Bond Funds - What You Need To Know
Vložit
- čas přidán 12. 06. 2024
- While people are getting to grips with owning single bonds, particularly now that yields are higher, understanding a bond fund can be much more challenging. In this video,I address the most frequently asked questions about bond funds: What drives their price, their income and their risks and returns?
Sign up for a new account on Lightyear and receive 10$ worth of a US fractional share when you use this link lightyear.app.link/pensioncraft and our special code:- PENSIONCRAFT
Code conditions
Once you have entered the Code and completed the promotion conditions, you will be granted a 10 USD worth of fractional share of your choice.
Promotion conditions
Insert code within 3 days of completing first onboarding
Fund account with a minimum of 50 GBP or equivalent
Fund the account within the first 10 days of code insertion
Capital at risk. The provider of investment services is Lightyear Financial Ltd for the UK and Lightyear Europe AS for the EU. Terms apply: lightyear.com/terms. Seek qualified advice if necessary.
What Else PensionCraft Offers:
💡 Become a pensioncraft.com member and learn how to be a better investor. To find what we offer and how you can join our friendly community click here www.pensioncraft.com/investor...
❓ Book a coaching session with Ramin so he can answer your questions in a one-to-one video call via Zoom: pensioncraft.com/power-hour/
📰 Sign up for our free weekly market roundup to get news and views about what's going on in the stock market and wider economy pensioncraft.com/market-roundup/
📖 Understand investment in more depth with my online courses pensioncraft.com/courses-we-o...
🎧Check out our free weekly podcast "Many Happy Returns" on your podcast provider of choice or here many-happy-returns.captivate....
Timestamps
00:00 Introduction
00:38 Most Common Questions
01:19 Difference Between Single Bonds & Bond Funds
02:21 Single Bonds
03:17 Why Buy A Bond Fund?
04:37 Safest of All: Money Market Funds
07:59 Bond Fund: What's in it?
11:13 What if yields rise/fall?
15:07 Why did my bond fund lose so much money?
15:32 Why didn't it hedge against a stock market fall?
15:58 What is the income & how does it change?
16:45 Why hasn't the fund's income risen with yield?
18:28 Corporate Bonds
20:35 Emerging Markets Sovereign Bonds
I Use The Following Data Sources To Help Me Create My Videos
(Some of these links provide new users with a special offer and may also provide me with a small commission)
✔️Stockopedia - New users of Stockopedia get a special 25% discount on any annual plan if they use this link stk.pe/pensioncraft
✔️ Koyfin - New users of Koyfin get 15% off when signing up through this special link koyfin.com/?via=pensioncraft
✔️ Sharepad - sharescope.co.uk/pensioncraftsp 2nd month free for monthly subscribers & Additional free 13th month for annual subscribers
✔️Cbonds - cbonds.com for a high quality and comprehensive source of bond market data
Where Else You Can Find Me
🌐 Website - pensioncraft.com/
📱 Twitter - / pensioncraft
👨 Facebook - / pensioncraft
🔗 LinkedIn - / pensioncraft
Take A Look At Some Of My Other Videos & Playlists
📹 Investment Strategies playlist • Investment Strategies
📹 Income Investing playlist • Income Investing
📹 Investing With Vanguard playlist • Investing with Vanguard
📹 Portfolio Building Blocks playlist • Portfolio Building Blocks
DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results.
Fabulous video !! One other upside to owning a bond fund in rising rates is that the reinvestment of the fund's distributions will enable us to buy more shares at a discounted price... so that when rates drift back down to normal, we get a nice capital gain. p.s. your conveyor belt analogy is perfect... thanks for the video.
One of the most informative and well communicated videos on Bonds. Thank you.
I complained to VG that the UK site does not show a bond funds convexity or average duration, unlike the US website. They said they would look into adding it! 👍
This helps me understand Warren Buffett’s advice to his widow: short term government bonds only
Thank you, you posted this just when I needed it most
Hi @DanI-uq5cr I'm pleased I could help and thank you for your support! Ramin
This is an outstanding explainer on bonds - Congratulations!
Glad it was helpful @chrisp4170
I've always been a bit confused by bonds vs bond funds. Commentators will often use them interchangeably which can be very misleading as you've pointed out! Thank you!
Yes, exactly @freeroamer9146
Gov not responsible with spending. It sounds very familiar 😢. This is the best video about bond funds. Simple and clear
Glad it was helpful @duberm1612
Thanks Ramin for another amazing video. I think this one about comparing bonds and bond funds is the best and most informative I've came across so far. Initially, I assumed they were the same when I started delving into investment world few years ago. It's crucial for pensioners in particular to grasp the distinctions to avoid potential financial pitfalls.
Hi @mateuszg5 I'm pleased you liked the video and thank you for the Super Thanks, much appreciated! Ramin
Masterful explanations, as always, on what can be a very confusing and poorly understood area. Thank you again Ramin.
Glad you enjoyed it @anchorpoint009
Thank you Ramin, this was excellent. I've been thinking about these questions for a while!
You're welcome @jake4236
I've been looking for this kind overview, its definitely helped my understanding. Thank you Ramin - I also shared on twitter
Thank you @glenwhelan9866
Thanks Ramin...bonds are enigmatic beasts !
Yes. A bit above my head. I think I need help!
Thank you so much for answering all my questions.
Many thanks, one of your best videos.
Glad you liked it! @WobblycogsUk
I always enjoy your content but another commentator who I also follow has today alluded to Money Market Funds being a potential bubble with 30% being liquidity being insufficient in the event of a market shock.
Closer scrutiny of the fund I am in shows it is very light on Government Bonds but heavy of short dated "investment grade" corporate notes and CDO's.
Presumably the risk of significant redemptions resulting in a fire sale of assets is not restricted to Money Market funds but are they more vulnerable than others funds - say Vanguard 20%?
Can you link this?
Great job! Amazing video!
Thanks a lot! @georgegogolan8472
Thanks Ramin, good presentation. I am mostly in money market funds. Have been thinking about adding an Intermediate-term UST fund. "Intermediate" in the US usually means 5-7 years. I still see some lower-yielding instruments in these portfolios. Yet, the feel is that the Fed is done raising for a while, may hold steady and then start to cut sometime next year. Want to be in before those rate cuts become reality.
Thanks so much Ramin, this video demonstrates why so much financial advice is flawed. People are told that adding bonds to a portfolio reduces volatility and that you should do this as you get older to de-risk your portfolio. However, as you have shown this is not necessarily true. If you are able to purchase single bonds (credit worthy of course!) you can make predictable returns. However, with bond funds you never really know where you are, unless you have knowledge of the bond lifecycle within those funds. This inherent uncertainty is not appreciated by most retail investors. Could you do a video on aggregate bond funds, these seem good investment entities in their own right, providing a balance of both corporate and government bonds, but I could be wrong? I think I need to sign up for one of your courses on bonds!
Yes, exactly my thoughts. And as ever, Ramin has dwelt somewhat in the ethereal, technical realms in delivering this video, which isn't to say it hasn't helped me understand a lot more about bonds and bond funds.
The elephant in the room is what's happened over the past 2 years. Bonds have simply plummetted. I had some bond funds in my portfolios but fortunately only ever a tiny percentage, not least because I didn't understand them.
I suspect that most people, particularly those who are not managing their SIPP personally, won't have a clue about how much poorer they are than 2 years ago. Typically, for reasons of self-indemnification, managers of auto-enrolment pensions apparently choose "Lifestyle" pension funds by default. If you look at the Vanguard LifeStyle funds the ones with the lower proportion of equities (so higher of bonds), they have done disastrously. In fact I don't think Ramin has given us the whole picture here: the bond fund massacre over the past 2 years had led me to a simple conclusion: no-one is being honest about the fact that bonds (or at least bond funds) are FAR too exposed to the capricious decisions of central bankers to be something most people should consider.
Is "capricious" too strong? I don't think so: just over the past few weeks we have seen that while the US Fed has chosen to allow most of its long bonds to run to maturity, the UK Treasury has taken the extraordinary decision to buy back many of its very long-dated bonds, which (as I understand things) has made a bad problem catastrophic. I wasn't that enamoured of bond funds previously, as I say. In my present state of understanding, I don't see any reason at all why an ordinary retail investor should EVER buy any but the shortest-term bonds. And usually that's not going to make you any more money than bunging cash in a bank account, so the only rationale can be to take advantage of a tax umbrella (SIPP or ISA).
Not quite. A deposit account is still nowhere near the base rate.
Bond fund returns are actually very predictable. Holding a fund for its duration has around a 0.95 correlation between the return you will get and the starting yield to maturity.
The mistake is to focus on the bond fund price to judge its value at any point in time, and ignore the change in expected future interest payments vs when you bought the fund.
@@jambojack Sorry I don't understand what you mean by this, although it does sound like you know what you are talking about. Could you please explain how a bond fund can be said to have a "duration"? Do you mean the "longest-term" bond within it? But, in Ramin's example, by the time the 5-year bonds mature, the 2- 3- and 4-year bonds will have been renewed, and thus by then have years to go. If you can also give a link supporting your assertion about "0.95 correlation" that would also be good as I'd like to understand. It in fact **sounds** like you're doing precisely what Ramin is seeking to prevent, i.e. confusing bonds and ***bond funds***. These are NOT the same animals.
I agree with the latter...@@jambojack
Thanks for such informative video, had these doubts for long time. Bond funds are complicated doesn’t work like stock funds 😢
Very interesting as always. Single bonds much easier to understand but perhaps money to made on etfs if you have a crystal ball on interest rates changes.
One thing I’ve not seen in the other comments is related to the first example- £4 return on £96 investment isn’t 4%, it’s 4.17%. May sound pedantic, but could be significant at volume.
Great video, I was hoping you'd cover this as I have always been a little puzzled by the details, thank you! ...Even if there is a small error in the maths of your first single bond example! ;)
Thanks, very interesting as usual. There seems to be a lot of interest in money market funds, but the BoE seems a little concerned over liquidity in these. Is tgat a concern yiu share ?
Thank you! Been trying to understand bond funds and this was very helpful. I got lost so I decided to just buy a fund of funds with some short, some long, some floating etc. And living in Norway, getting gov. bonds isn't easy so the safe bond funds seem to all contain local gov. bonds and secured bonds from banks.
Yes it's very confusing 😵💫. What I have learned though is never invest in crowdfunding companies. Lost about 4k that way!
@@Jalleur14325 sorry that you lost 4k! I purposely avoid what's exciting and try to keep my savings as snooze-inducing and boring as possible because I'm afraid of those. I might miss out of a lot of fun and excitement though 😅
Superb video, many thanks. This directly answered my confusion about income on bond funds and gives me more comfort as I have much of my SIPP in money mkt funds currently. But I will be selling the small holding in corporate bond funds.
Given the time lag in turnover in the longer dated funds it seems to me there is a bit of a free option to wait until(if) yields have definitively turned lower before moving out along the curve?
Thanks!
Thank you @jeffkojac4121 much appreciated! Ramin
Lightyear is a pretty amazing broker, I like them.
Fantastic info as always Ramin! I feel like almost all my understanding of bonds has come from this channel. Any chance of a video about structured products in the future? They seem interesting considering current market conditions 🤔
Thanks @Ouchyism We have done a podcast about them called "Structured Products: An Expensive Free Lunch?" and you can find that here many-happy-returns.captivate.fm/episode/structured-products
Hello Ramin, please could you make a video about tracking differences in ETFs? There's a common misconception in using TER to compare fund costs; that's a bit like using wheel rotations to measure a car's speed. Final costs actually appear in tracking difference, but it's only possible to calculate ex post. Many funds are far better than their higher TER suggests, because of low or negative tracking difference (through e.g. security lending). There's a tracking difference German website that might be useful.
Thanks very informative. I would be interested to know how currency hedging works in an ETF I’m never sure if it is worth it or not
Great video Ramin, What Bonds do you hold please ?
Great video just bought into a short term money market fund and also uk over 15 year gilts fund. Can you do a video on pibs ?
Thanks for the video! Here is my question to you- - if you buy a bond fund that has a yield of 4%, independent of whether the price of the fund goes up or down, is it fair to say that that yield is pretty much ‘locked in’, especially when compared to the yield of a stock market index/etf fund given the greater variability of dividend payments?
What about the question marks over the liquidity of Money market Funds? They are the biggest buyers of that stuff and if they are forced to sell by a switch in the market ( say after interest rate reductions) that blows through their relatively meagre 30% reserves it's like 2022 Kwasigate all over again???
Does the income from single bonds, bond ETFs and money market ETFs count towards the PSA or is it taxed as dividends and capital gains?
As a retiree, if I wanted to add bonds/bond funds to a taxable account along with equities to reduce volatility, individual bonds or fund(s) and at what risk/duration would be preferred?
Bonds are great if you have a planned cost in the future
🎯 Key Takeaways for quick navigation:
00:41 🤔 *Bond funds introduce uncertainties compared to single bonds, such as varying income, unknown future prices, and uncertain yields.*
06:13 💰 *Money market funds offer a cash-like rate of interest with low risk, providing flexibility and easy liquidation.*
13:35 📉 *The effective duration of a bond fund is crucial for assessing interest rate risk and volatility; higher duration means more risk.*
14:59 🔄 *Pay attention to bond fund duration based on expectations for interest rate movements; longer duration for falling rates, shorter for rising rates.*
20:34 🌍 *Corporate bonds and Emerging Market bonds offer additional income but come with credit risk; assess compensation for risk and consider the current credit cycle.*
Made with HARPA AI
Brilliant video. I always thought that the price of a bond fund that was traded moved up and down to some extent based on supply/demand - similar to equities but what Ramin is explaining here is that it is all just maths and nothing else? As an example, if there is an equity sell off and people buy bonds instead, the movement in any price of the bond fund has nothing to do with the extra demand?
I think if more money flows into bond funds you'd get upward price pressure as more money chases a fixed number of bonds. But there are important other factors.
Thank you for your wisdom. Bought a bond fund earlier this year as part of my pension portfolio because of high interest rates. Didn't realise until now how bond prices work. Fortunately seem to be in the interest reduction phase and worth holding on. But as you say watch out if interest rates start to rise😀
If interest rates are around the top, would it be a good to nab a long duration bond fund now and sell for the capital gains when interest rates drop a bit?
Fantastic video, answered a lot of questions I had about bond funds! But 2 things I'm still unsure of...
1, If we look at the "yield to maturity" % of a bond fund, does that tell us the overall current yield of the fund?
2, Does it make sense whilst the yield curve is inversed to stay in money market funds (short duration), then once you yield curve goes back to normal and you are get higher return for for longer duration switching then?
Yield to maturity is best interpreted as the average annual yield you will make going forward - and the longer you hold the fund the more it will converge to this starting YTM e.g. If you buy a 5 year duration fund and hold it for 5 years, the correlation between the starting YTM and the annual return you will make is 0.92
Are BBB US corp rating is the same as BBB Em gov or EM corp rating?
if I open a sipp with you and buy a short term sterling money market fund until I'm ready to invest in other funds, is my money protected in the money market fund by the fcsc scheme?
Ironic that he mentions funds that aren't actually on the Lightyear platform. I can't find any money market funds on my Lightyear platform
Think I finally understand the reason for bonds… I think 😏
That's great @chrismclean2989! Thanks, Ramin.
Thanks, very informative.
If I was interested in buying fixed income assets, it is not clear to me which type would be best. Which would give the better total returns, a single 10-year bond yielding 5%, or a bond fund with an effective maturity of 10-years but currently pays a much lower yield? Or are they so different you can't even compare them like this?
How does the SEC 30-day yield relate to future expected returns?
The expected return over 10 years would be the same. The single bond gives you a guaranteed return which is its advantage. The fund maintains its duration over time (and so continues to act as a good hedge to equity shocks), which is its advantage.
Hi sir, I´m making a project where I intend to make a comparison between a bond ladder strategy and a bond fund strategy on bond portfolios, in your experience, what will be the main difference between them and, is it even possible to make a comparison?
Ramin!
Personally I wouldn’t touch bonds with a barge pole. Equities every time for me, even though I am in my early 60’s
I envy your risk tolerance. I'm also in my early 60s. I'm not sure I could wait 15 years to get back where I was in the case of stock market crash, of which we've had three already in the past two decades
There have been multiple times when US stocks didn't break even, in real terms, after 20 years of waiting. Stocks pay higher returns, on average, but those returns come with a risk that you might never break even :)
VDST is this a good bond to invest in
Holding your money in short term bonds just means you'll miss out on the bounce in stocks. It's all priced in.
So. single bonds can diversify the fixed income part of a portfolio both before or after retirement? Why place all of you FI portfolio in a bonds fund which is subject to the risks outlined?
Lightyear doesn’t offer an ISA and makes DCA into British stocks uneconomic as the minimum fee is £1 per trade. I believe you’re also not covered up to 85k like other brokers. Other than those caveats it’s very good. Very fast and makes buying US stocks very easy.
(No FSCS PROTECTION to my knowledge)
15:32 So if inflation goes down, the fed rate goes down, and the lower fed rate causes the newly issued long term bond coupon to go down. Hence, a bond fund with a high maturity(e.g. 10 years) should go up, because the price of the current bonds held by the fund go up?
Great videos Ramin. In the US, under the Dodd Frank Act 2014 Bail-in, Banks that Fail could use "Unsecured Liabilities' (Cash and CDs) to bail the bank out in exchange for giving depositors bank shares, correct? That would mean that holding actual US Treasuries could be safer than holding cash or CDs in your bank, correct? Also if we go into a recession, wouldn't you stay away from in debted state munis and bonds of Zombie companies?
One should not conflate Sovereign Debt - e.g. US Treasuries or Gilts - and other bonds. Short-term US T-bills are the risk free asset of choice in capital markets that supply short-term liquidity. And they are paying better than bank deposit accounts. If you invest in a money market fund, you will only be exposed to US T-bills, and the lowest risk or volatility. Other bond funds may decide on different purchase strategies, and checking the prospectus will clarify what bonds are held. And Ramin is specifically addressing his comments to sovereign debt, and not corporate or local government bonds.
@@BigHenFor That doesn't negate the risks of the Dodd Frank Act on Depositor's cash and CDs (unsecured liabilities). Never again will the Fed have to bail-out all the banks that fail in the next crisis.
So the price of a bond fund fluctuates, same as a stock? Where would one buy bonds or bond funds?
I bought a so called inflation ucit and it went down when inflation kicked in. Weird. And annoying as it was my hedge against inflation
If you want regular interest payments, you buy individual bonds. If you want speculative price gains, you buy bond ETFs.
Very informative video. It still puzzles me, given that it is known that bond funds can fall in value when inflation is high, that "lifestyle" funds are still marketed as moving your investment into safer bonds as you reach retirement age. The usual argument is that lifestyle pension funds are designed for people who are intending to have an annuity when they retire, but Royal London, for example, have lifestyle funds for drawdown, annuity, and cash. Really bad, considering the millions that have been lost in pension funds over the past few years. I'm not sure how your pension can recover from a 20% to 30% loss close to retirement, unless you are buying an annuity.
Good points!
According to my company pension provider, Aegon the default fund is aligned to the annuity rates. So near retirement you'll be heavily into longer duration bonds. So someone retiring now or very soon will be showing a loss but they should be able to get a, significantly higher annuity rate to compensate. And vice, versa. If it had been the other way around they would in theory have more money in their pension pot, but lower annuity rates. So in short the idea is to try and maintain a steady annuity income at the retirement date. Someone now at age 65 or more may be showing a significant loss since 2021 up until the present. But they should be able to get a lifetime annuity at say 6%. So it may still be a good time to buy their annuity, it may even be better than say what they would have got in 2019 at 65 yrs with more money in the pot due to the higher percentage annuity rate now. If you know you are definitely not going to buy an annuity, then a default life styling fund aimed at annuity buyers is not for you. You need a different strategy. But remember no one can successfully time the markets
@@fredatlas4396 and what happens if you had no intention of buying an annuity? With an annuity, if you die early, your money is gone. With drawdown, if you die, your family can inherit your pension pot.
@@MattMcQueen1 obviously as I said you need a different fund, or funds. But as I see it the main problem is no one has a crystal ball. Investing is inherently risky, a pension fund with no or extremely little risk will have very little returns, so you won't make enough money to retire on. Annuity rates are looking very good right now, especially for some one 65 or older. You could still get quite a good rate now for an annuity that will continue to pay out for your wife or husband, other half if you die, so not lost. But I see your point. You can do a drawdown, but it looks like the concensus is a 4% withdrawal rate is sustainable, if you take more there is a, real risk of completely running out of money before you die. So in that case you've still lost your money and in big trouble, versus a risk free guaranteed 6% say every year, payed into your account every month. So if you've no dependents then a straight annuity is looking very attractive right now. And if your only source of income will be the state pension plus a sipp etc are you OK with taking the required risk of a drawdown pension. 100% equity portfolios, even broad market index tracking funds, etfs can go down by up to say about 53%, or have a very long pretracted bear market, taking 10 yrs or more for your portfolio to recover just to where it was before the crash started. So that's why diversification accross regions, sectors and asset classes is very important. If you are looking to do a drawdown at retirement you should of course have enough money to start with, and initially put some into cash to cover say maybe 6 yrs or more income. And diversify your investments, that means some bonds. If you were planning to retire say in 2 yrs time, 2025 and 100% in equities now you might be rightly feeling good at not having lost on the bonds. But of course the bond funds could recover by 2025. But come 2025 and we got a market crash, stroke recession, and your equity portfolio went down by 50% you'd be in big trouble. So you might be able to postpone retirement for 2 yrs, but what then if it still hasn't recovered. So even with a drawdown you don't really want to be all in equities near to retirement unless you have alternative, reliable source, sources of income. What are your thoughts. Personally my worry is not enough money, and I think I've meses up a bit listening to bogleheads etc and put some of my portfolio into bonds in 2019 which has been a, big mistake. The reason appears to be that bonds have been in a long bull market, due to low interest rates coming down for yrs. So now with this unexpected interest rate rises with inflation out of hand it has decimated the bond prices. But the likes of bogleheads were still saying bond funds were important and stiil a good idea to reduce risk 🙄. I will be just waiting now, maybe rebalancing once a year , buying a bit more of the cheaper bond fund. And hoping the bond fund prices recover fully before my retirement
@@fredatlas4396 also, as I said, Royal London have a lifestyle fund aimed at drawdown. It made the same loss as the one aimed at having an annuity.
Bond funds make a simple investment overly complicated and volitile. It's not hard to invest in short-term fixed interest to return a dividend with capital guarantee.
bonds are long term investments which pay a fixed rate of interest higher than inflation.
unless inflation is calculated falsely, and then you are locked into losses.
What’s the difference in premium bonds
Premium bonds don't have a guaranteed yearly payout (coupon) which regular bonds do. With premium bonds you are gambling your coupon for the change to win a substantial amount. If you only own a few premium bonds you stand a good chance of getting essentially nothing, if you own a lot you'll probably get around the average return which I believe is about 4.6%. Like regular bonds they are government backed so safe as houses and you can sell them at any time. I never saw the point in premium bonds, you can get the same rate in a normal bond fund and it's damn near guaranteed.
@@WobblycogsUk hey thanks for info. so premium bonds is more of a lottery.. more numbers you purchase better chance
Yes, I either hate, or don't understand, bond funds! Why is buying bonds, or gilts / treasuries, so difficult, for ordinary people / investors? By the time I wanted to buy one, and eventually found out how, it was too late!
And 'bond funds' expenses, are ridiculous, and undermine the point?
My advice to myself henceforth is to stay away from bond funds (having burnt my fingers with VGOV) and stick to equities which are more straightforward to read. The best hedge against fluctuating equity prices is not bonds but time, and DCA. With time, equities will return real value, unlike bond funds, regardless of risk tolerance.
It’s interesting that finance CZcamsrs rarely tell you their own risk appetite and portfolio allocations…
Stocks are very volatile, bonds have now repriced themselves, the correlation should now be back again, throwing the baby out with the bathwater now may not be great. Just my opinion.
As a very wealthy man said once, “ if it takes someone more than three minutes to explain their investment strategy, then walk away.”
Unfortunately this video perpetuates the myth that single bonds somehow have different expected returns to a bond fund. This is simply not true, which should be pretty obvious given that one is just a grouping of the other.
The primary misunderstanding is due to the focus on bond prices to determine their value rather than the total return. When a bond fund 'falls in value', it is because the price has fallen but the future interest payments have gone up. Holding a single bond hides the exact same loss due to switching the price decline for losing out on higher future interest payments.
Looking at the comments it is a shame that people believe they should avoid longer duration funds, and are being pushed to money market funds or individual bonds. Longer duration funds remain an efficient way of hedging equity risk and do have predictable returns if held for the duration length or longer.
You're missing the point. With a single bond, you can hold to maturity to lock in a specific return. You can't hold a bond fund to maturity. In the worst case, you'd have to hold the fund for TWICE its duration to be confident of earning the starting ytm
In other words bond funds are as unpredictable as equity funds. What a shame this type of investment was called "fixed income" by many vlogers and therefore missleading investors by creating an illusion of relatively safe asset.
Take a sipp.
Always avoid junk territory.
So you're saying my TMF 3x 20+ year Treasuries fund isn't a stable investment? 😂
No open-neck shirts please.
8-) I've been told the same thing by Laura - you'll notice I've started to button up! Thanks, Ramin
I dont believe in bonds, I see them as yet another tax. Returns are small in the long run. You lend your money to get back a pittance of interest which is generated from the dilution of other peoples savings. The whole thing is a racket
You have to judge risk vs return. The lowest risk bonds are almost never worth it. Large institutional investors buy bonds just not 💩 government bonds. Banks that loan out money have technically leverage bonds positions with the fractional reserves.
@@djpuplexExcept it’s never as simple as that. T-bills (treasuries issued for less than one year) are currently returning about 5.4%. Also right now the S&P earnings yield (not dividends - total yield) is 3.98%. Hence you have the choice of a higher return at low risk or a lower return at high risk and this is why there is a lot of demand for T-bills at present. Also right now, the market is slowly grinding up, but that’s because it’s being driven my mechanicals (markets switch between being driven by mechanicals, technicals and fundamentals). Sometime in the not-too-distant future the market will return to fundamentals and there will be a requirement for a risk premium over T-bills. When that happens the market will drop to bring things back in line - maybe by up to 40% if T-bills are still paying 5.4%. This is one of the reasons why so many people expect a crash in 2024-5.
Baffled me why people below 65 own bond funds