Switch Stocks For Bonds
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- Опубликовано: 30 июл 2024
- A very exceptional thing has just happened: the yield on US 3-month Treasuries, US investment grade corporate bonds and the forward earnings yield on US stocks has equalized. Some have taken this "yield parity" as a signal that bonds are about to outperform stocks. But what is the evidence behind this, why did it happen and what does it mean for future returns on stocks and bonds?
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Timestamps
00:00 Introduction
00:39 Equal Yield On Treasuries, Corporate Bonds & Stocks
05:25 Yield Definitions
06:20 Bond Returns
11:03 Stock Returns
17:21 Conclusion
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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.
You have such a gift for explaining these complex themes so simply, and with such honesty. It’s hard to find financial advice that’s unbiased … maybe impossible. Thank you.
My pleasure @WakeThief Thank you for watching! Ramin
a new investor, Alphanso Investing can provide a useful experience by guiding you through the process of buying government treasuries and offering personalized investment recommendations using advanced machine learning and AI algorithms.
Very informative and helpful post. Well explain about Alphonso Investing. Such a useful content. Thanks for sharing this.
I completely agree on the benefits of investing in government bonds, but for those who are interested in exploring equities, Alphanso Investing's advanced machine learning and AI algorithms coupled with experienced analysts can provide a user-friendly and useful experience for investing in the stock market.
Thanks!
Your mention of the Bogleheads Forum is welcome! Participation is free. Over the years, I have learned a lot from them.
Thank you @krumw2 much appreciated! Ramin
Hi Ramin, I'm 30 and this year after the bond fall, I started adding 10% of the long duration gilt fund this year. While I'm not expecting stellar results I'm planning on selling them for stocks later when they diverge.
Thanks for another good video my man. The bogleheads graph of the bonds and stocks, it makes think now do we need a "magnificent 7" adjusted data. Seen as taking those companies out the nasdaq causes the index to go negative (at least very recently). They will also hugely impact the SnP.
Economic investigator Frank G Melbourne Australia is still watching this very informative content cheers Frank ❤
How can the 10 year forecast nominal return for Global equities ex US be 7.4% when the expected return for Global developed market equities ex US, and Emerging market equities are both 7.1%? Are Frontier markets expected to return more than 7.4%?
Always be buying.
If BoE raise in Aug will this mean a fall in UK gilt prices, ie. One price at 96.50 now coukd then be 96.25 if they up by 0.25,%?
Just recently found your channel. Thank you :)
You’re welcome 😊@PhillCurtis
Hi, Where is the link you mention on how to buy government treasuries please?
I think one of the best ideas to come from this video is don't sweat too much if your AA is 80/20 instead of 90/10 or 60/40 instead of 70 30. The nice thing about today is the cost of sleeping better at night is alot less than it was several years ago. Also, diversity is key. The bond ETFS are usually a mix of multi duration bonds. Same return, less risk.
What bond ETFs do you think are worth looking at?
So thorough as usual. Thank you!
Glad it was helpful! @frixosfriedman7813
Thoughts on Tritax big box during these high interest rate and high inflation period?
It's about time to get into bonds as the peak interest rate cycle is probably near the end. However, please have a sensible allocation of stocks and bonds. Going all in and all out is a bad strategy for anyone. The avg 30 year old should probably in 80% stocks, 20% bonds. Allocate appropriately for your age bracket. Timing the market is a bad idea as nobody can really do it time and time again accurately. Are stocks overvalued? Some sectors are and some aren't. Small caps indexes are undervalued. However, markets can stay overvalued for years and years. Trying to time the market and you miss out on all the gains. You will be kicking yourself in the ass.
Hi Ramin, great video as always! Is there any reason why you should buy into a bond fund instead of an individual gilt? My advisor has been pushing bond funds on to me, but as I understand it, all I'm getting with a fund is more risk, as if rates rise more, then the value of the fund will go down?
Hi there! It's always important to do your own research before making investment decisions. However, Alphanso Investing can provide a useful experience by utilizing advanced machine learning and AI algorithms, as well as employing seasoned analysts to provide personalized and comprehensive investment advice.
Ramin, Why on the 10 year nominal return forecast are they ex U.S. for best return, Do Vanguard expect the U.S. to underperform the rest of the global equities market over the next decade ? As the norm has been weighted heavily to U.S.
UK equities are dead cheap! This is the time to be buying the ftse250!
Any thoughts on moving my pension to a bond fund (Zurich)
I just had to say that I liked this in your newsletter: "Yes, I use kilograms. I am a scientist, not a medieval corn exchange"
Thanks :) @@garycurtis4597
Where can i buy these bonds mentioned on video? IM from EU
Excellent. Thank you 😊
You’re welcome 😊@alexm7310
Thanks for another great video Ramin.
My pleasure @edsmith220
Once again Ramin, thank you for making, what for me is confusing, much easier to understand! 👍🏻
Thank you @tknapp Happy to help! Ramin
Self-driving cars definitely had a hype period comparable to the others you mentioned. Today, though, in Phoenix, I can order a self-driving ride to the airport with an app and generally save some money vs any other service. In addition, on a normal drive today, I saw two other companies self-driving vehicles on the streets, just buzzing around, empty of humans, testing or gathering data or whatever it is self-driving cars get up to. They seem to drive quite well overall. So not hype anymore.
These technologies, including AI, are all somewhat hyped, but they aren't *just* hype. They represent future trends which will have a huge economic impact as they become useful, so investing in this sector over the long term (10 years+) will be profitable, but it's not clear in the short term (say, upto 5 years), which companies will be successful, which is why you're better off investing in a fund, preferably a tracker.
If buying a short duration bond and holding to maturity is going to Yield 5%, could this also be achieved through buying a short duration bond fund/etf? Or will further interest rate hikes negatively impact their returns?
Buy money market funds that hold that short duration debt, they are not volatile will tend to that 5%, pay monthly ( currently 4% for sterling funds - look at the last couple of months yield not the annualised trailing yield your platform shows as that trails alot during a hiking or reducing cycle )and you can choose when to rotate out of them as, or rather if, interest rates fall.
Alphanso Investing can provide a useful experience by utilizing their advanced machine learning and AI algorithms to analyze current market trends and provide personalized advice on whether investing in a short duration bond fund/etf or buying a short duration bond and holding to maturity would yield greater returns taking potential interest rate hikes into consideration.
Great explanation! I agree about high prices in S&P 500 mainly in tech stocks. Otherwise, ex-US stocks are cheap. In this moment, short term bonds likes good.
Thanks for sharing @leonelcarvalho4465
As a new investor, I have yet to explore bond ETFs on Trading 212, but I would imagine Alphanso Investing's advanced machine learning and seasoned analysts can provide valuable insights and recommendations on the best bond ETFs to invest in.
I just saw an explanation from Guy ( a British fellow ) that Yellen comments in US Congress, that US wants Inflation down ( thats why high interest in bonds ), while OPEC, RUS and CHN want inflation up. There is some sort of currency war out there. And JPN is at 4% inflation and W. Buffet is happy to buy japanese companies.
But how long it will keep with high FED funds rates ? Michael Howell ( another British ) explained that FED is currently QT and QE at the same time, FED liquidity didnt decreased too much, and money is entering the Growth Stocks. The FED is using the RRP market system ( Shadow Banks ) to do job.
Hi Ramin. Would I be right in saying that long dated bond/gilt funds should rise if and when interest rates fall, by approximately their duration - so a 1% drop in interest rates should result in a 10% increase in a 10y bond fund?
Yep long dated bonds will see the biggest total return once interest rates fall back to normal (some basic assumptions there) vs short duration bonds.
" The interest rate falls back to normal"
I would like to know the ' normal ' interest rate.
@@tomsjose4uwell, if the median interest rate for the last three centuries is 5% I'd say we have about hit normal... although still not back up to the rates of my youth...😂
@@tomsjose4u Overnight rate of 0.25-2.5% annualized.
That's right (roughly). The duration of a 10 year bond is usually around 7 years, with the actual number depending on the bond coupon,. A higher coupon means you get your money back sooner so it reduces the duration and at the other extreme a zero coupon bond's duration is its maturity so a 10 year zero coupon bond would have duration of 10 years. The duration maths works the same for a bond fund as it does for a single bond i.e. the percentage change in the bond fund or bond is -duration x yield change. Thanks, Ramin.
So $TLT is one of the examples right?
When you can get 6% from a savings account, what’s the point in bonds at the moment?
if you have a s&s isa you can hold your cash in bonds and/or money market funds, relatively safely, until the market calms or you find an investment you like and it stays untaxed.
Your 6% savings account, will come from normal savings and great rate, but will be taxed if interest exceeds your limit. Sadly you can't get good cash saving rates inside an ISA. I don't know why.
In the EU you can get 4.5-5% deposit rate for 12-18 months right now in Northern Europe. This was at best 1.5-2% before, and this is for just 1-2 banks in the areas, most had around 0%. Can't really buy bonds unfortunately in my country, all the options for buying actual Bonds for me carry a pretty hefty fee and not worth it, not worth at all.
5.6%+ risk free in the uk. What bonds can compete with that I don't know.
If you’re in The Netherlands Meesman has 2 bond index funds (worldwide and Europe). Very affordable.
I completely understand your frustration with limited investment options. Alphanso Investing's advanced machine learning and AI algorithms, along with seasoned analysts, can provide you with customized and user-friendly investment advice to help maximize returns and navigate complex markets.
Ill keep buying profitable companies at cheap valuations, thanks
I’ve already been buying short end UK Gilts (Jan 24 and Jan 25) as they are paying 4.8-5.1%. Even better the capital gains is tax free on these bonds so you look for the low coupon and pay almost zero tax. Why would you be in the equities market right now?
That is not short, we need one month or 3 month bonds like thay have in the states.
@@efootball_clipz Short end is normally up to two years - for example the yield curve inversion is tracked as 2Y vs 10Y. However I am mostly buying up until April 2024 - TG23 (Jul 23), TN24 (Jan 24) and TG24 (Apr 24). They all have a face yield of 1% or less and a YTM of around 5%. I will roll into TN25 (Jan 25) as the interest rates rise to 6-7% towards the end of this year. Yes - it's slightly frustrating not having access to something like the T-bill market (which I am parking some of my dollars in - currently Sept 23 maturity), but it's preferable to go for the UK gilts as this eliminates the FX risk and even better the capital gain is (as I said before) tax free on these gilts meaning that the 80+% of the return is tax free. After the equities market crashes I will go back into stocks, maybe I am a pessimist, but I am expecting a 30-40% pullback and if so this will be a great opportunity.
Stocks definitely do not look that attractive with rates at 5%, Interest rates in UK will likely go to 6.5% though so not quite at top yet to buy bonds?
The wise market already discounts this - can we outwit it?
Buy the short end - there are a number of Gilts that mature between now and the beginning of next year
@@vigilantexxThey don't.
They use it as a proxy for anticipated inflation. The 'risk free' rate is merely a deflator. Wise investors don't want to pay for increases in cash flow merely achieved from secular inflation.
SCHD has the durability of a bond. Growth on your dividend yield also 13% capital appreciation long term.
Any good bond etfs on trading 212?
Question: money in savings @ 4% Vs short term Gov Bonds @ +5%? @pension craft, thanks😊
To get 4% in savings you'd have to commit that money for a relatively long period ( at least in the UK), bonds can be sold again if you need the cash, moneymarket funds holding short duration debt are also paying in that range and often pay out monthly rather than the 6 monthly of gilts etc, but usually with up to 2 month XD period till you get your 1st div. depending when you buy and can easily be sold quickly if necessary. ( look at the actual monthly yield not the trailing annual lead given by your platform, that trails the actual yield significantly during this BoE/ Fed rate hiking cycle)
This doesn't look at the bigger picture. The US debt problem hasn't gone away... They've kicked the can down the road by raising the debt ceiling.
With interest rates shooting up its not hard to see that there's a major financial crisis lurking ahead. Avoid bonds and stocks!
Alphanso Investing can provide a useful experience by using advanced machine learning and AI algorithms, as well as seasoned analysts, to help navigate the complexities of the market and mitigate risks during times of financial crisis.
Just sit in money market funds and be patient. Buy undervalued companies.
The small cap market is undervalued. Jut saying.
I buy the undervalued related etf, small percentage.
Surely if Fed rates stay high and yield on US treasuries stays high the spread for corporate debt will normalize and the yield on those will go up soem more - so the value of higher yield bond funds will continue to fall even if Treasuries and Gilts stabilize at the end of a hiking cycle?
I am so glad for finding this detailed video! I'm interested in any method which would lead me to fire my boss one day! I've just subscribed to the channel!
Thinking about getting an offset mortgage and parking some money there for a few years.
Save 6% interest on the mortgage and no tax on those savings.
Do they still exist?
@@jamescaley9942 They are normal in Australia. Not been that big a deal with such low interest rates but now rates are going up they are a really tax efficient way to save.
Selling all stocks and buying bonds quickly right now would just mean someone has no strategy and forward thinking whatsoever.
Excellent consept... thank you...
Went back and watched some older videos, the plant is so much nicer than the single photo of your dog, even if he is cute
Teşekkürler.
You're welcome @yunusboy
I moved 45% to short duration and M Market funds 3 weeks ago.👍
And you paid a premium price for doing so.
@@stevo728822 come again?
@@stevo728822 Why? The return is based on the Sonia Sterling rate.
That will picked up the higher short term rate in sterling fixed income markets quite quickly Mike so I'm guessing you're happy with that decision. Thanks, Ramin.
@@Pensioncraft Yes - until the banking system gets stressed and there's a domino collapse. I'll be looking out for signals.
I went 100% from stocks to bonds about a month ago
Having such extreme allocations is a bad idea. You are not diversified like this. Been investing in the market for 25 years. I learned not to do these things. Have a sensible allocation. Generally, the avg investor should have between 10 to 50% in bonds according to age bracket. Since you wrote this, S&P500 is up over 4% from June 29 to July 29.
Can someone help to understand on which website I can buy bond in the Uk?
Hi @stefanodeluca9496 Ramin used Interactive Investor but there are available through some other platforms
While there are several websites where you can buy bonds in the UK, you may want to consider using Alphanso Investing, which harnesses machine learning and AI to offer you personalized investment advice based on your goals and risk tolerance.
$TLT is one of the good bonds?
Id love to hear you and Ben Cowen have a chat about markets
As a new investor, I'm excited to learn more about the markets and how to make informed decisions, and Alphanso Investing's advanced machine learning and seasoned analysts can provide me with valuable insights and advice for my investing journey
nice
Thanks @user-vn6xt3ps5f
which uk bond fund do you suggest?
no fund as you can't control maturity
AI and machine learning is revolutionizing the way we invest, and Alphanso Investing can provide a personalized and insightful experience in suggesting the best UK bond fund based on your risk appetite and financial goals.
Hi thanks for the video , i wonder is there such a thing as a bond ETF of some kind? 🤪
Moving your pension funds into short duration government bonds is claptrap for two reasons. 1. All the benefits are already priced in. 2. Most pension funds, usually workplace providers, do not provide a facility for buying individual bonds, only into funds of bonds which will include a whole range of bonds of differing maturities.
You can cet your money out into a SIPP (HL or AJ Bell) and invest in single bonds.
@@nixer65 Pay a hefty transfer fee and lose your company contributions.
@@nixer65 Oh and transfer amounts have dropped significantly since rates have risen.
The last three transfers I've done, I paid no transfer fees (I actually earned about £500 cashback from II). Also, nobody's advocating transferring a DB pension to buy bonds, so your talk of "transfer amounts" is irrelevant. And what on earth do you mean by, "all the benefits are already priced in" ? Of course they ! Why would you expect otherwise, in a broadly efficient market ? If you don't like the yield that's on offer, don't buy. It's that simple.
What about shorting the FTSE and S&P?
Not generally a good long-term strategy, but could work short-term if you can time the market. Good luck with that!
Hi @VishalTheMightyRod that's more risky than selling some stocks and buying government bonds as @muffermod says. Thanks, Ramin.
Shorting the FTSE at these levels is crazy risky!
But Is AI really the main driver of the Bull market ... surely something else is the main driver?
I still don't get how raising interest rates is supposed to help bring down inflation? That seems like an outdated theory to me. Won't it just further increase the cost of living? And why is the aim to slow the economy down when a good economy is not what caused inflation in the beginning but rather rising costs. Please can someone help me understand this?
Rising cost is not caused by inflation. Inflation is just a way to measure and report rise in cost of living year over year. It is like a speedometer (inflation) that measures/displays the current speed (rise of cost of living).
One popular way of explaining how rising bank rates can reduce prices of goods (measured by inflation) is this. If bank rates rise then mortgage rates rise. Around 38% of UK population has a mortgage. If suddenly your monthly payment rise say for an example from 1500 to 2000 then you have 500 less to spend on other goods. This means the demands for other goods and services will reduce. In turn companies will reduce cost of goods/services to still keep attracting customers and this will be reducing inflation.
And in any case this is only a short simplified version that doesn’t not take into account all complexities and interactions happening in our economies.
Simply, raising rates will slow down the economy and thus slow down demand. This will bring down inflation as the cost of goods and borrowing is too high. People will stop buying more stuff if the cost of borrowing is too much for them to afford. The pandemic supply chain issues and free money given out caused high inflation as people were buying a lot of things. Inflation is the enemy of savers and the cost of labor has raised significantly, but not even enough to keep up with inflation. You have to control inflation.
Bonds vs NVIDIA.. hmmmm, tough one!
I am in Germany and investing into a $ Bond would not make much sense for me sadly. I would invest in bonds for sure If I were in the US. EU Bonds, are shit in my oponion. They don´t have as great of a return as the US bonds do and I don´t trust the EU long term.
What about Cash accounts now paying 4% in the UK. Would cash be a good place at these rates?