why would you buy bonds now

pretty good

I have a fixed annuity that has a floor of 3%.

This is my bond fund. The interest income is tax deferred .


Glad I bought it 15 years ago because the annuity interest rate on a new policy is based upon the 10year
US T Note

Why would anybody ever buy bonds period, unless they're scared of temporary declines in value?

Scared of temporary price declines is exactly one reason. There are arguments right now for a lot of value in the high yield corporate space. And if you believe taxes are headed higher then municipals could offer good value as well. All about risk tolerance, etc.

CBarrett12 said:

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There are arguments right now for a lot of value in the high yield corporate space.

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Some decent returns for fallen angels if you time it tight and if they avoid bankruptcy.

Corporates. Munis. high yield. Convertibles. EM and preferreds

I get my bond exposure via VWETX which is a 15-25 year corporate fund. I have 90% of my retirement stuff in equity mutual funds or ETFs.

Roger Moore. End of discussion.

12thAngryMan said:

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Isn't that chart a bit misleading starting at the top of the dot com bubble? You mean you come out ahead when your principal doesn't crash by 40% in the first few months? Shocking!

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Correct, which is a reason to own bonds. You never know when that 40% crash is coming.

ehrmantraut said:

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Why would anybody ever buy bonds period, unless they're scared of temporary declines in value?

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Because portfolio management is not always about maximizing return.

For those who have plenty of money and don't need stock market returns. Cash returns nothing.. 3-4% returns in bonds with minimal risk gives them everything they need, including growth.

On the flip side, significant market crash, coupled with taking distributions, can be catastrophic to a rock solid financial plan if you've loaded up on stocks essentially out of greed.

cjsag94 said:

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ehrmantraut said:

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Why would anybody ever buy bonds period, unless they're scared of temporary declines in value?

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Because portfolio management is not always about maximizing return.

For those who have plenty of money and don't need stock market returns. Cash returns nothing.. 3-4% returns in bonds with minimal risk gives them everything they need, including growth.

On the flip side, significant market crash, coupled with taking distributions, can be catastrophic to a rock solid financial plan if you've loaded up on stocks essentially out of greed.

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If you have plenty of money, why are you concerned about your stocks temporarily declining in value?

You can draw your distributions off the dividends that your stocks pay, and if that's not enough, supplement it with cash reserves during the "market crash", that are set aside for that purpose alone.

No financial plan is "rock solid" if your portfolio is full of bonds. If 3-4% gives you everything that you need, then you should probably be thinking about your estate and who you would like to benefit from your wealth. Then start asking the question about whether you're doing them a disservice by leaving their future inheritance parked in fixed income assets while the cost of living is constantly increasing.

How are bonds superior to to equities even for those that are in retirement or approaching retirement?

A diversified portfolio of high quality equities:
-Pays Higher Current Income
-Pays Higher Future Income
-Earns over double the lifetime return of bonds net of inflation.
-Allows you to participate in the continuous earnings growth of the greatest companies in the world.


What do bonds do? They hold your money still while everything around you goes up in price every year. If you're lucky, you'll keep pace. In a lot of instances, owning a bond is voluntarily signing up to have your purchasing power erode away.


But I get it, human nature won't allow people to stay calm and have faith in their equities, so bonds are necessary to protect irrational people from making irrational, stupid decisions with their investments.


Oh, and the question about withdrawals during a bear market... that is easily addressed by having 18-24 months of living expenses in a money market before you're set to retire and then throughout your 30+ year retirement.

Some people, like myself, have bonds in their portfolio not only for downside protection, but also for capital appreciation. If you have a view that interest rates are still in a long term secular decline like they have been for the last 35+ years there can be lots of money to be made.

I acknowledge there is duration and convexity risk in long dated treasuries, but year to date the 30 year risk free UST has returned 28%! How does that compare to your broad stock market investments? 2019 CY long bond total returns were 19%! Not a bad way to earn money on a bond investment with no default risk.

I'm still vast majority equity in my portfolio, but to dismiss bonds as only earning their 0.5% - 1.3% interest is a myopic and incorrect way to think about it. Sure I could lose money if rates skyrocket, but the only way that happens is with major inflation (which I don't believe is coming any time in the near future) and/or major optimism in the economy and in that case my equities would be ripping to way more than offset bond losses.

Tincup12 said:

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But I get it, human nature won't allow people to stay calm and have faith in their equities, so bonds are necessary to protect irrational people from making irrational, stupid decisions with their investments.

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Hey - I'm not even a bond guy. It's just that dismissing them out of hand is kinda foolish. They are actually quite rational, and certainly not stupid, even though I'd generally agree with you is that they're too conservative to make up a significant part of most personal portfolios.

There are bond strategies out there that crush equity returns. They don't involve buying Treasuries or AA corporates and holding them to maturity. In fact, the participants in the credit markets tend to be much more sophisticated than equity market participants.

I use tax free bonds (TX ISD's and municipalities) quite extensively in my portfolio; although given where yields are today I will have some decisions to make when I start getting some redemptions here in about 18 months.

Tincup12 said:

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How are bonds superior to to equities even for those that are in retirement or approaching retirement?

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Because they are generally far less volatile. You clearly only care about capital appreciate potential, plenty of situations where "temporary declines" can devastate a long term plan.

It's sequence of returns not long term total returns that matter most when you are not just accumulating wealth and actually drawing on assets.