Good video, but disagree with your recos at the end. BND is more correlated to stocks than a government treasury like VGLT or VGIT, both of which have negative correlations to the S&P 500 on Portfolio Visualizer. So, I’d go government treasuries to start and then add more corporate bonds down the road
One clever idea I had was to short the fund IEF 7-10 year Treasury bonds , thinking that interest rates were going up. So far I'm only down about 5%. I also bought a short term TIPS fund which is breaking even, meaning I am losing about 7% per year to inflation. Applying the Rule of 72 in reverse, I should be able to go complely bankrupt within 12 years with this stategy. But I like the idea of splitting bond funds 50/50 between TIPS and regular bonds. It seems like going to the track and betting both horses to win in a two horse race. The two bets would offset each other so you can't lose. One great thing about the Treasury Bond market is that the Treasury sets the coupon rate and then the Federal Reserve shows up early at the auction with a big bag full of money and drives the prices up and the yeilds down to where they want them., making sure that you don't make any money. Of course I could speed up the process of going broke by skipping bonds and putting all my money in AMC stock but I'm willing to be patient.
Rob, I truly enjoy your videos. One of my accounts are with Betterment called flexible, where I got to pick their limited ETFs and crate my portfolio. I follow 90/10 portfolio strategy wether 10 is 50/50 between GBIL and VTIP. Betterment has very limited choices in ETFs, as they are trying to keep cost low. I do have M1 and other brokers where I'm more flexible in choices including Mutual Funds. Would you keep Betterment or consolidate into M1 or other brokers? I like Betterment ease of use and interface, but lack of choices is a minus. Betterment US Bonds are VTIP, AGG, GBIL, MUB, JPST, and HYLB. Is the GBIL/VTIP the best choices for good quality Bond diversification in this case? Thanks again for your input and time.
Rob, We currently have a 50/50 split in our bond portfolio Vanguard Vsbsx (short) Vsigx (Intermediate.) Looking for capital preservation and a little growth. We are semi retired. Thoughts?
Bob, thank you for all you do. You are a great teacher! Please comment on sector funds. I own all 11 sector Vanguard ETF's mirroring their market cap % in the market. Is it better to own sectors vs a large cap index? I also own the appropriate amount of mid and small caps to mirror the market capitalization. I am an educated experienced investor who believes they give me flexibility. In a down or up market I can pick to sell the sectors that are doing well thus selling high or higher vs low...... There is usually one or two sectors that do well or better than others in down markets thus they are the ones I would sell in a down market. i.e.- tech sector post covid crash. Your thoughts?
I think you are doing well this way , I was doing the same but for the past 2 years it would be better if everything was in either total market fund or S&P 500 Fund , one or 2 fund would have been much easier and better
When inflation is high stocks win, bonds lose, and tips just don't really do anything. Tips don't make sense to me at all. It's like trying to design a stock that does well in a bear market. You can with some weird derivative strategy, but they usually perform poorly.
Best 1 hour explanation of bonds that I've heard. I'm 63 and retired, have VTIP, FIPDX, and some I bonds for my fixed income. Pretty satisfied this YTD.
I used to run like a 70/30 cause I was so risk averse , biggest mistake of the last decade for me investing and cost myself 100s of thousands of dollars. I changed that about 3 years ago but sheesh. What a mistake , I do believe there is a place for bonds (for sanity alone) for investors far off from retirement but it shouldn’t be any more than 5% of 10% max. I do purchase Ibonds now separately and previously have always dropped on series EE bonds like $50 per pay period. That’s out of sight and mind and does add up. Saving is saving after all.
Thank you Rob. Great overview of the mystical bond market. After your review I don't think its necessary to have bonds professionally managed (?). I will not mention the (Professional) firm but I was told they us an algorithm to determine the makeup of my Bond Portfolio. I am loosing money each month when you include the fees. I am now convinced that Managed Investments do not favor the investor.
Hopefully these questions aren't foolish, just trying to understand the topic better: 1) Why would you choose to purchase any bond fund with yields around 2% or lower? Momentarily putting aside the current historically high inflation rates, even in a "normal" year inflation would be around 2%. Wouldn't you actually be guaranteeing that you lose money after accounting for inflation? 2) For the same reason, wouldn't it be optimal to max out your allowed yearly investment in the I Bonds first at their current rates, which are significantly higher than treasuries, and positive ROI after inflation? 3) What type of bonds would you use if you were investing with a shorter time horizon of, say, 5-10 years?
Wow that was an awesome video! Thanks so much for taking the time to organize and create it. It took me more than an hour to get through, but I now have a couple of pages of notes for later review. I’m both close to and new to the notion of early retirement, and have been chugging the Rob Berger RUclips Kool-Aid all weekend. It’s delicious and doesn’t smell at all like almonds. I even bought your book this morning, but was thinking, “I’m still not sure about bond ETFs vs high yield savings accounts vs Treasury bonds.” BOOM! This video was just what I needed. Thanks again for all the amazing content. I have just one question left regarding bond ladders, but maybe that can wait until a Q and A live stream. OK back to the Kool-Aid!
Thank you, Rob, interesting to watch and learn a thing or two about the bond market.. Though I would say depending on one's financial context, the bond market is not perfect for all!
these are the same ratings agencies that contributed to the GFC right ? There is a credibility problem as far as I'm concerned with them being some defacto judge of companies and countries
Made it to 6:04. This subject is dreadfully boring. Never made much at all on bonds of bond funds. I’ve made plenty of $ on stocks and equity ETF’s. I fear that the party is just about over in the equity markets.
Rob, you have really outdone yourself with this detailed explanation and application. No doubt, all spurred by my previous question a few weeks ago. Me, heading towards some combo of BND and SCHP, maybe for a total of up to 10%. Thanks.
I have a similar philosophy on bonds. Some exposure will likely help due to modern portfolio theory and better fitting your risk tolerance. FXNAX is a better & more comparable bond fund from fidelity in my opinion.
The wisest thing that should be on every wise individual's list is to invest in different stream of income and don't depend on the government to bring in money especially now the pandemic is hitting the economy
Thank you for the great overview. I learned a lot. A question I have after seeing your presentation is-- What is the reason that you are purchasing I Bonds, given that you are already 50/50 in your Total Bond + TIPS investment?
Agree with the positive comments below. I learned a lot. You didn’t mention non-US bonds. I have BNDW in my 4-fund rollover IRA, with the other bond piece being Fidelity Total Bond. Now thinking of changing the bond piece of my IRA to BND and the iShares TIP. Thanks and keep them coming!
The key to big returns is not big moving stocks. It's managing risk in relationship to reward. Having the correct size on and turning your edge as many times as necessary to reach your goal. That holds true from long term investing to day trading.
Great video. I'm 28 years old and recently bought my first bonds (I-bonds). With the stock market being extremely over brought and the economic outlook not looking great, now might be a good time to start considering bonds.
I cannot imagine myself investing in something with yield 1.5% when inflation is 6.2%. Even if it is risk free, I will lose money. What's the point? I prefer to take some risk and have a higher interest rate.
@@colnathanrjessup687 No, I replaced bonds with stable coins and got 8-10% interest rates. I am pretty far from retirement but I want to retire earlier than it is supposed to be.
I know that you buy individual stocks. Now I have to convince you to buy your own bonds. I have a laddered portfolio 1-12 years munis, 60 bonds. As they mature I simply buy long. Interest rates are irrelevant to me, I know what I get back at maturity. Also I can tax loss harvest.
A few days ago, I stumbled to your RUclips channel. What an awesome channel you have - packed with so valuable information! One question - what would be the best way to get your feedback on my IRA portfolio? Do you have an email address that I could send my portfolio information?
It looks like a 50/50 split between VIPSX and BND both increases returns, but also increases volatility on portfolio analyzer. Something to consider if trying to keep your fixed income portion as stable as possible.
@@rob_berger This is precisely Bogle's answer on international stocks. :) There may be no need, but is there a free lunch lurking? It's not as though bond markets can't crash. Nor is the public's assessment of Treasuries necessarily all-knowing. As the stoics would say, "offer a guarantee, and disaster threatens." I've been tortured by the global stock question for some time. Buffett and Bogle have a bias toward American companies, and I agree with them. There are structural reasons which seem explain why the US market is 60% of world market cap. And, if I had to guess, I'd predict that it outperforms over the next 30 years (total period CAGR, not all years). That doesn't make an American bias wise. You can believe you've trained your kids to avoid the streets while playing, yet still move into a cul-de-sac as a hedge, since the stakes are so high. I've decided to accept the potentially-lower return of a global cap-weighted fund, as a hedge. Retirement money is nothing to gamble with. Details for the curious: All Roth, $VT and $BNDW.
I've watched 3 videos on TIPS (including this one) and none of them make sense to me. How does a negative interest rate applied to the principal value (going up OR down) make you any money? A negative number applied to any positive value is always going to be negative. So you get zilch on the interest rate, then you have to hope the value of the underlying principal goes up. If it goes down, you lose money so you might as well be gambling in the stock market. I'm guessing I'm wrong about one or more of the above, but it would be great if someone could explain it in a way that's comprehensible.
TIPS don't have negative rates, they have negative yields. The rate may be, say, 0.125%, for example. But for every $100 in TIPS, the price is say $115. That results in a negative yield, but the interest rate is still 0.125%. The reason investors are willing to pay more than the face value of the bond is because that face value will rise and fall with inflation/deflation. If we have inflation, as we do now and many believe we will going forward, that $100 face value will go up AND the interest income is calculated based on the changing face value. Hope that helps.
I often hear things like “bonds are reflecting expectations of 1 rate increase in 2022 and 3 increase in 2023” and I have often observed that bond prices don’t always drop when rates are hiked… this all makes me think that (like stocks) future expectations get baked in well ahead of actual interest rate changes
That's exactly right. The Fed can influence the short end of the yield curve only, it's market expectations that drive the rest of it. Expectations are everything.
Rob's sharing of his knowledge is greatly appreciated and has been educational for me. But sometimes winnowing it out from the stuttering repeated words and the rambles is frustrating enough that I stop watching or watch another video at the same time as his.
As a youngin', my bond investment is limited to $500/yr in I bonds, funded by my yearly tax return. Beyond this peace-of-mind investment, I feel that my money is best placed elsewhere. This is a very good video though, I'm going to make sure my parents see it.
@@aaront936 A lot depends on your personal circumstances. Bonds can act as shock absorbers in the event of a market downturn. They also tend to improve the overall risk/return ratio of your portfolio. But having said that, if you have a steady income and decades of working life ahead of you, a 100% equity allocation isn't crazy. As for "aren't bonds entering a bear market ?" - nobody can predict the future, don't believe anyone who pretends to know.
@@rob_berger Totally understand. I listen mostly on my commute to work and had caught up to latest podcast. Thanks again for putting out the knowledge so that others can learn and continue their path.
Great explanation, as usual, Rob! I like the idea of using a couple different type bond funds, there are pros and cons to each type.
Good video, but disagree with your recos at the end. BND is more correlated to stocks than a government treasury like VGLT or VGIT, both of which have negative correlations to the S&P 500 on Portfolio Visualizer. So, I’d go government treasuries to start and then add more corporate bonds down the road
One clever idea I had was to short the fund IEF 7-10 year Treasury bonds , thinking that interest rates were going up. So far I'm only down about 5%. I also bought a short term TIPS fund which is breaking even, meaning I am losing about 7% per year to inflation. Applying the Rule of 72 in reverse, I should be able to go complely bankrupt within 12 years with this stategy.
But I like the idea of splitting bond funds 50/50 between TIPS and regular bonds. It seems like going to the track and betting both horses to win in a two horse race. The two bets would offset each other so you can't lose.
One great thing about the Treasury Bond market is that the Treasury sets the coupon rate and then the Federal Reserve shows up early at the auction with a big bag full of money and drives the prices up and the yeilds down to where they want them., making sure that you don't make any money.
Of course I could speed up the process of going broke by skipping bonds and putting all my money in AMC stock but I'm willing to be patient.
Rob, I truly enjoy your videos. One of my accounts are with Betterment called flexible, where I got to pick their limited ETFs and crate my portfolio. I follow 90/10 portfolio strategy wether 10 is 50/50 between GBIL and VTIP. Betterment has very limited choices in ETFs, as they are trying to keep cost low. I do have M1 and other brokers where I'm more flexible in choices including Mutual Funds. Would you keep Betterment or consolidate into M1 or other brokers? I like Betterment ease of use and interface, but lack of choices is a minus. Betterment US Bonds are VTIP, AGG, GBIL, MUB, JPST, and HYLB. Is the GBIL/VTIP the best choices for good quality Bond diversification in this case? Thanks again for your input and time.
Rob, We currently have a 50/50 split in our bond portfolio Vanguard Vsbsx (short) Vsigx (Intermediate.) Looking for capital preservation and a little growth. We are semi retired. Thoughts?
Bob, thank you for all you do. You are a great teacher! Please comment on sector funds. I own all 11 sector Vanguard ETF's mirroring their market cap % in the market. Is it better to own sectors vs a large cap index? I also own the appropriate amount of mid and small caps to mirror the market capitalization. I am an educated experienced investor who believes they give me flexibility. In a down or up market I can pick to sell the sectors that are doing well thus selling high or higher vs low...... There is usually one or two sectors that do well or better than others in down markets thus they are the ones I would sell in a down market. i.e.- tech sector post covid crash. Your thoughts?
I think you are doing well this way , I was doing the same but for the past 2 years it would be better if everything was in either total market fund or S&P 500 Fund , one or 2 fund would have been much easier and better
When inflation is high stocks win, bonds lose, and tips just don't really do anything. Tips don't make sense to me at all. It's like trying to design a stock that does well in a bear market. You can with some weird derivative strategy, but they usually perform poorly.
Easy, don't do it.
This was the worst James Bond movie ever.
I'm one of the people who requested this information. Excellent presentation. Thank you for responding, Rob. Thanks for the work you do.
Thanks for watching.
Best 1 hour explanation of bonds that I've heard. I'm 63 and retired, have VTIP, FIPDX, and some I bonds for my fixed income. Pretty satisfied this YTD.
Yes, but it was 45 minutes too long!
You answered a TON of questions for me, thank you so much for posting this video.
I used to run like a 70/30 cause I was so risk averse , biggest mistake of the last decade for me investing and cost myself 100s of thousands of dollars. I changed that about 3 years ago but sheesh. What a mistake , I do believe there is a place for bonds (for sanity alone) for investors far off from retirement but it shouldn’t be any more than 5% of 10% max.
I do purchase Ibonds now separately and previously have always dropped on series EE bonds like $50 per pay period. That’s out of sight and mind and does add up. Saving is saving after all.
Comprehensive and informative. Thanks a lot Rob :)
Thank you Rob. Great overview of the mystical bond market. After your review I don't think its necessary to have bonds professionally managed (?). I will not mention the (Professional) firm but I was told they us an algorithm to determine the makeup of my Bond Portfolio. I am loosing money each month when you include the fees. I am now convinced that Managed Investments do not favor the investor.
Hopefully these questions aren't foolish, just trying to understand the topic better:
1) Why would you choose to purchase any bond fund with yields around 2% or lower? Momentarily putting aside the current historically high inflation rates, even in a "normal" year inflation would be around 2%. Wouldn't you actually be guaranteeing that you lose money after accounting for inflation?
2) For the same reason, wouldn't it be optimal to max out your allowed yearly investment in the I Bonds first at their current rates, which are significantly higher than treasuries, and positive ROI after inflation?
3) What type of bonds would you use if you were investing with a shorter time horizon of, say, 5-10 years?
Wow that was an awesome video! Thanks so much for taking the time to organize and create it. It took me more than an hour to get through, but I now have a couple of pages of notes for later review.
I’m both close to and new to the notion of early retirement, and have been chugging the Rob Berger RUclips Kool-Aid all weekend. It’s delicious and doesn’t smell at all like almonds. I even bought your book this morning, but was thinking, “I’m still not sure about bond ETFs vs high yield savings accounts vs Treasury bonds.”
BOOM! This video was just what I needed. Thanks again for all the amazing content. I have just one question left regarding bond ladders, but maybe that can wait until a Q and A live stream.
OK back to the Kool-Aid!
Thank you, Rob, interesting to watch and learn a thing or two about the bond market.. Though I would say depending on one's financial context, the bond market is not perfect for all!
Thanks Rob. Very clear and super helpful !
these are the same ratings agencies that contributed to the GFC right ? There is a credibility problem as far as I'm concerned with them being some defacto judge of companies and countries
Another outstanding video Rob.. Doesn't get better then this. Thsnk you.
Best bond video to date. Hands down.
Made it to 6:04. This subject is dreadfully boring. Never made much at all on bonds of bond funds. I’ve made plenty of $ on stocks and equity ETF’s. I fear that the party is just about over in the equity markets.
Rob, you have really outdone yourself with this detailed explanation and application. No doubt, all spurred by my previous question a few weeks ago. Me, heading towards some combo of BND and SCHP, maybe for a total of up to 10%. Thanks.
Why would anyone invest in bonds when the real returns are negative when factoring in the inflation rate?
So since the fed has said they are going to raise interest rates should I wait till then to buy into bonds?
How come you waited 20 years to make this video? I could have used this info. 😊
I have a similar philosophy on bonds. Some exposure will likely help due to modern portfolio theory and better fitting your risk tolerance. FXNAX is a better & more comparable bond fund from fidelity in my opinion.
Thanks for sharing. I am looking into FXNAX to compare. What made you go with it?
Thank you for this Rob!! Needed this information as i plan on helping my parents prepare for retirement ✅
The wisest thing that should be on every wise individual's list is to invest in different stream of income and don't depend on the government to bring in money especially now the pandemic is hitting the economy
who would be crazy to buy any bonds yielding less than 20% these days
Thank you for the great overview. I learned a lot. A question I have after seeing your presentation is-- What is the reason that you are purchasing I Bonds, given that you are already 50/50 in your Total Bond + TIPS investment?
Great content Rob, thank you for putting this together and being so thorough!
Many thanks! Great video! There are various TIPS ETFs, but probably TIP is as good as others.
Agree with the positive comments below. I learned a lot. You didn’t mention non-US bonds. I have BNDW in my 4-fund rollover IRA, with the other bond piece being Fidelity Total Bond. Now thinking of changing the bond piece of my IRA to BND and the iShares TIP. Thanks and keep them coming!
The key to big returns is not big moving stocks. It's managing risk in relationship to reward. Having the correct size on and turning your edge as many times as necessary to reach your goal. That holds true from long term investing to day trading.
Great video. I'm 28 years old and recently bought my first bonds (I-bonds). With the stock market being extremely over brought and the economic outlook not looking great, now might be a good time to start considering bonds.
I bought some I bonds thanks to one of your previous videos
My Roth IRA. I have voo. Is it better to have a short term bond like vgsh for the 10 percent or vtv ?
Don't hold bonds in a roth. Put them in your traditional.
I cannot imagine myself investing in something with yield 1.5% when inflation is 6.2%. Even if it is risk free, I will lose money. What's the point? I prefer to take some risk and have a higher interest rate.
@@colnathanrjessup687 No, I replaced bonds with stable coins and got 8-10% interest rates. I am pretty far from retirement but I want to retire earlier than it is supposed to be.
dividend paying gold miners
I know that you buy individual stocks. Now I have to convince you to buy your own bonds. I have a laddered portfolio 1-12 years munis, 60 bonds. As they mature I simply buy long. Interest rates are irrelevant to me, I know what I get back at maturity. Also I can tax loss harvest.
A few days ago, I stumbled to your RUclips channel. What an awesome channel you have - packed with so valuable information! One question - what would be the best way to get your feedback on my IRA portfolio? Do you have an email address that I could send my portfolio information?
Looks like death warmed over thinking about money 24/7 drains you
Curious to hear your thoughts on the iShares iBonds ETF line up. Maybe you could do a future program on them? Enjoy your videos. Thanks!
"That's as appealing as Brussels sprout, right?" LOL 🤣
Bonds will make you lose money ! Your better off investing in shares than bonds !
Excellent explanation of how bonds work. They can be mystifying.
Excellent and clear - thank you! Does it matter what kind of account (brokerage vs IRA vs Roth) we hold Ibonds in?
It looks like a 50/50 split between VIPSX and BND both increases returns, but also increases volatility on portfolio analyzer. Something to consider if trying to keep your fixed income portion as stable as possible.
One very basic question to ask is what goes up the most when stocks crash, which is long term US treasuries.
There are some taxable munis. Also AMT can be charged on some muni bonds.
revenue bonds stay away from, as they might not pay up.
Great information! Thanks for the TIPS! ;-)
Yes it’s good video Rob .very good thanks for your time and efforts
Great video on a complicated subject, thanks
Rob, excellent video can thank you enough your videos are great for any level of investor to learn from!
Thanks Rob. This was very informative.
International bond funds?
It's a good question. I've never felt the need to add international bonds.
@@rob_berger This is precisely Bogle's answer on international stocks. :)
There may be no need, but is there a free lunch lurking? It's not as though bond markets can't crash. Nor is the public's assessment of Treasuries necessarily all-knowing. As the stoics would say, "offer a guarantee, and disaster threatens."
I've been tortured by the global stock question for some time. Buffett and Bogle have a bias toward American companies, and I agree with them. There are structural reasons which seem explain why the US market is 60% of world market cap. And, if I had to guess, I'd predict that it outperforms over the next 30 years (total period CAGR, not all years).
That doesn't make an American bias wise. You can believe you've trained your kids to avoid the streets while playing, yet still move into a cul-de-sac as a hedge, since the stakes are so high. I've decided to accept the potentially-lower return of a global cap-weighted fund, as a hedge. Retirement money is nothing to gamble with.
Details for the curious: All Roth, $VT and $BNDW.
I've watched 3 videos on TIPS (including this one) and none of them make sense to me. How does a negative interest rate applied to the principal value (going up OR down) make you any money? A negative number applied to any positive value is always going to be negative. So you get zilch on the interest rate, then you have to hope the value of the underlying principal goes up. If it goes down, you lose money so you might as well be gambling in the stock market. I'm guessing I'm wrong about one or more of the above, but it would be great if someone could explain it in a way that's comprehensible.
TIPS don't have negative rates, they have negative yields. The rate may be, say, 0.125%, for example. But for every $100 in TIPS, the price is say $115. That results in a negative yield, but the interest rate is still 0.125%. The reason investors are willing to pay more than the face value of the bond is because that face value will rise and fall with inflation/deflation. If we have inflation, as we do now and many believe we will going forward, that $100 face value will go up AND the interest income is calculated based on the changing face value. Hope that helps.
Thanks for the detailed info on Bond funds.
Rob - excellent video and channel. Very well done.
Call dates also affect bond duration.
What is your opinion of a bond fund like Fidelity Floating High Rate Income (FFRHX)?
Extremely high risk fund.
I often hear things like “bonds are reflecting expectations of 1 rate increase in 2022 and 3 increase in 2023” and I have often observed that bond prices don’t always drop when rates are hiked… this all makes me think that (like stocks) future expectations get baked in well ahead of actual interest rate changes
That's exactly right. The Fed can influence the short end of the yield curve only, it's market expectations that drive the rest of it. Expectations are everything.
Great work. Makes a lot of sense. Thanks.
Really great. Thanks!
Very, very well done.
Great video.
Very well presented Rob!
Just what I needed. Thank you. You are an American Hero!
This guy is cute but his delivery can be pretty rambly.
Rob's sharing of his knowledge is greatly appreciated and has been educational for me. But sometimes winnowing it out from the stuttering repeated words and the rambles is frustrating enough that I stop watching or watch another video at the same time as his.
As a youngin', my bond investment is limited to $500/yr in I bonds, funded by my yearly tax return. Beyond this peace-of-mind investment, I feel that my money is best placed elsewhere. This is a very good video though, I'm going to make sure my parents see it.
Can a British person living in the UK buy iBonds?
No.
Aren't bonds entering a bear market? I don't see the reason to hold any bonds right now.
Watch and try to understand the video, before posting. It's obvious, judging by your statement, you have not watch this video.
@@pawelvideo yes I watched I still don't see a reason to hold bonds
@@aaront936 A lot depends on your personal circumstances. Bonds can act as shock absorbers in the event of a market downturn. They also tend to improve the overall risk/return ratio of your portfolio. But having said that, if you have a steady income and decades of working life ahead of you, a 100% equity allocation isn't crazy. As for "aren't bonds entering a bear market ?" - nobody can predict the future, don't believe anyone who pretends to know.
Did you stop updating the podcast?
No, I've just not been consistent with getting the uploads done. I'll add some more this week.
@@rob_berger Totally understand. I listen mostly on my commute to work and had caught up to latest podcast. Thanks again for putting out the knowledge so that others can learn and continue their path.
Thank you so much :)