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At what long-term rates would you commit the bulk of your portfolio to fixed income
June 8, 2023
6:05 pm
NCC1701Z
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Currently, one can get 10 years at about 5% and up to 30 years via strip bonds at about 4.4%. This is better than all-in-one funds like VRIF's 4% targeted returns.

June 8, 2023
6:19 pm
Loonie
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If these are your only alternatives, I'd go with the bonds, but reluctantly.

Reasons:
We live in very uncertain times and ten years is just too long to have the majority of your portfolio committed and tied up, no matter what rate.
Bond rates may or may not fall over 30 years but at least you have the option to trade them and get some money out.

But I don't think either of these are great ideas. If you must do this, spread out your purchases over time. I think that's more important than reaching for rate.

I'm still doing GICs but have reduced my ladder to 3 years, weighted towards the short end, and there are days when I think even that is too long.

June 8, 2023
6:37 pm
AltaRed
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NCC1701Z said
Currently, one can get 10 years at about 5% and up to 30 years via strip bonds at about 4.4%. This is better than all-in-one funds like VRIF's 4% targeted returns.  

That is a faulty conclusion because it does not consider asset appreciation from, in particular, the equity component of all-in-ones and thus distribution growth over time.

Example: Assume for discussion purposes that the equity component of VRIF grows 7% per year thereby doubling in 10 years, and assume the bond component does not change. VRIF could have an NAV 50% higher in 10 years and 4% of that higher number is 50% more in actual distributions.

The point is you cannot compare apples and oranges as you have done. Regardless, you started this thread to discuss fixed income, so we can now continue on that sf-wink

My response would be there is likely no plausible yield that I would commit 30 years too, given the likelihood of so many things that could happen in that time period. Not that it matters to me in real life...since I will be long gone from this world by then. I might consider 10 years at a CAGR of 6% but that is not achievable.

June 9, 2023
6:10 pm
NCC1701Z
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VRIF has been disappointing, down 10% or so since inception about 2 years ago so they are paying RoC.

With a shorter timeframe at this stage of life (late 60's) 5% over 10 years with no risk is pretty tempting. Still much better than an annuity that would only yield 2.x % over 20 years. I remember when I retired circa 2000, 20 year bonds were paying about 10% - still regret not buying in.

June 9, 2023
9:14 pm
AltaRed
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As have all balanced (multiple asset class) funds, both ETF and mutual funds. The double whammy of both stocks and bonds being down with central banker interest rate surge to fight inflation. That should not be unexpected during accelerated bouts of fiscal tightening.

It s not appropriate to form conclusions over short periods of time, e.g. less than 5 years, i.e. less than a full business cycle. Over 10+ years, stock indices have directionally gone to the northeast along with associated distribution/dividend growth. Regardless, there is no basis to compare a mixed allocation security like a balanced fund or VRIF with 100% fixed income. They are two different animals.

June 10, 2023
5:44 am
Tommy Tutalidge
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I'm moving 80 percent into long term corporate bonds out at 2040 or later and the other 20 percent into the precious metals, nothing in stocks. I expect interest rates to fall going into January the 4th 2024 as I have a lot of money coming due in the Manitoba credit unions on that date. Looking to put mostly everything into long term corporate bonds January 2024. I would never get any OAS even if I put everything into something that produces no income. At 3 percent I'd commit the bulk of my money.

June 10, 2023
6:58 am
mordko
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I don’t care about yield when designing asset allocation. There are other, more meaningful considerations.

Also, worth noting that real yield is still close to zero.

June 11, 2023
8:29 am
Norman1
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NCC1701Z said
VRIF has been disappointing, down 10% or so since inception about 2 years ago so they are paying RoC.

… I remember when I retired circa 2000, 20 year bonds were paying about 10% - still regret not buying in.

I think that's a really poor place to be making investment decisions from. One never has the benefit of 20 years of hindsight in making decisions, investment or otherwise.

Do I regret not putting money in the hypervalued tech stocks, like Amazon, back then? No.

The likelyhood of having a surviving winner, like Amazon, among one's tech stocks is slim. What was Amazon then? A bookseller?

More likely I would have irrecoverably lost a substantial amount of net worth in failures, like Nortel and JDS. I met one tech worker who remortgaged his house and invested the money into a Nortel spinoff he was working for back then. When the tech bubble bursted, the startup couldn't get another round of funding, ran out of money, and its lights went out.

The lesson to be learned from that time was not that one should buy long 20 year bonds. The lesson was that what looks good at the time may not look that good 20 years later. That includes investments and marriages!

I would not lock into long-term bonds at any yield. Fixed income have always been inferior investments. Bonds are good for parking money but not for investing.

If the going rate for bonds were 10% per annum, then companies that issue the bonds at that 10% and thrive are earning 15% or 20% on that borrowed money. Better to be a shareholder in such companies and earning 15% or 20% on shareholder money than a lender earning "only" 10%.

The VRIF results don't surprise me. Those 7% per annum long term return statistics of stocks need the boost from dividends being reinvested during market downturns. That 3% dividend reinvested after the market tanks by 40% becomes a 3% / (1 - 0.40) = 5% dividend when the market recovers.

One won't achieve a 7% long-term internal rate of return from stocks if one withdraws the dividends or more every year.

June 11, 2023
9:17 am
hayman
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Good discussion I would like to refer everyone to Howard Marks, I know Warren Buffet consults with him and has been a big buyer of fixed assets (please watch latest annual shareholder meeting he locked in at 5.9 on govt bonds) as of late as well.

NCC1701Z I want to invest some long term TFSA money and educational fund monies for my daughter, I like a 10 year horizon, or even 15 year horizon what do you recommend?

What really gets me is the 70s had 1/3 the household debt most likely with only 1 person working. I think 5% overnight rate is equivalent to 20% back then. I also believe good credit is more important then cash and want to lend against my 10 year GICS (600k) @ 5.7% paid monthly for Real Estate as I think Owning assets for yield inside a corporation is far better then investing in the insanity of the stock market.

Kind regards

Kind regards

June 11, 2023
9:23 am
savemoresaveoften
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hayman said
Good discussion I would like to refer everyone to Howard Marks, I know Warren Buffet consults with him and has been a big buyer of fixed assets (please watch latest annual shareholder meeting he locked in at 5.9 on govt bonds) as of late as well.

NCC1701Z I want to invest some long term TFSA money and educational fund monies for my daughter, I like a 10 year horizon, or even 15 year horizon what do you recommend?

What really gets me is the 70s had 1/3 the household debt most likely with only 1 person working. I think 5% overnight rate is equivalent to 20% back then. I also believe good credit is more important then cash and want to lend against my 10 year GICS (600k) @ 5.7% paid monthly for Real Estate as I think Owning assets for yield inside a corporation is far better then investing in the insanity of the stock market.

Kind regards

Kind regards  

I see it as even Warren Buffet believe in diversification across asset classes, especially for a good size portfolio.

June 11, 2023
9:54 am
Dean
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Loonie said

. . .

I'm still doing GICs but have reduced my ladder to 3 years, weighted towards the short end, and there are days when I think even that is too long.  

I hear ya, Loonie

Call me Crazy, call me Stupid ... but for my own reasons, I'm presently restricting myself to locking in for no more than a 'Max' of 2 years.

Come two years from now, will I regret it ❓

I'll letcha know. sf-wink

    Dean

sf-cool " Live Long, Healthy ... And Prosper! " sf-cool

June 11, 2023
10:17 am
fat_dog
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What Warren Buffet advises and portfolio management are for his client as a whole not for individual .

Maybe the individual has terminal cancer . Or well past the life expediency of a human being . Or has children he want to leave money too . Or is very young

Just because warren buffet dose some thing does not mean it is right for every one

June 11, 2023
11:54 am
hayman
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Debt is growing at 300% of GDP currently and set to go higher, I understand stocks avg through history beating bonds etc. I just believe unless you can stomach a 40% correction you shouldn’t be in stocks, and I truly believe compounded interest is a miracle. Because of huge national debt and de globalization I expect low returns in this stock market, I think owning assets is what it’s all about.
Private equity will hollow out the stock market imo, the SM will be nothing more then a hobby 10 years from now IMO

June 11, 2023
1:46 pm
NCC1701Z
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Norman1 said

NCC1701Z said
VRIF has been disappointing, down 10% or so since inception about 2 years ago so they are paying RoC.

… I remember when I retired circa 2000, 20 year bonds were paying about 10% - still regret not buying in.

I think that's a really poor place to be making investment decisions from. One never has the benefit of 20 years of hindsight in making decisions, investment or otherwise.

Do I regret not putting money in the hypervalued tech stocks, like Amazon, back then? No.

The likelyhood of having a surviving winner, like Amazon, among one's tech stocks is slim. What was Amazon then? A bookseller?

More likely I would have irrecoverably lost a substantial amount of net worth in failures, like Nortel and JDS. I met one tech worker who remortgaged his house and invested the money into a Nortel spinoff he was working for back then. When the tech bubble bursted, the startup couldn't get another round of funding, ran out of money, and its lights went out.

The lesson to be learned from that time was not that one should buy long 20 year bonds. The lesson was that what looks good at the time may not look that good 20 years later. That includes investments and marriages!

I would not lock into long-term bonds at any yield. Fixed income have always been inferior investments. Bonds are good for parking money but not for investing.

If the going rate for bonds were 10% per annum, then companies that issue the bonds at that 10% and thrive are earning 15% or 20% on that borrowed money. Better to be a shareholder in such companies and earning 15% or 20% on shareholder money than a lender earning "only" 10%.

The VRIF results don't surprise me. Those 7% per annum long term return statistics of stocks need the boost from dividends being reinvested during market downturns. That 3% dividend reinvested after the market tanks by 40% becomes a 3% / (1 - 0.40) = 5% dividend when the market recovers.

One won't achieve a 7% long-term internal rate of return from stocks if one withdraws the dividends or more every year.  

All good points but I'm no longer really investing for long term growth but looking for a safe risk free reasonable return. Timeframe left is likely 10-15 years transitioning from go-go to slow-go to no-go. Having a portfolio on semi-autopilot for the surviving spouse uninterested in investing is also a goal. Will likely keep 20% or so in a Global ETF just for fun.

I don't think I'd commit to 20+ years but many recommend an annuity at this stage which is a lifetime commitment to low returns unless ones lives to 100+

I remember you posted a 20 year GIC/strip bond portfolio generating a guaranteed income as much less expensive alternative to an annuity.
Post #26 here:
https://www.highinterestsavings.ca/forum/gic/10-year-gics/page-2/

June 12, 2023
12:39 pm
RetirEd
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Much as there's nobody out there who can consistently "beat the market," there's no conclusive info on whether to go with fixed return or speculative investment. If you take 10-year sliding window and compare them, it's sometimes one and sometimes the other.

For me, the advantage of fixed return is that I can know AHEAD of time what I'm going to get, assuming no financial failures.

My last look at such a comparison was a few years ago. Does anyone have more recent sliding-window data to point to?
RetirEd

RetirEd

June 12, 2023
3:04 pm
Pewter
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No Crystal ball here!!

Consider this theory.

Ladders 2 3 4 or 5 year

You will hit the good times and not so good times for a fifth of your savings based on a 5 year ladder.

You will be averaging the rates.

Put it ALL in a 5 year in bad times and what is out there in 5 years... good or bad rate of return?

USE Fi's only with savings accounts to allow short term parking if you see things being better a few months after funds have matured.

June 12, 2023
3:23 pm
AltaRed
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RetirEd said
My last look at such a comparison was a few years ago. Does anyone have more recent sliding-window data to point to?
RetirEd  

For any period of time you wish to consider http://www.ndir.com/cgi-bin/do.....de_adv.cgi but there is no GIC category to do the analysis against.

June 12, 2023
4:14 pm
gicjunkie
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Dean said

I hear ya, Loonie

Call me Crazy, call me Stupid ... but for my own reasons, I'm presently restricting myself to locking in for no more than a 'Max' of 2 years.

Come two years from now, will I regret it ❓

I'll letcha know. sf-wink

    Dean

  

If "your own reasons" means your life is possibly going to majorly altered by then, the reasoning is likely valid. No point in leaving yourself short of cash if it's needed. If you are trying to predict where the rates will be going by then, (down is my guess), you will likely be sorry. I know that as we age the future seems more immediate, so 5 years seems like a really long time. (Many of us have given up on green bananas) If something happens to me within 5 years, my heirs can then deal with the remaining GIC terms. I'm sticking with my 5 year ladder, especially with the rates being higher now than they have been for a while. If the rates somehow continue to rise, I will take advantage as long as I am able. Hopefully, Dean, you will "Live long and healthy and prosper," so I wish you good luck no matter how long a "ladder" you choose to build.

PS: I would never call you crazy or stupid. Eccentric, amusing, entertaining, insightful, yes!

June 12, 2023
4:18 pm
hayman
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NCC1 I’m a rookie fixed asset investor, what 5% 10 year bonds specifically are you referring to and what is the cheapest way to buy them? Kind regards/Matt Hayman

June 12, 2023
6:38 pm
Norman1
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NCC1701Z said

All good points but I'm no longer really investing for long term growth but looking for a safe risk free reasonable return. Timeframe left is likely 10-15 years transitioning from go-go to slow-go to no-go. Having a portfolio on semi-autopilot for the surviving spouse uninterested in investing is also a goal. Will likely keep 20% or so in a Global ETF just for fun.

I remember you posted a 20 year GIC/strip bond portfolio generating a guaranteed income as much less expensive alternative to an annuity.
Post #26 here:

With that situation, one has the required 10+-year time horizon for only part of the funds.

Do ten years of that 20-year GIC/strip bond portfolio to be set for the next ten years.

Put the remaining funds into equity and opportunistically sell the equity portion in the coming years to keep five to ten years of funds in the GIC's and strip bonds.

No problem should the stock market crash. There will be at least five years of money in GIC's and strip bonds to help wait for a recovery.

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