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Why rising rates isn't that bad for bonds

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Comments

  • bilperk said:

    Actually, I have a lot more problems with the original OP than the way he said it. First, he cites FED funds rate, but his examples are all over the board intermediate bonds. Did these funds see a 2.5% rise in their yields? I don't think so. Second, three years seems to be FD's go-to for making points. Anything can happen with bond funds (or stock funds) over a three year period. Third, "bonds are doomed" does not express my feelings nor have I even heard it before. I hear a lot about bonds being a poor investment at low rates but no so much at higher rates.
    I think a good deal of the problem is that the OP is a trader, while most of us hold bond funds for stability and over longer periods than 3 years.

    But, hey, don't get me wrong; I love that my bonds are doing well despite low yields. I just don't believe it can continue for long.

    Hi bil. The point was bonds did not get hurt too badly as the FEDs lowered rates towards 0%. IT, MS, IG etc. all did OK. He wasn't really comparing fund types to FED rate.
  • Gary,
    It was about rising fed rates and their effect on "bonds". Intermediate bonds do not move immediately with FED rates. The market determines rates or else we would never see inverted yield curves.
  • edited October 2020
    @bilperk
    he cites FED funds rate, but his examples are all over the board intermediate bonds.
    The whole point was to show that bonds have different categories and managed flexible funds can have several categories where the managers can make changes between categories and the duration. Not all the funds I mentioned were intermediate bonds, Bank loan funds, such as EIFAX have very short term duration.
    three years seems to be FD's go-to for making points. Anything can happen with bond funds (or stock funds) over a three year period.
    I have been posting about investing for over 10 years. I have made many posts about investing from several weeks to several decades (comparing VWINX to VWELX since the early 70"). It all depends on the subject at hand.
    "bonds are doomed" does not express my feelings nor have I even heard it before. I hear a lot about bonds being a poor investment at low rates but no so much at higher rates.
    Nit-picking, it's not about feeling or what you heard, that was a typical bilpek comment.
    I think a good deal of the problem is that the OP is a trader, while most of us hold bond funds for stability and over longer periods than 3 years.
    mmm...My OP was generic. I can't find anything in it that talks about what I do or my style. I looked at a period where the Fed raised the rate the most in the last 10 years and it just happened within the that time.
    Many investors hold funds that someone like you would never hold since you only use Vanguard funds. PIMIX was a good example of a fund with a great risk adjusted returns. Not everybody holds their funds for many years, some make adjustment along the way, wait, you are one of them. Not everyone holds only bond funds for stability, some hold for higher income, some hold instead of stocks such as high yield, some use CEFs.
    Basically, most articles and research about bonds talk about treasuries but managed bond funds are a lot more diverse with more options.
  • FD,
    Bottom line is the FED funds rate does not result in longer term bond fund yields rising right away and in this case the changes up and down happened too fast. If you had cited increases in intermediate bond yields to make your point (whatever it was) or said that active managers can work around rate increases by changing what they own, that would have been clearer. Of course, I don't really believe they can to the extent you seem to think they can, but opinions vary, which is fine. About half of the funds you named have little or no ability to " make changes between categories and the duration", particularly in a short time frame. (DODIX,VWIAX, BIV, VCIT) So why did they do so well? Could it be that it has little to do with active management and big changes?
    As for what I hold, you are behind the curve. I do hold significant PIMIX and PSLDX and SCHD and they make up 35% of my portfolio.
  • edited October 2020
    bilperk said:

    FD,
    Bottom line is the FED funds rate does not result in longer term bond fund yields rising right away and in this case the changes up and down happened too fast. If you had cited increases in intermediate bond yields to make your point (whatever it was) or said that active managers can work around rate increases by changing what they own, that would have been clearer. Of course, I don't really believe they can to the extent you seem to think they can, but opinions vary, which is fine. About half of the funds you named have little or no ability to " make changes between categories and the duration", particularly in a short time frame. (DODIX,VWIAX, BIV, VCIT) So why did they do so well? Could it be that it has little to do with active management and big changes?
    As for what I hold, you are behind the curve. I do hold significant PIMIX and PSLDX and SCHD and they make up 35% of my portfolio.

    Usual bilperk comments and continuation from M* for years.
    The OP stated several categories with indexes + managed funds to make my point. We discussed this for years before when you dismissed PIMIX for years when it was an excellent fund and you didn't hold it while I owned a huge % in it for several years until 01/2018.
    Since 2018, PIMIX isn't as good as it used to be. AUM is a lot bigger with different % in its categories and why risk/reward isn't as good as before. I'm glad you finally bought it.
    Talking about "behind the curve" from you is pretty funny:-)
  • It's all good, FD. PIMIX is still good for long term holders. I'm meeting my goals. That is what is important to me. Keep convincing yourself that getting 5% per year with low SD is the only game in town. I guess there's a reason people live in Georgia :o}
  • edited October 2020
    bilperk said:

    It's all good, FD. PIMIX is still good for long term holders. I'm meeting my goals. That is what is important to me. Keep convincing yourself that getting 5% per year with low SD is the only game in town. I guess there's a reason people live in Georgia :o}

    Again, the thread is not about me but after you couldn't come up with anything to debunk the original post you resort to make it personal. I never said that what I do is the only game in town, it works extremely well for our portfolio. I actually posted many times that the average Joe should buy several funds (indexes+managed) and hardly trade.
    But, please don't worry about me. I posted the following about a week ago, so I will just copy it below.

    Remember, since I retired in 2018, we have enough money to sustain our standard of living for another 40-50 years if our portfolio will make just 4% annually including inflation. Our portfolio is 35+ times our annual expense without our SS. This is why I set up the following goals: make 6% average annually with the lowest SD I can get (preferably under 3) and never lose 3% from any last top. We don’t care about maximizing performance anymore but to meet our specific goals. To do that I use mainly bond mutual funds + several short term trades (hours-days) using stocks/ETF/CEFs/other. The 3 year results are much better than my goals. I never lost more than 1% from any last top in the last 3 years. Below is a copy from my Schwab accounts as of yesterday 10/14/2020 which is about 95% of our total money. There is no way to achieve these results without being a good trader and why I posted other funds too

    3 year performance/SD...SPY 13.1%/17.7...VBINX (60/40) 10%/11.1....VWIAX (40/60) 7.04/6.6%...PIMIX 3.75%/5.6....IOFIX 0.2%/23.7

    My portfolio performance was 9.9% annually for 3 year with SD=2.18

    Below you can see an image of performance as of 10/14/2020 from Schwab. Column 1=one year...Column 2=YTD...Column 3=one year...Column 4=3 years

    image

    Below is the SD for one year and 3 years
    image

    BTW, welcome to MFO.
  • edited October 2020
    I quit.
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