At age of 25 i am new to the whole investment and personal finance world and aside from putting money in an ETF and 401k I am learning about government bonds. Are they worth it?
I have a weird feeling the market will crash and I want to learn about safer ways to protect my savings / invest.
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Depends on the government. U.S. government bonds are considered the safest investment vehicle there is. At 25, you want your bond allocation to be pretty low though.
I have considered bonds too, the trouble is bonds are really bad investments at the moment. They offer historically low interest rates. If you buy into these and interest rates go up you will lose out. If the American economy continues to do well then an interest rate rise may be considered. Stock options arem ore risky and volatile so it depends on the level of risk you are willing to take.
Oh yeah, keep in mind that in addition to savings bonds, there are treasury securities. 10-year Treasury notes are a market staple.
If you actually want to hold bonds, what people often do is build a bond ladder to spread out the interest rate risk.
Yes that is better, a mixture of short, med and long term bonds in an index or something similar
Yeah. There are also bond funds that will do this for you (you're paying a fee then of course).
Many people don't hold bonds for the return on investment, but rather to dampen volatility of the overall portfolio. Just something to keep in mind.
No. Unless you want to lose all your money.
1. Rates are in historical minimum (therefore your annuality or semiannuality coupon you will get will be very low).
2. Fed already announced a raise in its rates and the end of QE. ECB will follow soon. This will make interest rates of gov bonds increase. Which means that if you buy one before the increase your price will decrease like hell.
Basics of bonds: negative correlation between price and interest rates. Also the higher the maturity the higher the impact will be of rates in the price of your bonds
The ideal was to invest during the european sovereign debt crisis 2-3 years ago. Not know. Drop all the bonds. Unless it's for specific hedging purposes
people who invest based on "weird feelings" deserve to lose all their money
find a sector you know a fair bit about
pick fairly liquid companies in said sector (traded more than once in a blue moon)
value cash flows based on defensible assumptions and reasonable expectation of risk
if cash flows to equity, discounted to present value signal that the share price is lower than it should be, buy
congratulations, you're now a rational investor making decisions on fundamentals
Thank you. That does make sense. Aside from a relatively lower risk ETF, 401k, is there anything else you suggest I do to help me protect my savings from inflation?
how do you know present value? is it equity / number of shares?
>Fed already announced a raise in its rates and the end of QE. ECB will follow soon. This will make interest rates of gov bonds increase. Which means that if you buy one before the increase your price will decrease like hell.
Huh?
The fact that the Fed already announced the rate hike means its already been priced into the market. Same with the expectations of action by the ECB. When something is going to happen or people believe its going to happen, the pricing change happens immediately, not the event actually happens. So this statement:
>if you buy one before the increase your price will decrease like hell
is just plain wrong.
Not to mention, user, the Fed ended QE back in 2014. It's hard to take you seriously when you don't even know important things like this.
>look at me! I can predict the value of securities years into the future!
your bond holdings should be as diversified as your equity holdings, OP
pick a percentage of your portfolio to remain as bonds and stick with it
>I have a weird feeling the market will crash and I want to learn about safer ways to protect my savings / invest.
What's the point, if you're 25 you won't be touching the money for 3 decades
What does it matter if the market takes a shit in 2018, it will probably do it again in 2025 and 2034 which is still 15 years away from your retirement
Put everything into the S&P500 for 15 years then in the 15 years before your retirement, gradually shift the ratio of invested funds to a Vanguard target retirement fund
invest in ethereum
This. Choose a rational asset allocation, including a diversified bond holding, based on age and risk tolerance. Buy and hold while periodically reevaluating your situation, including taking into consideration the changing nature of the your other finances. Done.
BUY BRAZILIAN BONDS
how many is that
>Not to mention, user, the Fed ended QE back in 2014. It's hard to take you seriously when you don't even know important things like this.
Kek. In 2014 Fed said it would start to reduce QE whenever it would be appropriate. And it started to reduce QE, but it's still ongoing. Here you go:
ft.com
fortune.com
And to the other shit you said. OBVIOUSLY
expectations are placed into the price, just like any security, but still doesn’t mean that when FED announced increase in interest rate just like they did short time ago, prices change.
>your bond holdings should be as diversified as your equity holdings, OP
pick a percentage of your portfolio to remain as bonds and stick with it
You are talking about reducing volatility of your portfolio (or the risk), which is what they teach you in any investment class at uni. Good I see you payed attention to the basics. However iff you payad attention to bond and Fixed Income class you would know that it is still a stupid decision to buy gov. bonds when you know
1. Rate at historical lows. In Europe they’re even negative
2. As soon as rate spike price of your bond will drop + missed opportunity to get know for the same money less % rate. And you cannot sell it until 5 or 10 years because the price of your bond dropped.
Obviously if you buy you reduce your Risk of the global portfolio because gov bonds don't have risk (assumed). But if OP is looking for a LT investment investing in bonds is definetly not good.
"Purchases were halted on 29 October 2014[65] after accumulating $4.5 trillion in assets.[66]"
en.wikipedia.org
Just stop.
Put it into an ETF that tracks a bond index.
>it is still a stupid decision to buy gov. bonds when you know
>1. Rate at historical lows.
Rates were at historical lows in 2011 and 2014 too ... and yet long-term bonds were the best performing asset class in the world. Stupid decision, huh?
The fed continues to hold LT assets and when they mature they purchase more. There is concern about the effects of the Fed letting these LT assets off their balance sheet, which may be starting this year. Just because they stopped growing doesn't mean they stop buying.
>if OP is looking for a LT investment investing in bonds is definetly not good
You just keep saying stupid stuff. Sure, bonds aren't going to keep pace with stocks in the long term. But over many years, they're safer, easily outpace inflation, and have excellent track record of performance and wealth growth.
I eagerly await your next dumb comment. /s
The Fed has always bought and sold financial assets. It's part of their core responsibilities in terms of managing inflation and monetary velocity.
But yes, you're correct that the balance sheet is a bit swole these days due to QE. But much of the assets that the Fed acquired during 2009-2014 are low-yield securities. They aren't going to find much of a market for those now that rates are headed up.
>Just because they stopped growing doesn't mean they stop buying.
You just contradicted yourself. The Fed buying puts UPWARD pressure on prices. You should be concerned about the Fed selling, not buying.
To add to your point:
If OP has an infinitely long time horizon then sure, stock are a good choice. Otherwise he shouldn't invest completely in stocks.
Why? Because their value fluctuates significantly, and he may need liquidity at times of low value. He does not know if the market will go up or down in the short/intermediate term, so investing purely in stocks for the short/intermediate term is foolish.
>infinitely
I agree with everything in your post except the word "infinitely" in terms of an appropriate time horizon for a stock-heavy portfolio. It would not be unreasonable for someone with at least a five year investing horizon to put the predominance of their assets into equities. Longer is better, of course, but demanding an "infinitely long time horizon" sets the bar a tad too high.
Best advice in the thread. It really is just this simple.
fuck this funny shit
index shit sucks too, you WILL shit your pants when business cycles go down the toilet
invest in REAL TANGIBLE ASSETS such as real estate or precious metals
how do i put into S&p 500?
Well my stupid comment is you put in the chart High Yield Bond Index aka Yunk Bonds. Obviously high yield bonds are performing well because you hace to pay a fucking HIGH YIELD. But then again that is not comparable to Government Bonds (I guess OP speaks about US and EU). Also High Yields Bonds Index include Corporate High Yield Bonds which again pay a higher yield than normal bonds.
There is no correct strategy for bonds, it depends on the trader portfolio or position. But for a LT investment, PERSONALLY, I wouldn't recommend buying Gov. Bonds as for example the US 10Y, because during 10Years you would be stuck with (yes 0 risk) but merely 2.2% as of today. One year ago it was 1.7%. In January is when the outlook for US economy came out I think with possible increase in inflation therefore Rates jumped. But if you believe that this trend will continue and it is a LT investment, I would preferably wait some time until I get stuck with 2.2% for 10Y which I wont be able to sell if rates continue increasing. but then again each trader has it's strategy.
and btw the chart is too old to be relevant. Zoom in to see the last years. Equities is outperforming.
Now I don't say I would invest in equities as for me its too risky atm but neither would I in bonds, unless its really
I could give you the answer, but it really is for your own (financial) good if you find out yourself. Good luck.
>You just contradicted yourself. The Fed buying puts UPWARD pressure on prices. You should be concerned about the Fed selling, not buying.
Yeah but another issue is at what path is the FED printing money and at what % rate it is giving it to the banks, which directly impact Bonds' Coupon and its Pricing.
>index shit sucks too, you WILL shit your pants when business cycles go down the toilet
For a buy and hold strategy to work one has to remember the hold part. If you panic and sell off at the bottom of a cycle you are not clear on the concept.
Is it a good idea to invest in 2Y US bonds just to get the citizenship?
>the FED printing money
I just KNEW you had another dumbass comment in you, sport! The Treasury Department controls the money supply, not the Federal Reserve.
Thanks for living down to my expectations.
federalreserve.gov
"The Board of Governors (the Board), as the issuing authority for Federal Reserve notes, approved and submitted its fiscal year (FY) 2017 order for approximately 7.1 billion Federal Reserve notes, valued at $209.0 billion, to the U.S. Treasury Department's Bureau of Engraving and Printing (BEP) on June 27, 2016"
You didn't say the Fed issues orders for federal reserve notes. You said the Fed prints money, which is not true.
won't fall for this troll anymore. I'm from Europe, we have the ECB. I don't know the exact names of the departments in the US, but I know that FED issues the orders aka decides on the monetary policy and the treasury just prints. So your statement is wrong.
>"I just KNEW you had another dumbass comment in you, sport! The Treasury Department controls the money supply, not the Federal Reserve."
Thanks for picking up a stupid discussion instead of continuing debating about the bonds. Huh maybe it was your chart from 1960 till 2013 with High Yield Bonds that was not very convincing huh? Is this the reason you starting this loser discussion about FED printing money or not? It's just an expression mkay? It's like saying the US didn't bomb Afghanistan, it was a plane who bombed it. Let me know when you have something productive to say again.
>you're paying a fee then of course
Bond fund fees are extremely low if you're getting one of the sensible ones. Check out Pimco's offerings, or Vanguard.
Right now, for government bonds, the best thing to do is look for a fund with short term duration. (Usually, you want a mix, but since 98% of everyone who cares is pretty damn sure the Fed's going to jack up the rates, short term is far better.)
Of course, by putting money into bonds *at all*, you are not maximizing your return (vs stocks). But you asked about bonds...
Just because your European doesn't make it OK for you to be constantly wrong. Despite the handicaps you were dealt, the information is out there if you work to find it.
When people talk about the U.S. Government "printing money" what they're really talking about is the Treasury Department issuing new government debt instruments ("Treasuries," "Tbills") and selling them (auctioning them, actually) to the private market. The issuance of these securities is controlled by, and limited by, Congress.
Alternatively someone could be talking about the literal printing of money (putting ink on paper), which is also done by the Treasury Department.
The Fed has many policy tools that can directly affect the amount of currency in circulation, and the velocity of money, both of which have a substantial impact on inflation, credit, and GDP. These are very important functions, but in no world are they referred to as "printing money."
But if you'd rather talk about bonds, then say something intelligent about bonds. I honestly can't have an adult discussion with someone who says something as stupid and pedantic as, "high yield bonds are performing well because you hace to pay a fucking HIGH YIELD."
>how do i put into S&p 500?
Either mutual fund (Vanguard VFINX) or an ETF like SPY:
personal.vanguard.com
google.com
Look you are a complete Moron.
In my comment I stated the fed decides at what % rate it is lending it to the banks, which directly impact Bonds' Coupon and its Pricing. Which is far more important than the shit you say about reselling of assets boughts, when it comes to pricing of to new be issued bond. You obviosuly hadn't mentioned that and decided to nitpick on my comment about printing money. Yes idiot Treasury prints money, but who gives submits orders of printin money? Check the link above again.
2nd in your EXCELLENT chart of from 1960 to 2012 about High Yield performance, which you very smartly decided to include in the debate of weither in 2017 somebody should buy goverment bonds metions the Return. Now how do you calculate return? Return is Capital Gains + Dividend Yield or in the case of bonds coupons. High Yield Bonds have higher coupons (an risk) than Gov Bonds, therefore obviously the Return will be higher than Gov Bonds. For the same money payed to get higher coupons for non investment grade bonds than gov bonds. Understood now? Next time I would try to use a chart which is more up to date and maybe talks about the right subject.
>Which is far more important than the shit you say about reselling of assets boughts, when it comes to pricing of to new be issued bond.
I fucking GUARANTEE you that Fed's purchase of financial assets (e.g., Operation Twist) has a much larger impact on the price of bonds than the ordinary rate operations conducted by the board. Or did you suddenly forget that it was quantitative easing that drove the pricing of bonds from 2009-2014? I realize that you're too stupid to know that QE ended in 2014, but surely your memory isn't so bad that you've forgotten things discussed earlier in this thread?
>EXCELLENT chart
Thanks, it is an excellent chart. It directly proves that the moron who said:
>if OP is looking for a LT investment investing in bonds is definetly not good
is a fucking retard. Notice how the retard didn't limit his retarded statement to government bonds, but instead made a broad generalization (a retarded one, btw) about bonds as a whole? Hence someone looking to refute such retardation would be well within the gamut to post a chart of high-yield performance.
Oh, were you the retard? I'd forgotten.
/thread
I would recommend you reading OPs statement again. He talks about Gov Bonds not High Yield bonds.
Kek
Why would you want US citizenship? It's shit.
what us has an option like that? how much do you need to stuff in it?
>I would recommend you reading OPs statement again. He talks about Gov Bonds not High Yield bonds.
And I recommend reading your own statement again, because you most definitely were not talking about government bonds.
>what us has an option like that?
None. You're being trolled, kid.
>None.
yeah it was weird but my country has an option like that for example, so i was like whatever maybe it's some trump thing.
>>I would recommend you reading OPs statement again. He talks about Gov Bonds not High Yield bonds.
>And I recommend reading your own statement again, because you most definitely were not talking about government bonds.
says the guys who uploaded a charts until 2012 (note we are in 2017 now - gap of 5 years in capital markets - bravo) about High Yield Bonds. Kek, get off your high horse moron.
They are called Golden Visa. And it gives Permanent Residency not citizienship. Few countries offer them.
>says the guys who uploaded a charts until 2012 (note we are in 2017 now - gap of 5 years in capital markets - bravo)
It was the first chart on Google and since the person I responded to specifically made a claim about LONG-TERM performance, I was looking for any chart with at least 20 years showing.
But since you're a cock-gobbling white-knight desperate to see recent high-yield performance, here you go. Just as I said before: high yields are an excellent long-term asset, and while not at the level of equities (risk/reward is still a thing), they provide outstanding returns for those looking at at a slightly less volatile asset class.
Shove that up your well-lubed asshole, and think twice before jumping into a thread unprepared.