When reading a post with a keyboard, you can type the keys , and . to move backwards and forward between posts! You can also press 'return' to read through posts one at a time. There's freedom in Shrewd'm!
- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 20
Bond Investing --like fly-fishing or like boat-building, to name two of my other hobbies-- can be done a lot of different ways, for a lot of different reasons, so much so, there can be no single "right" way to do any of them. But some generalities can be offered and simplifications made.
As a would-be *bond* investor --a term that can include all securities that have a "fixed income" component, such as preferreds, MLPs, REITs, etc.-- one of two bets is being made. Either you're betting on the level/direction of interest rates, or you're betting on the level/direction of an issuer's credit-worthiness. For sure, especially with mid-tier corporate debt, both factors can come into play. But would-be bond investors generally sort themselves into those who focus on high quality debt and the income it might offer, and those who embrace the risks and rewards of what is rated as spec-grade debt (and derisively called 'junk bonds').
Those in the first group are practicing what Ben Graham would call "Defensive Investing". The latter group is practicing what he would call "Enterprising Investing". For good reasons, he argues the two styles shouldn't be mixed. "Pick one, or the other", he suggests, "and stick with it". But there are some subversives and iconoclasts who do successfully mix the two and who describe what they do as "spectrum-income" investing, which is a category that Morningstar recognizes and tracks.
Me? I'm a spectrum-income guy who buys across the yield-curve and up and down the credit-spectrum. That means I'm buying CDs, Treasuries, Agencies, Minis, Corporates, Foreign Sovereigns, Preferreds, Converts, MLPs, Reits, High Div ETFs, etc., and what matters to me is 'Total Return', whatever its source, but with a preference for predictability.
Regrettably, TMF trashed the 20 plus years of posts that were done on the old bond board, much of what would still be timely, because the discussion was broad or the specifics of a post would serve as a case study that would have present-day, present-market relevance. The lost posts are water under the bridge. But I'm going to try to recreate some of them, because I like bond investing and because such a review might help me chart a path in our present horrible economic situation.
Meanwhile, if bonds aren't something whose lingo and basic math you feel comfortable with, pick up a used copy of Sharon Saltsgiver Wright's book, Getting Started in Bonds (either edition), and work your way through it, pencil in hand and calculator at your side. Then go paper-shopping for bonds and try to apply the concepts and strategies she suggests.
If you've got an account with Schwab, you have access to the best scanner for preferreds. If an account with E*Trade, you've got access to the best, most easy to use bond scanner for agencies, munis, or corps. If an account with Fidelity, you've got access to the best commission schedule for bonds. If an account at IB, then direct access to NBBO at the same buck a bond at Fido, but with an easier means to sell. If an account at TD, then you've got access to the best platform for trading equity-like instruments. Etc. Etc. All brokers offer advantages and disadvantages. Pick the ones that best serve your needs.
Lastly, you need to poke around FINRA's website and to learn how to pull historical info and charts for bonds. OK. That's enough for today. I've got leaves to rake and miles to roll on my recumbent before the rains return.
CharlieBonds
No. of Recommendations: 0
Congratulations CharlieBonds, 'Post of the Week'! It remains published for the entire week. The subject of bonds is relatively new to a lot of readers, despite historically being so fundamental to investing, and in the early 20th C along with railways. I imagine that some equity investors can learn a lot from bond investors.
The recent periods of most bonds giving less than inflation has caused many investors to skip the mental process of evaluating bonds but it could be used useful exercise for many, and some equities also have 'bond-like' characteristics and vice versa.
- Manlobbi
No. of Recommendations: 2
Manlobbi,
Thanks for the honor that "Post of the Week' confers. I'm flattered. But also, as I re-read it, I wouldn't change a word. The tone and coverage are a good compromise between splash and depth that pricks the interest without being stultifying.
Also, I would again advocate for getting a copy of Wright's book and working one's way through it. She writes clearly and well, and she was well-coached by her mentors on what needed to be said about the risks and rewards of investing in bonds, a market that has been more than kind to me and isn't yet dead, spite rumors of its demise.
Charlie
No. of Recommendations: 1
Thanks Charlie for the intro!
Bonds are becoming a bit more attractive, for obvious reasons.
You write:
"Either you're betting on the level/direction of interest rates, or you're betting on the level/direction of an issuer's credit-worthiness."
This is above my pay grade, so to speak. I'm simply betting that bonds will produce an acceptable rate of return at an acceptable risk level.
For years, I avoided Treasurys because they did not produce an acceptable rate of return. Although still below inflation (so I'm losing value), I now find 3 month Treasurys attractive. I can get some absolute return, and by staggering, tread water with cash becoming available each month should I choose to deploy it. I'm also stashing some money away in I-bonds (9%!--for a little while); not going to get rich off of them but also not going to lose my shirt.
The yield inversion allows me to get relatively decent returns without making a lot of commitment. I am convinced something is going to happen that either meets or defies expectations. In either case, I'll be getting a little income and keeping my options open.
No. of Recommendations: 1
dillbeans,
As always, planning what to do about where or how to deploy money isn't simple or obvious, because there are multiple factors at play. But if you want/need a guide, then watch some of Jim Rickards videos or read his books. Summarizing hugely, he says we're in a recession/depression that's going to take many years to play out, nor will there be any "getting back to normal". That world is gone.
As for the bond stuff, the 13-week isn't a bad one to ladder. If you have the cash, the 26-week will pay a bit better. In either case, the time table seems to be this. The Fed will hike another 25 bps in March and again in June and then pause, maybe as long as until mid '24, and then start cutting, at which time bonds of longer duration will be the place to be, not on the short end of the yield-curve.
The economic fiction that is the CPI printed today, showing that inflation is still on the rise. If the 1980 version is used, tracked by Shadow Stats, then the real rate is twice that of the reported number, as everyone of us knows who's been to the grocery store lately. That means that, no matter how good present bond yields seem to be, they are offering a negative rate of return, which is by design, as it has been since about 1913, because inflation allows gov'ts to borrow and spend.
An aside: Buying through Treasury Direct is easy and convenient. But the bonds can't easily be sold. They have to first be transferred to a brokerage account. But most brokers will buy at auction for you without commish. For now, rolling ladders thru Treasury doesn't create any problems. But eventually, you're going to want to switch to buying in your brokerage account(s), especially as you extend maturities.
Charlie
No. of Recommendations: 1
Thanks Charlie. I'm buying I-bonds through Treasury Direct; the rest through my broker. Zero commission,as you indicated.
