities(stocks) was the key. Stay away from bonds until you are older. You are missing out on remarkable returns if you go the bond route.

I agree with this.

A person concerned about money running out if there's a major stock market drop might consider owning some bond funds. But if one is over 70 and the money will last for any projected lifetime, even if the market drops one-time by (say) 30%, may as well invest for the next generation.

Also, if a lot of your retirement savings is in a regular IRA, the option to take less than 4% per year isn't available after 72, as mandatory withdrawals become >4%.

Additionally, Lynch was not restricted to opportunities in equities; in fact, in a display of nimble portfolio management, Lynch’s top holding for a period of time were long-term Treasurys paying double-digit interest. Lynch explains:

“I didn’t buy bonds for defensive purposes because I was afraid of stocks, as many investors do. I bought them because the yields exceeded the returns one could normally expect to get from stocks…When yields on long-term government bonds exceed the dividend yield of the S&P 500 by 6 percent or more, sell your stocks and buy bonds.”

H/T Lawrence Hamtil Fortune Financial Advisors

https://www.fortunefinancialadvisors.com/blog/valuable-lessons-from-peter-lynch/

Also on Lynch,

https://awealthofcommonsense.com/2016/07/peter-lynchs-track-record-revisited/

I'll tell ya, if anyone has invested in a typical mutual fund, whether for their IRA or 401k, they probably own a mix of stocks and bonds. Those professionally-managed funds adjust the ratio of investments depending on the goal of the fund.

Now to go on a tangent. People think they can win money in the stock market by managing their investments themselves. Maybe. But it's like going to the casino. Some of the top-paid fund managers can't get their funds to outperform the market index. So my approach is, plop the money in a managed fund with low fees, and leave it alone except for checking up. I put some of every paycheck into it, no matter what the market is doing, because I don't want to invest the time to try and perfect my asset balance and then see it underperform. The market is tricky, and people talk out of their asses about it. Or they talk about their market successes while neglecting their equal and opposite losses. I don't have the time to spend, just to likely break even. But then again, I'm not really a risk taker in other areas of my life.

someone has to buy bonds or all the governments go broke.

the question OP, and everyone else, should be asking right now is which stocks are about to kill it now because of the trade deal?

Bad Wigins wrote:

someone has to buy bonds or all the governments go broke.

the question OP, and everyone else, should be asking right now is which stocks are about to kill it now because of the trade deal?

This is the mindset that loses people money. That we can predict the stock market at any time, let alone when tariffs are being brought forward and taken away every week. The people who RUN these companies are losing their minds trying to deal with so much uncertainty, why would some schmuck off the street be able to guess this stuff? Unless they play the stock market like a casino.

bonds get mixed in wrote:

Bad Wigins wrote:

the question OP, and everyone else, should be asking right now is which stocks are about to kill it now because of the trade deal?

why would some schmuck off the street be able to guess this stuff? Unless they play the stock market like a casino.

I don't know, could it be a bunch of US companies now have access to Chinese, Canadian and Mexican markets they didn't have before and stand to gain value? How is that a matter of luck?

A casino stacks the odds in favor of the house. A stock market is the reverse, you might lose but odds are you'll win.

la gente ésta muy loca wrote:

Additionally, Lynch was not restricted to opportunities in equities; in fact, in a display of nimble portfolio management, Lynch’s top holding for a period of time were long-term Treasurys paying double-digit interest. Lynch explains:

“I didn’t buy bonds for defensive purposes because I was afraid of stocks, as many investors do. I bought them because the yields exceeded the returns one could normally expect to get from stocks…When yields on long-term government bonds exceed the dividend yield of the S&P 500 by 6 percent or more, sell your stocks and buy bonds.”

H/T Lawrence Hamtil Fortune Financial Advisors

https://www.fortunefinancialadvisors.com/blog/valuable-lessons-from-peter-lynch/

Also on Lynch,

https://awealthofcommonsense.com/2016/07/peter-lynchs-track-record-revisited/

Remarkable that over the 13-year stretch in which Lynch earned an annualized return of 29% he thought that the average investor earned only a 7% return. Just a remarkable fact. Just really shows you can't time the market. Always best to buy in to the market and hold on to the investment for the long term.

Fattttty Bsaas wrote:

Peter Lynch was once considered the best investment manager in the world. He headed the Fidelity Magellan fund which did a 29% return over like 13 years which was double what the average return of the market. 29% return over 13 years is like gold. He always said equities(stocks) was the key. Stay away from bonds until you are older. You are missing out on remarkable returns if you go the bond route.

Just to follow up on this a bit ... To determine how long it takes your portfolio to double - you divide 72 by the annualized return. So a 10% return - your portfolio will double every 6 years or so (72/10). At 29% your portfolio is almost doubling every 2 years (actually more like 2.3 or so). A portfolio worth $100k doubling every 2 years will be worth about $6.4 million in 12 years.

You assume all others were day trading and screwed up. First, on-line trading at A.O.L. with a monthly flat rate free, began circa 1995. Before, 1995, on-line internet was a very expensive long distance call rate for internet service. Before 1995, even so-called discount brokerage firms were expensive. At N.Y.S.E. firms before 1995, day trading commissions would have been outrageous! Second, whales are not in markets to make money. Whales are in financial markets to simply beat inflation. See the discussion on bonds. Peter Lynch was a fund manager from 1977 to 1990. There are thousands of fund managers at one time. If nine-thousand to fifteen-thousand individual fund managers flipped a coin daily for 13 years and the goal were heads, a few fund managers would significantly beat others. During White Water Clinton Investigation, it was discovered that Hillary Rodham Clinton turned roughly $10,000 into roughly $120,000 in less than 18 months (I believe in less than 13 months) trading pork bellies at Chicago Board of Trade. I never see you fellas quoting Rodham Clinton's pork belly trading strategy. It is assumed by most that Rodham Clinton had random good luck. Peter Lynch knows he had random good luck. Peter Lynch and other uber successful traders have been discussed and analyzed at many universities in economics & finance departments.

Nice points. I actually forgot what it was like when he was a fund manager. One of my accounts today is Wells Fargo and I get 100 free trades a year. I can make investment purchases or sales in a matter of seconds. I can't imagine how hard it must have been to complete a trade back in 1980.