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mrcode007

Bonds yield higher returns now than the S&P500. Claiming that there is no alternative is financial illiteracy.

I suspect most folks simply don’t know how to buy different kind of bonds and resort to buying bond funds or ETFs etc.

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> Bonds yield higher returns now than the S&P500. Claiming that there is no alternative is financial illiteracy.

For the record, I don't think I claimed there is no alternative.

While bond yield might be higher right this instant (or for the last 6 months, say), does not automatically mean your risk-adjusted return over 20 years is likely to be higher (historically shares have outpaced bonds by a fair margin).

Which makes me wonder where you are putting your money and consequently whether:

(a) you would advise putting one's investment money into bonds

and

(b) at what point would you advise to switch

and

Sorry I signed an NDA with my time travel provider. Just wait six months, you'll figure it out.

You might have said this in jest, but I think it is a strong argument against the possibility of time travel into the past.

efficient market hypothesis. No time travel because all valuable information has already been sent back through time.

The answer from financial theory is that you should be buying the market portfolio that includes stocks and bonds (and other assets) in the same proportion as their market capitalisation.

Looks at my return rates of ~8-9% on S&P 500

Excuse me, what bonds are returning that?

Is that an inflation-adjusted return? Just curious, same thing applies whether you're comparing nominal return or real return, I just know there are "inflation-protected" bonds.

And what are those inflation protected bonds returning?

1.4% in TIPS auction from today.

The Fed buys TIPS to suppress the yield (inflation expectations).

I know, that should be illegal, but when does that ever stop them.

Managing inflation expectations is the Feds main job.

And what are the inflation adjusted returns of Stocks over the last year or two?

3%. Still higher than inflation protected bonds.

How'd you figure?

Looking at the S&P 500[1] over the past two years relative to today's close:

  Aug 15, 2023 Close = $4,437.86
  Aug 15, 2022 Close = $4,297.14
  Aug 13, 2021 Close = $4,468.00
         1-yr Return = +3.3%
         2-yr Return = -0.7%

...and using the latest CPI-U data[2] over roughly the same period:

      Jul 2023 Index = 305.691
      Jul 2022 Index = 296.276
      Jul 2021 Index = 273.003
      1-yr Inflation = +3.2%
      2-yr Inflation = +12.0%

...I get real returns of +0.1% and -12.7% over 1- and 2-yr periods, respectively.

Same exercise looking at Vanguard VTI ETF[3]:

  Aug 15, 2023 Close = $220.37
  Aug 15, 2022 Close = $215.78
  Aug 13, 2021 Close = $230.05
         1-yr Return = +2.1%
         2-yr Return = -4.2%

...I get real returns of -1.1% and -16.2% over 1- and 2-yr periods, respectively.

[1] https://fred.stlouisfed.org/series/SP500

[2] https://fred.stlouisfed.org/series/CPIAUCNS

[3] https://advisors.vanguard.com/investments/products/vti/vangu...

A single coca-cola corporate bond was issued with an initial yield of 7.35%

https://cbonds.com/bonds/100441/

Current META bonds yield ~5.8%

Barclays bond at ~10%

https://www.bondsupermart.com/bsm/bond-factsheet/US06738EBX2...

You are comparing the S&P 500 to a single company bond? Should I also compare the return of a SpaceX stock to the S&P 500?

you can build a portfolio of bonds that satisfy your risk preference and target yield. bonds can also be leveraged a lot which is how they are the largest financial market in the world trumping stocks by few orders of magnitude.

a return of 8-9% on broad market index like SPX in a year when the market made 20% profit tells me you're very risk averse.

(Stupid question) how does someone, who is not risk averse, go about executing the strategy you’re advocating for?

Are Barclays bonds available for purchase via a consumer brokerage account?

You can browse bonds in Schwab and interactive Brokers for example.

Fwiw I am not saying to go and buy Barclays bonds, but merely exposing the fact that a market far larger than the stock market exists.

Edit: one thing worth pointing out is that there are also municipal bonds which are tax free if you live in the jurisdiction of the issuer.

https://www.municipalbonds.com/bonds/issue/79771PU86/

Here’s an example of the SF muni bond at 8.4% coupon currently yielding ~6%

That 7.375% on the Coca-cola bond looks like the coupon (approximate yield) from its initial issue, which appears to be in 1993. ("Ticker: KO 7.375 07/29/93") The yield-to-maturity (yield calculated from current market price) is likely to be lower. Coca-Cola is A-rated[1], and Schwab is showing A-rated corporate bonds as yielding 5% (3-month) to 6.4% (30 years)

[1] https://www.fitchratings.com/entity/the-coca-cola-company-80...

Yea that is correct. There are tons of other bonds at varying yields and default risks. Check out Apple and Tesla bonds for comparison for example.

None of which are yielding in the Coca-Cola ballpark without significant default risk. The broader point about bonds clearly beating S&P earnings is dubious.

Apple bobs yield just ~0.9% or so kore than 10 year treasuries. You have to go for much riskier companies to get significantly above 5%.

Of course if there is a recession, the stock market tanks and most importantly the Fed starts cutting rates you might do quite well (assuming you’re willing to sell those bonds afterwards).

Bonds don’t out perform stocks over the long term. Buying bonds makes sense for risk averse people seeking fixed income with tax advantages, or speculators planning for a drop in interest rates. There may be a few 20 year periods where the stock market itself was flat, but anyone who had been buying during that whole time would have seen positive returns.

Also significant inflation = higher stock prices, while your principal would only decrease in value if you buy bonds.

I've always thought that inflation causes stocks to suffer, for a couple reasons. One, higher interest rates on government bonds means risk free interest rates can approach, or even exceed, the typical expected return for the stock market. Second, inflation reduces consumption, which reduces profits.

Short term that might be the case. However longterm (as long as the economy continues growing) you would still expect nominal earnings and revenue to increase at least at the same pace.

Also it varies a lot by sector, consumer staples for instance have been doing quite well over the last year.

If you have double digits inflation and can’t/don’t want to buy foreign currency the stock market is probably the best place to be. Just look at Turkey:

https://tradingeconomics.com/turkey/stock-market

>I suspect most folks simply don’t know how to buy different kind of bonds and resort to buying bond funds or ETFs etc.

Have you ever actually used treasury direct to buy bonds? I cannot fault anyone for buying an ETF over using that horrible website.

bonds don't always mean sovereign bonds such as US treasury bonds. There are also corporate and municipal bonds.

I dunno, maybe I’m weird but I find treasury direct to be pretty functional. I’ll take it any day over the likes of Citibank.

They locked my account for "security reasons" and to unlock it you need to physically mail a 3 page form.

I only ever used it once.

lol same. You have to enter not one but like 5 different security questions now. It's insane. I had to call in and have them reset my password that way.

How much are you missing out by buying bond funds? Why would there be much of a difference?

management fees plus the fact that a fund has a single risk utility function applied across the pool of all investors in the fund, where the investor's wealth is absent from the state variable. the investing math is different if current wealth is taken into account or not.

Aside from management fees I don’t grasp the concept your articulating (and I have a feeling I’m not the only one). Can you dumb it down even more?

https://arxiv.org/pdf/1405.0585.pdf

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