What are bonds and are they worth it Veeky Forums (confused because everyone tells me different things)

>Government bonds
>5%-7%
>Bad
Okay kiddo, if I had a 7% US Treasury Bond there would be literally 0 reasons to invest in mutual funds. Modern bonds return 2% per year and that's on the biggest timeframe.

The index went up because bond yields have fallen to record lows. You realize bond prices and bond yields have an inverse relationship, right? If you buy long-term government bonds right now, they're going to lose value as soon as yields start to trend back up.

WTF are you talking about retard? The reason long-term bonds have increased in price recently is the expectation that the Fed will delay interest rate hikes until 2017. It has nothing to do with a relationship between yield and price.

And while you're correct that long-term bonds are more interest rate sensitive, understand that is simply part of being a bond investor. It's also why you should own a diverse collection of bonds with varying maturities.

I posted the pic I did because idiots like you come into threads like this and give horrible advice. "hurr durr bonds suck." Fuck you. Bonds have their place in any well-constructed portfolio, and they can be extremely rewarding investments.

Fuck off and come back when you get a basic grasp of finance.

I never said bonds suck. I said don't buy bonds now. I don't think that is bad advice. Perhaps I should specify long-term bonds.

The yield on a 10 year treasury note is down 30% since the beginning of the year. If you think that has nothing to do with why a long-term bond index would be up since the beginning of the year, you are missing something.

>I don't think that is bad advice. Perhaps I should specify long-term bonds.
YTD returns tell a very different story. While past results don't indicate future performance, a 12% return is extremely noteworthy.

>The yield on a 10 year treasury note is down 30% since the beginning of the year.
Don't be misleading. Yield is down 0.6% YTD, but asset value is up over 12.6%. That's a net gain of 12% YTD. On an essentially risk-free asset.

Bottom line: if people took your advice, they'd have missed out on that return. If they took mine, they'd be considerably wealthier than at the beginning of the year. That's what really matters here.

I didn't give that advice at the beginning of the year. I gave that advice about an hour ago.

>I didn't give that advice at the beginning of the year. I gave that advice about an hour ago.
People like you have been giving that advice since 2012, and anyone stupid enough to listen has missed out on significant returns in the long-term fixed income market.

Besides which, the reason to buy bonds is to make your portfolio meet your asset and risk allocation goals. Trying to time the market -- including the bond market -- is just stupid.

Well okay how much bonds should I buy if I was to

Okay, but I'll take my 90% total return from the S&P 500 since 2012.

I'm going to concede that I would not have recommended buying long-term bonds at the beginning of the year. The value did go up. But that is short-term/speculative investing. My advice comes from a buy and hold standpoint. Sure, you can buy bonds now if you think there is some more short-term gain to be squeezed out, but in the long run, you are not going to see a good return from them.

>Well okay how much bonds should I buy if I was to
For most people in the 18-28 year range, something like 10-15% in bonds tends to be a good fit. As you get older, most people tend to increase their bond allocations.

>90% total return from the S&P 500 since 2012
1. What is risk-adjusted return?
2. The point is that you should have gotten both.

>But that is short-term/speculative investing.
No it's not. The only reason I'm pointing out the notable returns in long-term bonds is because people like you spread mis-information about bonds. I've already said the reason to buy bonds is to meet your asset and risk allocation goals.

Its funny to see you backtrack, post after post. Maybe in the future you'll think twice before giving portfolio advice when you clearly know very little about the subject.

I still stand by my advice that I would not buy long term bonds right now. I have qualified that by saying I am a buy and hold investor with a long time horizon. As someone in my late 20s, I see no need to be holding long-term government bonds right now.

I am clearly not disagreeing with you on a lot of your points, but your passion for bonds seems to be making you quite combative. I am logging off Veeky Forums for the night, so I'll leave it at that.

I don't have a "passion for bonds." I'm simply interested in seeing people get good financial advice and build intelligent, sound, diverse portfolios. You're free to invest your assets however you choose, but if you're going to give poor advice to others, don't be surprised when someone takes issue.

Sorry but the evidence shows that bonds are poor vehicles for reducing risk. Especially since higher inflation is being expected.

>the evidence shows that bonds are poor vehicles for reducing risk
[citation missing]
>higher inflation is being expected
[citation missing]

Jesus, the retards are out tonight.

>bonds are poor vehicles for reducing risk
ORLY?

Thanks to market efficiency all you need to remember is returns are proportional to risk. That being said, it is entirely dependent on your risk tolerance.

(see efficient market hypothesis,)

>are they worth it

Entirely situation dependent. Conventional wisdom says to slowly allocate more of your portfolio to bonds as you get closer to retirement, with 90-100% in stocks if your're under 40.

Don't get tricked by the high yield bonds posted, they have a matching risk profile. There's no free lunch.

>high yield bonds
You do realize the bonds I posted above are U.S. Government Treasury Bonds, right? I think you're confused about what high yield bonds are, because treasuries are most definitely the opposite of high yield bonds.

Long term treasuries have interest rate risk, like any other long term fixed income security. But they have ZERO credit risk. Please take the time to understand the difference.

Bonds are debt to the issuer and investment to the buyer.They have a face value and coupon rate(interest rate). The bond pays interest periodically, for example annually; however, it could be quarterly payments. The annual payment is determined by multiplying the face value by the coupon rate. After the term of the bond is complete, the bond will pay out the final payment and the face value of the bond.

The amount you pay to buy the bond is not always the face value of the bond. The amount paid for the bond is determined by the market interest rate. If the market rate is higher than the coupon rate you will pay less. If the market rate is lower than the coupon rate you will pay more for the bond. This is what you have to keep in mind if you want to sell the bond before the bond term is over. If the market rate in the future is higher, then you will sell your bond for less. It the market rate is going to be lower, then your bond will be worth more. Since market rates are low now and everyone expects them to go higher, any bond you buy now will probably be worth less in the future assuming rates go up.

Nice cut-and-paste from a textbook. Also, pretty useless for an individual investor since bonds trade on closed and semi-closed markets.

Individual bond investors buy bond funds, which are managed by professionals. These may be indexed or actively managed, but in either case the fees tend to be low compared to actively managed equities. While a bond fund investor does need to be aware of interest rate risk, the fund ameliorates that risk to a degree inherently. Because the fund manager is typically aiming for a target average maturity, the manager is constantly buying and selling individual bond holdings. If rates are rising, he'll be selling older low-yielding issuances and acquiring the newer bonds with higher yields. The reverse is true if rate are falling. In this way, the fund tends to more closely represent current market conditions, certainly better than any individual investor buying individual bonds could ever hope to achieve.

>Nice cut-and-paste from a textbook.
ATQA, The question is what are bonds not what are managed funds or indexes.
>Individual bond investors buy bond funds,
I can go into my brokerage account today and buy bonds. I can also do funds or indexes. It is investors choice.

>I can go into my brokerage account today and buy bonds.
and get raped on fees and execution. Learn to read, dumbass. Go copy investopia quotes into other threads and leave the adult conversation to the adults.

URRE