# Bad time to buy bond index fund?



## Juggernaut92 (Aug 9, 2020)

Hello All,

I am an investor who just started investing in march of this year and still learning the ropes. I learned about asset allocation recently and I think I have hammered down an asset allocation that I am content with. I was thinking of going with a 30% bond index fund allocation. I was considering getting something like XBB or XSB. As of right now I have no bonds in my portfolio at all. 

The one thing I wanted some feedback on is buying index bonds at this current time. When I was doing research on bonds I kept hearing that bonds are inversely proportional to interest rates. When Interest rates go down then prices for bond indexes go up and vice versa. With that being said are bond index prices higher now than they were before? Also, should I wait till covid is done and then load up on bond indexes?

Any feedback would be appreciated.


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## james4beach (Nov 15, 2012)

The big question is your time horizon. How long do you think it will be before you need to withdraw or liquidate from this portfolio?

There is no point trying to time the bond market. We don't know if interest rates will go up or down from here, and we can't predict the performance of bond ETFs. The only thing you really should decide based on, is your time horizion.

If your time horizon is 20+ years, then just as you invest in stocks for the long term, you should invest in XBB for the long term. It MAY be volatile in shorter periods -- just like stocks -- but in the long term, XBB is guaranteed to provide a higher return than cash or XSB.


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## Topo (Aug 31, 2019)

Bond funds could go down in price, so could stocks. The best an investor could do is to set a reasonable asset allocation and stick to it. Every year, it is almost certain that one of the two (stocks or bonds) will underperform. All you need to do is rebalance into the underperformer. Stocks go down, you sell bonds and buy stocks. Bonds go down, you sell stocks and buy bonds.


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## Just a Guy (Mar 27, 2012)

Bonds are offering nearly a zero return, what’s the attraction? You need at least 4% before taxes jut to break even with inflation. Right now bonds are a safe way to lose money.


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## james4beach (Nov 15, 2012)

Just a Guy said:


> Bonds are offering nearly a zero return, what’s the attraction? You need at least 4% before taxes jut to break even with inflation. Right now bonds are a safe way to lose money.


The attraction is that they don't crash 50% to 80% every few years, and that a portfolio which includes bonds is more stable and easier to stick with. People who forego bonds and invest purely in stocks tend to freak out in bad markets and catastrophes (like COVID).

You said that bonds are a safe way to lose money. Well, capitulating during a stock crash is an even better way to lose (a lot more) money.

I realize that you are super-human, Just a Guy, and never freak out about stocks. But many investors do. For many people, being purely in equities can be a very unnerving experience.


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## AltaRed (Jun 8, 2009)

There are two issues here. Firstly, the OP doesn't indicate age, or years until some stability may be desired in the portfolio, and secondly, the OP's ability to truly handle the volatility associated with a high equity portfolio. Equities return more because of risk, i.e. the equity risk premium. I might perhaps suggest a fixed (absolute sum) of fixed income rather than an asset allocation percentage, which can serve as both an emergency fund and ballast for the portfolio.

That said, XBB has had a big run the past few years due to the decline in the bond yield curve over that period. It is up some 10% over that 2 year period, albeit not nearly that much over a 5 year period (as in 2016 when the bond yield curve was also depressed). I would be loathe to buy either of XBB or XSB at this time due to XSB also reacting similarly and in fact XSB may be more volatile because of the short term effect of Bank of Canada yanking short term interest rates around. There really isn't much an investor can do with their FI allocation.....except maybe play the waiting game for a year or two and in the meantime put the FI component in a HISA from one of the firms noted at Comparison chart


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## like_to_retire (Oct 9, 2016)

Just a Guy said:


> Bonds are offering nearly a zero return, what’s the attraction?


You buy bonds for preservation of capital. The meager spread between bond return and inflation is insignificant compared to stock market loses. When the market is down, the investor doesn't want to sell their stocks to fund their living expenses. The smart investor has bonds to provide income during those times.

Just a Guy, you should do some research on asset allocation and it's purpose.

ltr


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## Just a Guy (Mar 27, 2012)

James getting a negative return guaranteed during the good times Doesn’t justify getting a smaller negative return in bad times. Covid is an excellent time to get into stocks, been making double digit returns since March. Sure some people lost money leading up to it, some of my stocks went down too (of course most of those stocks were bought during the 2007/8 crash or similar and paid me back just in dividends so the stocks and future income is pure profits), but most have recovered and the new ones are making me a small fortune. How did bonds do in comparison? They lost you money before and after Covid. Good deal.

iltr,

I buy real estate to preserve capital, the bonus is, I don’t even use my own money to do it. Bonds are for fools who buy into the talking heads, most of which make their money by giving bad advice, not through bonds. Maybe you should do some research on basic math and negative returns.


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## Topo (Aug 31, 2019)

Just a Guy said:


> Covid is an excellent time to get into stocks, been making double digit returns since March.


But where does a retiree get the money to buy at March lows if they don't have any fixed income? Wouldn't it be great to buy in the crash? 

Dividends don't count because they are coming out of stock returns.


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## Just a Guy (Mar 27, 2012)

Where do they get the money to buy bonds instead? Dividends don’t count? It’s money that comes to the holder, bonds don’t offer something similar.


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## james4beach (Nov 15, 2012)

Just a Guy said:


> Where do they get the money to buy bonds instead? Dividends don’t count? It’s money that comes to the holder, bonds don’t offer something similar.


The dividends come out of stocks, knocking down the share price, equivalent to selling some shares. When you reinvest the dividend you're back to where you started. This is not a NET increase in the equity position so you have not "bought low". You've maintained the existing equity position.

Similarly, if you transferred those dividends out of your account, you are making a net withdrawal from your equities (same as selling some). Dividends are not free money.


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## like_to_retire (Oct 9, 2016)

Just a Guy said:


> I buy real estate to preserve capital, the bonus is, I don’t even use my own money to do it. Bonds are for fools


Yeah, real estate can be quite volatile and doesn't usually lend itself to small sales that fund cash flow for groceries.

The massive bond market and I will pass on your childish bonds comment.

ltr


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## Just a Guy (Mar 27, 2012)

Keep losing money and telling yourself how good you are doing. I’ll keep growing my net worth and passive income each month. It’s your choice after all. Your rift real estate doesn’t encourage selling your cash making investment, when you sell off your losing money bonds, how much money do they make you then? As opposed to say monthly rental income. To buy those money losing bonds, cost you after tax dollars, as opposed to real estate which is paid with opm. Keep lying to yourself though, it will make you rich, afterall when you go below zero the scale wraps around to billions right?


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## Just a Guy (Mar 27, 2012)

james4beach said:


> The dividends come out of stocks, knocking down the share price, equivalent to selling some shares. When you reinvest the dividend you're back to where you started. This is not a NET increase in the equity position so you have not "bought low". You've maintained the existing equity position.
> 
> Similarly, if you transferred those dividends out of your account, you are making a net withdrawal from your equities (same as selling some). Dividends are not free money.


you do watch the market right? What you say is technically correct, in reality, stocks rarely decrease by their dividends in reality. The market doesn’t react rationally.


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## james4beach (Nov 15, 2012)

Just a Guy said:


> you do watch the market right? What you say is technically correct, in reality, stocks rarely decrease by their dividends in reality. The market doesn’t react rationally.


If this were true, why not borrow a ton of money and buy dividend stocks immediately before ex dividend day, sell them after? It would be free money.


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## Just a Guy (Mar 27, 2012)

Not my style of investing, if bonds which guarantees you loose money are such a good investment why don’t you go all in and retire?


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## Topo (Aug 31, 2019)

Nothing is good by itself. It is like gin and tonic, it's better to drink them together.


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## like_to_retire (Oct 9, 2016)

Just a Guy said:


> Not my style of investing, if bonds which guarantees you loose money are such a good investment why don’t you go all in and retire?


Because of asset allocation. Look it up. You'll learn something.

ltr


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## john.cray (Dec 7, 2016)

For what it's worth, @Juggernaut92 you might want to take a look at GICs vs. Bond ETFs: A Case Study and Bold Adventure – Canadian Portfolio Manager Blog which considers the option of using GICs instead of Bonds fund.

It ends with:



> Key Takeaway #3. When the YTM of a GIC ladder is similar to or higher than the YTM of a bond ETF, it can be a decent alternative for a short-term _*or*_ a broad-market bond ETF.


A quick comparison right at this moment:

According to Financial Planning & Investment Management | BlackRock XBB right now has Weighted Avg YTM of *1.24%* and Weighted Avg Maturity of *11.06 years*
For XSB (Financial Planning & Investment Management | BlackRock) YTM is *0.65%* and *3.03 years* term.
According to GIC rates comparison chart you can build a 1-5 GIC ladder that has a YTM of *1.94% *and maturity of *3 years *as follows:
1Y - LBC Digital - 1.85%
2Y - LBC Digital - 1.95%
3Y - MAXA Financial - 1.85%
4Y - MAXA Financial - 1.95%
5Y - MAXA Financial - 2.10%

You may consider leaving some of the money in HISAs for liquidity and rebalancing. Today they show similar yields to GIC (but won't be fixed as a GIC) as per Comparison chart
Full disclosure: I am in the process of simplifying my portfolio and along the way decided to replace the bond funds entirely with a HISA/GIC mix.

Good luck!
JC


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## AltaRed (Jun 8, 2009)

HISA rates continue to move down. Could be a range of 1.2-1.5% by end of 2020....or worse, or not. That may well be the short term 1-3 year answer for now. We will only know in hindsight.

Added: For myself, I am sticking with my 5 year GIC ladder. I have no track record in forecasting interest rates.


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## Just a Guy (Mar 27, 2012)

You guys can have your single digit returns or guaranteed negative returns if it makes you sleep better at night, I’ll stick with my passive income approach and get high double digit returns. There are sheep who are easily led to slaughter and the Shepard’s who make the money.

by the way, asset allocation was developed when bonds made an actual return...times changed several decades ago, Glad to see you’re keeping up with reality. If not maybe you can pick up some Nortel, Enron, BreX, or world com.


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## AltaRed (Jun 8, 2009)

I need to find an emoji of someone playing the violin....

Added: Getting back to the OP's original query, I think the best way to characterize it is... how to provide some stability and security (ballast) to the equity portion of the portfolio given where interest rates are today. There is no easy answer EXCEPT to look at it for the very long term. If the OP was investing in one of the Asset Allocation ETFs, the decision would have already been made for him.


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## agent99 (Sep 11, 2013)

john.cray said:


> For what it's worth, @Juggernaut92 you might want to take a look at GICs vs. Bond ETFs: A Case Study and Bold Adventure – Canadian Portfolio Manager Blog which considers the option of using GICs instead of Bonds fund.


To add to confusion, this might be worth reading:



http://www.himivest.com/media/PrefsAndGICs_090814A.pdf


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## Juggernaut92 (Aug 9, 2020)

@james4beach : Hmm the thing is that I do want to put a down payment for myself ready soon but at the same time I do want to invest a bit too. I think where I landed on is I am going to put at least around $1000-$2000 into fixed income for now and may withdraw it at the time of the downpayment but more likely I may just keep holding it till retirement which is quite a while away (+30 years). That is a good point. Most people say timing the market is a bad idea. Yes I was leaning more toward XBB.

@Topo : Yes for sure. That is why I wanted to get started on my fixed income portion of my portfolio as I currently have nothing in there but once I get it started I was thinking I can look at the 2 at year end and rebalance appropriately.

@Just a Guy : Bonds dont offer great returns but they do not offer great losses either from what I read up on. Also, what about the distributions of bonds? That is a way of getting returns? I am up for looking at it from a different point of view if you have one. Would you say you are more into stocks because you are younger?

@AltaRed : Good point. I am 28. In most cases I am calmer than a hindu cow but I must admit that when it comes to stocks I am like others and don't like seeing too much red in my account. i do have the knowledge that over time the stock market does tend to go up but for now I would like some fixed income in my portfolio. I just started investing recently and am trying to follow a recommended asset allocation for now. Next year I will assess the situation. i know some investors go more aggressive (all equities) around my age and then eventually just get into bonds when they are older. Yes the HISA is a good option as well and am considering that too.

@john.cray : This is very interesting. Thanks for pointing it out. I will go through the links and read more about it.

@agent99 : Interesting. It looks quite dry and technical but I will give it a read.


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## Juggernaut92 (Aug 9, 2020)

One more thing I never understood is this: 





__





Financial Planning & Investment Management | BlackRock


BlackRock is a fiduciary that offers the world’s largest institutional investors timely insights and access to deep global investment capabilities.




www.blackrock.com





The following link is the XBB info page. There is a chart showing the hypothetical growth of 10k. It says from 2001 to now your 10k would amount to 27.8k right now. However, when I google XBB and look at the price chart from the earliest date till now it shows only an increase of 18%. Did the black rock info page get the growth 27.8k with the reinvestment of dividends?


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## john.cray (Dec 7, 2016)

Yahoo, Google Finance charts don't account for distributions (dividends/interests, etc).
Take a look at this chart and you can see a clear distinction of the return.


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## Just a Guy (Mar 27, 2012)

I’m not that young, but I want to make money. when I started investing I needed to replace our family income because my wife and I were both injured and couldn’t work for several years. Even when we could, we were limited by chronic pain. Sure bonds don’t go down much, but that’s because they’re nearly zero to begin with. Asset allocation is an old investing technique developed when bonds yielded closer to 8-10%. Its now a dinosaur technique along with buy a diversified portfolio of mutual funds, as if mutual funds are diversified or a good investment. I’m diversified, I own companies, real estate and Stocks. I’ve weathered many a downturn as they tend to occur Every 10 years. How to I get past the red days? Pretty simple I don’t look at stock returns very often. Having started in real estate I have a 10 year outlook on investing and it’s served me well. I look once or twice a year typically, but then I trust my systems and don’t buy risky stuff.


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## Juggernaut92 (Aug 9, 2020)

@john.cray : Thanks for pointing that out and that link looks quite handy. I will try it out with a few stocks I am interested in.

@Just a Guy : That is an interesting point you make. You are saying at one point bonds made 8-10% a year (capital gain +distribution)? I avoid mutual fund because of the MER and have already heard from many people that an ETF is much better. Would you say that you try and pick really strong stocks? something like bank stocks (TD, BMO or BNS) that dont cut dividends during a recession? I only ask because people who pick stocks can get hit during a down time like this with some companies cutting their dividends. Isn't that where bonds come in to ensure you have some money still coming in? That makes sense that you would not worry too much about bonds if you already have other avenues of money coming in. Do you invest in individual stocks or ETFs?


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## agent99 (Sep 11, 2013)

Juggernaut92 said:


> I only ask because people who pick stocks can get hit during a down time like this with some companies cutting their dividends. Isn't that where bonds come in to ensure you have some money still coming in?


Most fixed income like bonds and GICs presently have lower yields than the inflation rate. The real yield is the quoted yield less the inflation rate. So a GIC yielding 1.5% when inflation is 2% actually yields -0.5%. So don't count on bonds to ensure you have money coming in! 

The only real use of those low interest fixed income products, is to maintain capital during bad times on equity markets. When young, you might choose an amount equal to 6 months or a couple of years living expenses. Whatever gives you a feeling of comfort.

At your stage, you might consider just buying a balanced ETF. I don't personally buy ETFs unless I can't think of anything better. But balanced funds can be useful - I used them when too busy at work to think about our investments.
This might help: Best all-in-one ETFs for 2020 | MoneySense


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## Just a Guy (Mar 27, 2012)

I personallly have been picking my own stocks for years...usually every10 years o Sligo on a buying spree when there is some crisis (covid this year, the collapse in 2007/8, the dot bomb of 1999/2000, black monday, when the government changed the tax on income trusts, etc. I pick companies I know and understand and buy them when they are on sale. Some pay dividends, some don’t. They all make me money. I’ve made enough that I could margin the account to access the funds if needed or buy other stuff and get each dollar earning as if it was two dollars.

if bonds don’t make money, what kind of income would they generate?

by the way, yes my stocks have gone down between crisis, but they’ve never gone down as far as the first crisis wherei bought them. Plus the dividends have grown since then as well. For example I bought bmo in 2008 for $28, it paid $2.80 in a dividend (10% on my investment) in 2019, by the time covid hit, all my money was paid back by the dividend Alone. Bmo increased the dividend to almost 15% of my purchase price and the stock was up 300%. Sure it’s gone down during covid, But the low was 55, so I was still up 100% on my purchase price, and artillery getting about 15% dividends. Compare that to any bond over the same period and you wont find anything. Oh, and the stock is currently trading at $81. Oh the sleepless nights I’ve had. Thinking of all the fools who bought ”safe” bonds and who I’m going to have to support in old age.


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## james4beach (Nov 15, 2012)

agent99 said:


> Most fixed income like bonds and GICs presently have lower yields than the inflation rate. The real yield is the quoted yield less the inflation rate. So a GIC yielding 1.5% when inflation is 2% actually yields -0.5%. So don't count on bonds to ensure you have money coming in!


Inflation right now is 0.1% and the latest reading will come out on Wednesday.

Today: GIC for 1.2% yield and inflation is 0.1%. *Real yield = 1.1%*
Year ago: GIC for 2.37% yield and inflation was 2%. *Real yield = 0.4%*

The inflation rate is important. Most people would guess that the 1.2% yield today is a worse deal, but if the current inflation value persists, this is actually a _higher return_ than the GIC that I bought a year ago.

Don't assume that fixed income is a bad deal just because the number looks low.


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## Topo (Aug 31, 2019)

james4beach said:


> Inflation right now is 0.1% and the latest reading will come out on Wednesday.
> 
> Today: GIC for 1.2% yield and inflation is 0.1%. *Real yield = 1.1%*
> Year ago: GIC for 2.37% yield and inflation was 2%. *Real yield = 0.4%*
> ...


That is a very important point. It particularly rings true on an after-tax basis. For someone in the 50% tax bracket, the GIC yield today still offers a projected +0.6% after tax real yield, while the GIC a year ago had a -0.8% after tax real yield.


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## Just a Guy (Mar 27, 2012)

james4beach said:


> Don't assume that fixed income is a bad deal just because the number looks low.



right 1.1% returns are soooo much better than 15% and 300% capital gains. I’m so bad at math.


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## like_to_retire (Oct 9, 2016)

I know it's probably not the accepted rule, but I would rather a 4% bond with 4% inflation than a 1% bond with 1% inflation.

The 4% bond at least gives something to work with. My personal inflation rate may not be 4%, it may be much less.

ltr


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## like_to_retire (Oct 9, 2016)

Just a Guy said:


> right 1.1% returns are soooo much better than 15% and 300% capital gains. I’m so bad at math.


Since you're looking at past performance I guess I could chart the last 12 years of XBB Bonds versus XIU Equities. I'm not much interested in supporting you in my old age.


XBB vs XIU










ltr


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## james4beach (Nov 15, 2012)

like_to_retire said:


> I know it's probably not the accepted rule, but I would rather a 4% bond with 4% inflation than a 1% bond with 1% inflation.
> 
> The 4% bond at least gives something to work with. My personal inflation rate may not be 4%, it may be much less.


That's a good point that the inflation one experiences can be different than the national rate, depending on various things.

I don't have reliable data on this right now. However the last time I had a very steady monthly spending pattern, I did measure my own inflation rate and found it was within 0.2% of the published national number. That actually gave me confidence in the government's number since it accurately matched my own situation. But it may not match for others.


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## agent99 (Sep 11, 2013)

Topo said:


> That is a very important point. It particularly rings true on an after-tax basis. For someone in the 50% tax bracket, the GIC yield today still offers a projected +0.6% after tax real yield, while the GIC a year ago had a -0.8% after tax real yield.


You are right. I did leave out the after tax part, that makes things even worse.

I don't think anyone should use today's core inflation rate when considering buying a 5yr GIC. It is Covid low (0.7%). Bank 5yr GIC rates about 1.6%, so net 0.9% and after tax (say 0.45-0.6%). Somewhat better if GIC is in taxable account and bought from credit unions and others. TFSA best place for GIC, I would think (if you really want a GIC  )

Will core inflation stay at 0.7% for 5 years? Check the chart:


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## Topo (Aug 31, 2019)

agent99 said:


> You are right. I did leave out the after tax part, that makes things even worse.
> 
> I don't think anyone should use today's core inflation rate when considering buying a 5yr GIC. It is Covid low (0.7%). Bank 5yr GIC rates about 1.6%, so net 0.9% and after tax (say 0.45-0.6%). Somewhat better if GIC is in taxable account and bought from credit unions and others. TFSA best place for GIC, I would think (if you really want a GIC  )
> 
> Will core inflation stay at 0.7% for 5 years? Check the chart:


I think it is possible that core inflation will stay below 1% for the foreseeable future. Central banks all over the world including the Fed and ECB are signalling they will try to push their inflation measures above 2%, but Japan has had trouble for years, and we are not immune to long stretches of low inflation either.

It is true that a GIC ladder provides a higher yield than a comparable bond fund, but if an investor is interested in keeping "dry powder" for times like March 2020, the lack of liquidity becomes an issue. If I had a ladder with a rung maturing on September 1st, for example, I would be pulling my hair out missing the entire rally.

Of course, one could hold portion of their FI in GICs and portion in bond funds. There is no law against that.


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## AltaRed (Jun 8, 2009)

If anything, it looks like central banks are going to delegate the 2% inflation 'mantra' as an average inflation rate over several years. All for the purpose of encouraging inflation to run a bit while focusing on GDP and jobs growth. That means interest rate suppression for a longer time. Inflation rate WILL exceed short term interest rates but the bond yield curve will ultimately slope nicely to the northeast. Look for 10 year (and beyond) bond yields to increase considerably over the next several years. 

If that crystal ball gazing turns out to be a prophecy, it will be best to stay short term, as in XSB for example, rather than going longer....at least for the next few years. And if so, there won't be measurable return from bonds for some time.....BUT that doesn't mean someone should not have a fixed income component. Ballast is still needed in the portfolio. 

I fully understand Agent99's desire? insistence? that his FI component should provide a real return ON investment. I would suggest that will result in a volatile fixed income allocation NOT being the ballast one needs for return OF capital. One cannot have it both ways.


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## Topo (Aug 31, 2019)

Just a Guy said:


> For example I bought bmo in 2008 for $28


You would have done much better with AAPL or AMZN. Why would you leave so much money on the table? Why would anyone choose BMO over AAPL or AMZN? This is mind boggling! I would recommend an Investing 101 course.


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## Just a Guy (Mar 27, 2012)

Topo, I’ve owned Apple for decades, I bought it when everyone thought it was going under, I’ve made incredible returns on it, unlike bonds. I would recommend you don’t make assumptions about what I own.


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## agent99 (Sep 11, 2013)

AltaRed said:


> I fully understand Agent99's desire? insistence? that his FI component should provide a real return ON investment. I would suggest that will result in a volatile fixed income allocation NOT being the ballast one needs for return OF capital. One cannot have it both ways.


Not sure you read me correctly, but likely not far off the mark. I certainly won't make "investments" that are 'guaranteed' to lose me money. (almost all gov bonds and GICs these days)

Some of my alternatives, like perpetual pfds, may eventually lose, but their 5 or 6% yields will no doubt be high enough and around long enough for my needs. If interest rates drop as some suggest, maybe they will get called. No problem with using them as a buffer then!


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## Topo (Aug 31, 2019)

Just a Guy said:


> Topo, I’ve owned Apple for decades, I bought it when everyone thought it was going under, I’ve made incredible returns on it, unlike bonds. I would recommend you don’t make assumptions about what I own.


What about AMZN? It has done even better than AAPL.

And BTW, wouldn't you have done way better buying all AAPL and no BMO? You could have retired by now. 

Even NA would have gotten you farther.


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## AltaRed (Jun 8, 2009)

agent99 said:


> Some of my alternatives, like perpetual pfds, may eventually lose, but their 5 or 6% yields will no doubt be high enough and around long enough for my needs.  If interest rates drop as some suggest, maybe they will get called. No problem with using them as a buffer then!


I have a few of those too for similar reasons BUT if there is a surge of inflation in long term bonds in a few years, market prices will drop. The risk of holding these is thus two fold:
1) for those retirees that need to tap into the capital at some point, and timing is terrible, i.e. share prices are down
2) untimely death when an Executor may need to liquidate when share prices are down.

While you and I may not care about either of those two issues, the vast majority of retirees will care about 1) in particular, and some care about the legacy item 2). Hence why I prefer not to promote them without those qualifications.


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## MarcoE (May 3, 2018)

Bonds are yielding very low returns today. And XBB has enjoyed a nice runup in recent years. So in a way, it IS a bad time to buy bonds. BUT--timing bonds is very difficult. You have to know how to time interest rates and inflation. I can't time those. Can you?

I think asset allocation is still king. Come up with the right asset allocation for you. Then create a portfolio that matches that asset allocation. If it calls for bonds, bite the bullet and buy them at a "bad time." That's what I would personally do. But as you can see, there are different opinions here. So listen to everyone and make up your own mind.

And unless you lived through a market crash, where stocks fall 50% or so, don't underestimate how terrifying that can be. Most investors will be glad to have lots of bonds next time that happens.


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## MrBlackhill (Jun 10, 2020)

like_to_retire said:


> Since you're looking at past performance I guess I could chart the last 12 years of XBB Bonds versus XIU Equities. I'm not much interested in supporting you in my old age.
> 
> 
> XBB vs XIU
> ...


I don't want to enter the debate about bonds because there's no single truth to this but I really don't like when a graph like this is used to try to prove a point. That's a specific point in time.

What if I show you this instead?










There's no single graph to bonds vs stocks. It always comes back to risk. We should simply know that the spread of possibilities is bigger for stocks because of the volatility.

If you have 100% XBB, 1M$ invested and you withdraw 3000$ every month for 30 years VS same thing but 100% XIU then :

10% probability to have 586k$ left in XBB VS *17%* probability to have 0$ left in XIU before the end of the 30 years
50% probability to have 1M$ left in XBB VS 50% probability to have 2.2M$ left in XIU
10% probability to have 1.5M$ left in XBB VS 10% probability to have 10.9M$ left in XIU
If you have 100% XBB, 1000$ invested and you contribute 1000$ every month for 30 years VS same thing but 100% XIU, then :

10% probability to have 912k$ in XBB VS 10% probability to have 658k$ in XIU
50% probability to have 1M$ in XBB VS 50% probability to have 1.4M$ in XIU
10% probability to have 1.18M$ in XBB VS 10% probability to have 3M$ in XIU
If you have 100% XBB, 1M$ invested sitting there for 30 years VS same thing but 100% XIU, then :

10% probability to have 3.39M$ in XBB VS 10% probability to have 1.99M$ in XIU
50% probability to have 4.12M$ in XBB VS 50% probability to have 6.5M$ in XIU
10% probability to have 5M$ in XBB VS 10% probability to have 19M$ in XIU
(These are simulations, results may differ a bit)
Withdraw scenario with XBB
Withdraw scenario with XIU
Contribution scenario with XBB
Contribution scenario with XIU
Sit scenario with XBB
Sit scenario with XIU

Another thing, for the last 20 years :

XBB rolling 15-year return is min 4.22%, average 4.69%, max 5.35%
XIU rolling 15-year return is min 4.90%, average 7.12%, max 9.10%


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## like_to_retire (Oct 9, 2016)

MrBlackhill said:


> I don't want to enter the debate about bonds because there's no single truth to this but I really don't like when a graph like this is used to try to prove a point. That's a specific point in time.
> 
> What if I show you this instead?


Well, it still looks pretty good to me.

You may have missed my point of the graph though. 

Member @JAG was telling us how much money he made on equities from 2008 and saying he was _"Thinking of all the fools who bought ”safe” bonds and who I’m going to have to support in old age"._

I simply wanted to show that bonds have done fine from 2008 and will probably do fine into the future.

ltr


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## sags (May 15, 2010)

Topo said:


> What about AMZN? It has done even better than AAPL.
> 
> And BTW, wouldn't you have done way better buying all AAPL and no BMO? You could have retired by now.
> 
> Even NA would have gotten you farther.


A couple years ago JAG was crowing about buying up "cheap" Kraft Heintz shares.............ouch !


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## MrBlackhill (Jun 10, 2020)

like_to_retire said:


> You may have missed my point of the graph though.
> 
> Member @JAG was telling us how much money he made on equities from 2008 and saying he was _"Thinking of all the fools who bought ”safe” bonds and who I’m going to have to support in old age"._
> 
> ...


Got it, sorry for that.

I have a radar for these kinds of graphs but I missed the context which justifies it.


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## Just a Guy (Mar 27, 2012)

Topo said:


> What about AMZN? It has done even better than AAPL.
> 
> And BTW, wouldn't you have done way better buying all AAPL and no BMO? You could have retired by now.
> 
> Even NA would have gotten you farther.


Glad to see you completely missed the point that any of the stocks I invested in have done multiple times greater than BONDS. even with the correction I’ve done better than bonds. Heck, a dead monkey could probably get better returns than bonds. It’s not about getting the maximum return, it’s about not investing in something which actually looses money and pretending it’s a great investment and everything else is too risky.


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## Topo (Aug 31, 2019)

Just a Guy said:


> Glad to see you completely missed the point that any of the stocks I invested in have done multiple times greater than BONDS. even with the correction I’ve done better than bonds. Heck, a dead monkey could probably get better returns than bonds. It’s not about getting the maximum return, it’s about not investing in something which actually looses money and pretending it’s a great investment and everything else is too risky.


Glad to see that you miss the point that "stocks are stocks, and bonds are bonds, and the two shall never meet." It is completely reasonable to compare common shares of BMO with common shares of AAPL. It is completely justifiable to compare bonds of BMO and bonds of AAPL. But, it makes no sense to compare common stock to bonds. The issue is not only returns, it is returns relative to risk. 

You could have put 100k in AMZN 10 years ago and blown the rest of you money in the casino. You would still be well ahead. With all the gloating that you do, unless your portfolio is filled with ten-baggers, you are "all hat and no cattle."


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## Just a Guy (Mar 27, 2012)

Forget ten baggers, Apple was way higher than that. But I also don’t lose money on any of my stock.

buying a bad investment, defined by me as money loosing, is for morons. Math doesn’t lie, bonds have tiny returns, sure there is less risk as you are guaranteed to loose money from the minute you buy them.

i suppose you’d recommend using swampland in Florida as a good investment as well, as you’d diversify your portfolio. It’s not a stock or bond, but it’s also likely to loose you money from the start, better get in on it quick.


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## fplan (Feb 20, 2014)

Ontario RE beat every other investment vehicle in the last decade. With RE people can borrow up to 95% of the home purchase price and keep all the gains. US housing collapse and the 1990 Toronto RE example are not valid in the current scenario.

IMHO, If you are in ON/ BC, RE should be your priority. COVID is not reducing the prices means RE will never go down and all govts ( federal/provincial) depend on RE so they will do anything and everything to protect RE.. people who lived/living within their means will be screwed big time in the coming years. people who invested in CDN index/CDN banks are also getting benefits of raising RE.

one of my colleagues said Govt doesn't need people like you (me), who save money instead of spending. I think he is Right.


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## james4beach (Nov 15, 2012)

fplan said:


> Ontario RE beat every other investment vehicle in the last decade. With RE people can borrow up to 95% of the home purchase price and keep all the gains. US housing collapse and the 1990 Toronto RE example are not valid in the current scenario.
> 
> IMHO, If you are in ON/ BC, RE should be your priority.


Counter-argument: gold has beaten every other asset class over 20 years and 15 years. It's outperformed stocks, bonds, and real estate. Why not invest in gold instead of these other things?

I don't really believe that, but I'm pointing out one should not chase performance in an asset.


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## fplan (Feb 20, 2014)

james4beach said:


> Counter-argument: gold has beaten every other asset class over 20 years and 15 years. It's outperformed stocks, bonds, and real estate. Why not invest in gold instead of these other things?
> 
> I don't really believe that, but I'm pointing out one should not chase performance in an asset.


Simple.. with RE you only put 5% of your money, rest is borrowed and you live in the house, and the lender will not force you to sell when underwater unlike stocks/gold bought using margin money. 

Even if the property is purchased as an investment, the renter pays for the mortgage and you make profits.

Try making 100k from stocks/gold vs buy a property and flip it. I think the second option is a lot easier. 

For Example, Houses in my community that were sold 660k in 2018 are going for 800k now. one townhome was sold for 540k in 2018 was resold 720k in 18 months. This is on KWC area, not even GTA.


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## AltaRed (Jun 8, 2009)

Housing is a poor example unless you use affordability criteria, i.e. the monthly carrying cost. Absolute prices are very secondary. Prices would collapse with a doubling of mortgage nterest rates.


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## fireseeker (Jul 24, 2017)

fplan said:


> US housing collapse and the 1990 Toronto RE example are not valid in the current scenario.


It would help if you explain why you think that's the case. 

A minimum down payment means a 5% drop in prices will wipe out your equity. There are almost certainly condo owners in the GTA who are already in that position.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> Absolute prices are very secondary. Prices would collapse with a doubling of mortgage interest rates.


Finally, the voice of reason. 

ltr


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## Just a Guy (Mar 27, 2012)

AltaRed said:


> Housing is a poor example unless you use affordability criteria, i.e. the monthly carrying cost. Absolute prices are very secondary. Prices would collapse with a doubling of mortgage nterest rates.



When gold, or stocks collapse, you lose money. When housing prices collapse, you still generate rental income every month. Who cares what the property is worth. Why would you sell a steady income? Oh right, you think bonds are a good investment.


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## hfp75 (Mar 15, 2018)

With all the govt stimulus, all assets are making money.... this is better than that, so on & so on.... if the Fed stops printing... or if there is real deflation / inflation, lots of us will be crying ......

when nothing makes money let’s re-hash this....


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## fplan (Feb 20, 2014)

fireseeker said:


> It would help if you explain why you think that's the case.


reasons:
Immigration - Canada accepts around 300k immigrants and about 30% of them come to ON. around 250k temporary workers and students
Health care - In the US , people lose health insurance when they lose their job so they will be forced to sell their property. In Canada, you only need to worry about your income/health . you will not lose your home due to Hospitalization costs.
one city - Canada has only one true big city with diverse employment opportunities. Even that city can expand only two directions due to geographic/weather restrictions
Money - Money can be laundered very easily in Canada vs US and RE is the best place to park that money
Economy - RE is the only driver to the economy now. For ex: Federal govt borrowed 350B to address COVID related economic/health issues. They will do their best to keep RE moving upwards . RE supports almost 23 different tades/industies . 
Cheap money - Mony printing will continue forever. We will never see historic mortgage rates ( 5-6%). Many corporations are also borrowing lot of money . If interest rates are raised , Chinese state run companies take over these indebted private entities. already happening in may countries around the world. Corporates run the govts so they will make sure rates will stay lower forever.
Banks - They now know that if anything worst happens to them tax payers will come to their rescue so they are fine to take extreme risks. detached home in GTA is approaching 800k . How these people are getting mortgages ? Banks are pumping money into B lenders, who intern giving loans to risky borrowers.

I feel sorry for the pole who needs to draw income every month . Given low GIC rate they also have to take risks( investing in stocs etc) to get the income required.

Govt don't need people who save and invest.


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## Juggernaut92 (Aug 9, 2020)

@agent99 : I see. So you do have money coming in but when you take inflation into account then you are losing a bit of money because its purchasing power went down a bit. I will take a look at the balanced etfs. Thanks.

@Just a Guy : That is cool. Not an easy thing to do. Would you say your portfolio is 100% equities then? Also, do you invest in ETFs at all?

@james4beach : How did you determine the inflation rate? Also, is that just for canada? What do you mean by "personal inflation rate"? You make an interesting point with the gold graph. Did not think of that at all.

@AltaRed : That makes sense to still have something stable in your portfolio. I was thinking about something like xsb as well because it is more short term

@MarcoE : When interests go back to their pre covid levels would that not be a good time? but yes timing is quite difficult and now I am hearing that we wont get those pre covid level interest rates for 5 years. But yes you make a good point and I will think on it.

@fplan : you do make a good point. The RE market is pretty hot right now. But there are more factors to consider. Not everyone will get approved for a mortgage and not everyone is willing to accept just a 5% down payment and also all your money then starts going towards the mortgage.


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## james4beach (Nov 15, 2012)

Juggernaut92 said:


> @james4beach : How did you determine the inflation rate? Also, is that just for canada? What do you mean by "personal inflation rate"? You make an interesting point with the gold graph. Did not think of that at all.


See








Near term Inflation or No Inflation?


Scott Barlow's opener in his daily round-up in the G&M today puts a spotlight on Credit Suisse's Andrew Garwaite forecasting some inflation pressure in the near future, which wouldn't be great for those nearing (including me) or in retirement from a savings and investment perspective. The case...




www.canadianmoneyforum.com


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## :) lonewolf (Feb 9, 2020)

Topo said:


> The best an investor could do is to set a reasonable asset allocation and stick to it.


 Sometimes true though not always. There are investors that would do worse if they set a reasonable asset allocation & stuck to it.


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## Just a Guy (Mar 27, 2012)

My stock portfolio is all equities, no etfs. why pay fees when you can buy direct? Also I only have stuff I want to own, not extra junk stuffed into an etf. I also have businesses and real estate for diversity, don’t regret any of the allocation, makes me a small fortune


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## james4beach (Nov 15, 2012)

Just a Guy said:


> My stock portfolio is all equities, no etfs. why pay fees when you can buy direct? Also I only have stuff I want to own, not extra junk stuffed into an etf. I also have businesses and real estate for diversity, don’t regret any of the allocation, makes me a small fortune


No problem with going all single equities, if you are OK managing them. It takes a lot of work and skill.

Index ETFs are managed too. I don't know what you mean by 'extra junk'. The indexes are carefully constructed portfolios which are managed over time. For people who don't want to stay on top of an individual stock picking portfolio (maybe people who don't have the skills for it or don't want to spend the time) the ETFs are a good way to go.

When you hold the S&P 500 or TSX Composite index ETFs, you are paying a portfolio manager (the S&P committees) to construct and manage those portfolios for you. Over time they have proven that they make good portfolio management decisions, for a tiny fee.


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## Just a Guy (Mar 27, 2012)

Extra junk is stocks that I don’t want in my portfolio. They are “carefully constructed“ by someone else, not me. That someone else isn’t interested in my money, and they probably don’t invest in the etf themselves so it pro isn’t that good of a portfolio. My portfolio is constructed by me, for me and invested in by me. It’s in my best interest to get it right.

not sure why everyone thinks it’s a lot of work, I barely spend any time doing it. I look for companies I know and understand, then buy it during a crash and ignore if from then on.


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## Topo (Aug 31, 2019)

:) lonewolf said:


> Sometimes true though not always. There are investors that would do worse if they set a reasonable asset allocation & stuck to it.


There may be investors that could do better by altering their AA, but it is unknowable ex ante.


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## Juggernaut92 (Aug 9, 2020)

@james4beach : Thanks I will check it out.

@Just a Guy : I see. I know you said you have real estate but do you invest in reits as well? Also, do you buy stocks in bulk during a downtime(100 or more)? I ask because constant trading brings a lot of trading fees with it which will hurt your gains. I know some companies are mostly recovered from the covid stock crash but some companies are still discounted which would make it still a good time to buy.


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## Just a Guy (Mar 27, 2012)

I’m a buy and hold value investor. I don’t like reits because I own a lot of real estate and know how much money you can make from it. I always wonder where that money goest in a reit with their single digit returns.
i usually make my stock purchases in crash, but am always looking for a down period. That’s why I got real estate, I don’t have to wait, there are always good deals out there if you’re looking.
I don’t sell stocks, so I don’t reck up trading fees I’m a buy and hold, not a trader.


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