Time to stop investing in Bonds? Where to go?

[Cessnaflyer]

Things are looking a little better with the economy and with that an increase in rates and bye bye bond prices.

Right now my allocation is:

80% US Stock
8.5% US Bond
4.5% Alternatives (REIT only no metals or commodities)
4.5% Foreign Stock
1.5% Foreign Bond
1% Cash

My foreign stock has been on a major run and I think that it still is a value even though I'm up 13% this year with them. I'm thinking about taking my 10% monthly bond buy into 5% more foreign.

What do you guys think?

 

[SlumTodd_Millionaire]

I think anyone your age having any money at all in anything other than equities is a mistake. Get rid of the alternatives and bonds and put it all into value funds.

Disclaimer: the usual nonsense about not being a financial adviser, at your own risk, yada, yada, yada.

 

[Cessnaflyer]

I think anyone your age having any money at all in anything other than equities is a mistake. Get rid of the alternatives and bonds and put it all into value funds.

Disclaimer: the usual nonsense about not being a financial adviser, at your own risk, yada, yada, yada.

I know. That's why I'm going to be adjusting my future buys into more equities.

Why don't you like the REIT? It has been a fairly good performer.

 

[SlumTodd_Millionaire]

I know. That's why I'm going to be adjusting my future buys into more equities.

Why don't you like the REIT? It has been a fairly good performer.

Because over time, they don't perform close to as well as value index funds. And at your age, over long periods of time is all that matters.

 

[USMCmech]

I think anyone your age having any money at all in anything other than equities is a mistake. Get rid of the alternatives and bonds and put it all into value funds.

I don't understand why anyone would invest in bonds right now.

Basic principles, when interest rates drop bonds gain value, when interest rates rise bonds lose value. Interest rates have been at all time lows for a while now, and can't realistically go any lower. The best case is that bonds hold steady and don't drop much when interest rates rise over the next few years. The supposed low risk of bonds is attractive but the opportunity cost is enormous.

It's the same as the people who were investing in gold when it was "at an all time high". All time high is the time you want to be selling your gold, not buying any.

 

[Cessnaflyer]

and can't realistically go any lower.

The European Central bank was negative 0.2%.

 

[HVYMETALDRVR]

VTR isn't to bad for a REIT...

 

[USMCmech]

The European Central bank was negative 0.2%.

If you are lending money (which is what buying a bond really is) at less than the rate of inflation (typically 4% in the US) then you are paying them to take your money. If the government is lending money at less than that, you are competing with the euro bank to pay people too take your money.

I don't keep up with the bond market, but I'll bet that any bond paying better than 4% doesn't have a credit rating that you want to mess with.

 

[SlumTodd_Millionaire]

Inflation hasn't been 4% in nearly 25 years. It's currently about 0%.

 

[USMCmech]

Inflation hasn't been 4% in nearly 25 years. It's currently about 0%.

5.6% in the summer of 2008

http://www.usinflationcalculator.com/inflation/historical-inflation-rates/


Of course that was the housing bubble bursting, with the following 24 months in the sub 3% range.

 

[SlumTodd_Millionaire]

5.6% in the summer of 2008 http://www.usinflationcalculator.com/inflation/historical-inflation-rates/ Of course that was the housing bubble bursting, with the following 24 months in the sub 3% range.

That entire year was 3.8%. It was 1991 the last time inflation was actually over 4%. The Fed aims to keep it at about 2%, which is what you should actually use as an expected inflation rate long term.

 

[B767]

That entire year was 3.8%. It was 1991 the last time inflation was actually over 4%. The Fed aims to keep it at about 2%, which is what you should actually use as an expected inflation rate long term.

I use 0% and Dave Ramsey's 12% annual rate of return. Why? Just so I can see how much of a rich bitch I'm going to be in retirement!






Heavy amounts of sarcasm.

 

[pullup]

I don't expect to see bonds in my portfolio unless inflation goes sky high or I turn ....57 or so.

 

[drunkenbeagle]

Inflation hasn't been 4% in nearly 25 years. It's currently about 0%.

It is probably going to be closer to 2% for the year I suspect, depends if you are including energy prices or not, but yeah, it is awfully low.

Didn't know about you, but all of my major expenses (taxes, insurance, education, healthcare) are all still going up more than 2% per year....

 

[Constantine La]

Because over time, they don't perform close to as well as value index funds. And at your age, over long periods of time is all that matters.

That and the management fee is much lower.

 

[Cessnaflyer]

That and the management fee is much lower.

It's only 0.12% Not much higher than my lowest at .05%

 

[brian434]

@ATN_Pilot - I see you are recommending a value based index instead of growth. Is that based on fees or actual net growth rate overtime? Do you have a specific fund you're referencing or something blended like the SP500?

 

[SlumTodd_Millionaire]

@ATN_Pilot - I see you are recommending a value based index instead of growth. Is that based on fees or actual net growth rate overtime? Do you have a specific fund you're referencing or something blended like the SP500?

Value has always beat growth over time. Any broad growth index ETF should work for the average investor.

 

[brian434]

I'm not sure I am tracking. So you're saying that SCHV should out perform SCHG overtime?

 

[SlumTodd_Millionaire]

Correct, over long periods of time.