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birb_cromble  1d ago (text post)   440 thread views

Weekly Finance Thread

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Can someone help me think about bonds properly? I’ve been buying FTBFX as part of a 20-30-50 portfolio and over the past like 5+ years my return is 0.25% or so—I’d have been better off with just money market. Are my expectations off? I get keeping some ballast for rebalancing but the bonds are just melting away it seems with inflation.

20% alt, 30% bonds, 50% equity?

If that’s the case, and if you’ve been buying since 2018 (as per your other comment), I suspect there’s some arithmetic/algebraic error somewhere. Just the 50% equity alone should solo.

Either way, a bad outcome doesn’t necessarily mean a bad decision nor vice versa—especially in investing and on short time horizons—although the two can correlate.

No 80% equities so overall I’m doing ok. 20% is bonds mainly for rebalancing which I do a few times a year.

O_____O

I hope to god you are trolling, but I fear you are not.

You don't buy frickin' BONDS in 2020 or 2021, when the interest rate is close to zero and can only go up, making your bonds worth less, and when liquidity is being pumped like crazy from the central banks, inflating all equity valuations massively. You've taken a net loss from inflation and a massive opportunity cost.

I am not I'm afraid, I set up a 20-30-50 split back in like 2018 with the goal of not thinking about it. As you say, all my 2020 and 2021 purchases are down ~15% :(

Also I know it's turned out bad, I just wasn't sure why and wanted to figure out if it's just a short-term thing and I should stay the course or whether I need to re-evaluate holding that much in bonds. At the time it was 20-30-50 but at the moment I've been holding off buying more so it's only about 5% of my portfolio.

Ok. So it wasn't a huge mistake, given that it's only 5% of your current capital. Everyone messes up quite a lot with investing. Though, if you're in a "set it and forget it" approach, you won't be learning much and you'll keep leaving money on the table.

Out of curiosity, what were the 30 and 50 percent allocations? Assuming bonds were 20.

I'm no bonds person, so I can't say much about the subject. All I know is that the least 25 years or so have generally been really bad for them compared with equities. I think going heavy on bonds or CDs or money market stuff only makes sense if you're retiring and want minimal volatility. Look it up on bogleheads or investopedia if that's for you.

30 in FZILZ and 50 in FZROX. I understood this split to be pretty standard in boglehead circles I thought. 20 in bonds for rebalancing basically then 30 in international equities and 50 in US.

Right now I’m mostly in money market instead of bonds since I got spooked by low total yields. Trying to figure out what makes sense.

I think your allocation would be usually referred to as "80-20", then - International is generally lumped in with US as just "equities" in a portfolio breakdown, making it 80% equities, 20% bonds, which in your case is then further explained as "62.5-37.5" for your US:International ratio.

Ah ok that makes sense.

Don't flame out because they haven't followed what you consider the optimal path. Everybody has to start somewhere.

I'm not a mod, but please don't lead with accusations of bad faith. It's clear you have a lot of experience in this area, and I fear you're assuming that the layman's level of expertise is much higher than it is.

Bonds and bond funds are somewhat different. You're correct the growth is anemic in that share price in the 5 year growth is pretty much dead even, but your holdings are growing through a dividend of approximately 4.5%. This dividend is better than current money market rates which are hovering anywhere from 2-3.5% The bonds in your mutual fund also may have some income tax advantages that money markets do not have, as they are largely US treasuries.

Kahn academy might be a pretty decent overview but I haven't looked at the course myself:

https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/ap-financial-sector/financial-assets-ap/v/introduction-to-bonds

past like 5+ years

2022 was an apocalyptically bad year for bonds. It was the worst year in history. The runner up was 1803. How does your four year look?

Beyond that, are you looking at share appreciation or total yield?

Total yield and yeah it looks like everything from 2021 through 2022 is down ~15%. The more recent lots are mostly green.

The runner up was 1803

Huh. Wonder what happened then to cause it?

England declared war on France and nobody was happy about it.

Honestly, I probably should have guessed, but I always feel like England and France were effectively permanently at war.

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