If you are very wealthy, like I'm sure Dave Ramsey is, it's true that you don't need bonds. Most retirees though can't bear another 35% drop in stocks in the next recession, and there is ALWAYS a next recession. Stocks are for making money … bonds are for keeping that money. Dave highlighted the potential problem with long-term bonds when interest rates rise, but short and intermediate term bonds are less affected. Use bonds to collect interest payments, not to make big capital gains.
"If you sell it." Uhhh.. that's the whole point of owning a bond. You don't have to sell it. If interest rates go up, you simply let it mature. Obviously 60-year-olds shouldn't be buying a lot of 30-year bonds.
exactly. ...I watch these and wonder if "I Dave 12% Ramsey am a critical thinker who independently looks at things" has ever independently looked at *real* returns of the stock market.
The point is that if interest rates go up and you don't sell, then you are making say 2% a year when you otherwise could be making 4% a year. So there is a cost whether you sell or not. One is a real cost the other is called an opportunity cost.
knpstrr Sure, but that's not the same as taking a loss, which is what Ramsey was implying. It's also why you set up bond ladders so that you can roll money out of maturing bonds into higher yielding bonds in a rising interest rate environment. Either way, the way Ramsey describes it is a mischaracterization.
I like investing in close-end funds that pay monthly dividends. The trick is to hold long term and reinvest the monthly dividends plus buy more shares on a monthly basis or when ever you can afford to. This can be easily done because close-end funds are bought and sold on the stock market just like regular stock. That’d be enough to create a portfolio that would pay you between $50k to $70k in dividend income
Just because there are opportunities in the market doesn’t mean you should go in blindly. To understand the potential factors that contribute to your financial growth, I'll advise you to seek the help of a professional
I completely agree; I am 60 years old, recently retired, and have approximately $1,250,000 in external retirement funds. I am debt free and have very little money in retirement funds compared to the total value of my portfolio over the past three years. To be honest, having a portfolio-advisor for investing is genius!
Finding financial advisors like Rebecca Nassar Dunne who can assist you shape your portfolio would be a very creative option. There will be difficult times ahead, and prudent personal money management will be essential to navigating them.
I disagree. The point of buying bonds near retirement isn't completely about the value of the asset, but the income that is received from it. Money managers recommend buying bonds near retirement so that retirees can have income, without being subject to a stock market crash.
stephen geraci In a normal market, bonds will yield a percent, possibly two, possibly 7. It depends on a lot of factors such as what type of bonds. There are a lot of factors. No I would not buy bond right now. I don't think I would buy bond mutual funds for 30 years unless they were high yield bonds with an enormous track record. But when I am 5 to 7 years from retirement, I would do exactly what Dave recommended to the lady, buy a significant portion in Balanced funds. I don't have a problem with anyone buying bond funds close to retirement. If I had acquired three million dollars and I lose 40 percent of my value five years from retirement, I either have to work longer or retire with a lot less money. If I have three million dollars with my money in more stable bonds, if I were to lose 3 percent, I can still retire on time with the same life style. Yes it is possible that the stock market and bond market are just as volatile, however, not everyone's goal is growth, some people want capital preservation.
Connor P Thanks for the information. I'm 50 years old and have always followed what Jack Bogle and Vanguard have taught me and to use a bond index fund as a diversifier. Vanguard still sticks to that. Although I don't yet have a million, I have a nice amount in my 401K and I would like to retire in 12 years. I have 65% in the total market stock index fund and 35% in the total bond index fund. The market is at an all time high if I were to move my money out of the bond fund would you dollar cost average in or do it all at once? I do like the simplicity of John Bogle's advice and to stick it all in the Vanguard Balanced Index Fund and don't worry about it.
stephen geraci I am not too familiar with the Vanguard fund families. I prefer to buy mutual funds from T. Rowe Price. What Dave is trying to say with buying balanced funds is that right now they are extremely heavily weighted in stocks with very few bonds. The reason is because interest rates are not going to go any lower, they are only going to go up. When this happens (who knows when it will happen) a lot of bond owners are going to have rough stretches. Right now is an extremely difficult time for investment professionals because stocks are at an all time high and interests rates are at an all time low. Typically balanced funds are weighted 60-70 percent equities and 30-40 percent bonds. What I like about them is that they are flexible and the fund managers have every bond and every stock in the world to choose from. They are not tied to a specific category. They can buy the best small cap stocks, the best mid cap stocks, the best large cap stocks, the best short term bonds, the best long term bonds, the best high yield bonds. It will give you access to many types of investments. They are a bit more conservative because of their diversification, they tend to hold up better in a number of different types of markets because of that spreading of risk and spreading of assets. I own the T. Rowe Price Capital Appreciation fund (PRWCX) which has about 7 percent cash right now and 5 percent foreign bonds. A lot of balanced funds right now are weighted slightly heavier in cash because it is hard to find good value in stocks AND bonds right now. I also like Dave's advice in buying growth an income mutual funds. I really like dividends. I feel that you can get some growth when the market goes up but you can get a steady income from the dividends. Even when the market is flat, there are still those dividends. Vanguard has a really good gold rated fund but I do not recall the name. As far as whether you should move all your assets all at once or dollar cost average it....I don't know whether it would be better to do it one way or another. As for me personally, I don't think I would like to have all of my money in one mutual fund. What happens if the fund manager goes bad or has a bad stretch? I am just not comfortable with only one mutual fund. I listen weekly to the Dennis, Andy, and Adam on the Mutual Fund Show podcast. They always say to never have more than 12.5 percent of your total portfolio in one mutual fund. I have heard some people never put more than 5 percent. I would seek out more advise from professionals and get a second option. You could also listen or call in to the show for their advise. I have emailed in and been pleased with the response. Good luck!
Connor P thanks for the well thought out response. My money is all in index funds so there is no manager making buy and sell decisions, it just tracks the total market index and the fees are very low. I also hold the total bond market index which operates the same way. From what I have come to learn through reading everything John Bogle has written is very few fund managers can beat the indexes for long periods of time and I don't want to monitor when the fund manager is leaving and/or when their strategy changes. However, I am at a cross roads if I should limit my exposure to the bond index fund. Vanguard said they still think bonds are a good diversifier and if held until maturity you will not lose out and get your money back unlike stocks there are no guaranties. Thanks again.
Before you take this guys advice, first figure out what he's trying to sell. Mutual Funds!!!! Why does Dave Ramsay lead people to invest with American Funds, Capital Group? One of the most expensive mutual funds companies in the industry? ....Because he doesn't make as much money selling Bonds!
American funds has plenty of bond funds... including in their balanced and target date funds. American Funds are just fine if you have a 401k and aren’t paying the front load. If you’re in those shoes then you’re winning.
I was advised to diversify my portfolio among several assets such as stocks and bonds since this can protect my portfolio of about $400k for retirement. how do I go about this not get burnt in the market
Consider diversifying your portfolio with a mix of stocks and stable assets. Seeking professional advice now could provide valuable insights and strategies to navigate market uncertainties and protect your investments.
Johnny Rook. But his point is you might need the money and be forced to sell. Stocks increase more than bonds over the long run. Bonds made sense when rates were higher. Bonds could be a good source of $ if you needed it rather than selling stocks if they were down at that particular time of need. But now bonds earn so little we might be better buying stock index funds @nd having cash or other semi-liquid assets. Online bank accounts pay almost as much and are fdic protected.
Exactly. Now you need someway to beat inflation. If you own agricultural land and your house fully paid up, you can, infact very much limit the effect of inflation to a vast extend. Don't trust Dave on this. He is sounding more and more like a stock broker.
I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.
I feel your pain mate, as a fellow retiree, I’d suggest you look into passive index fund investing and learn some more. For me, I had my share of ups and downs when I first started looking for a consistent passive income so I hired an expert advisor for aid, and following her advice, I poured $30k in value stocks and digital assets, Up to 200k so far and pretty sure I'm ready for whatever comes.
@@HudsonEthan-00 The crazy part is that those advisors are probably outperforming the market and raising good returns but some are charging fees over fees that drain your portfolio. Is this the case with yours too?
This is why I have a (bit) of a problem with Dave. He applauds and pats himself on the back for “thinking critically,” “looking at data,” and “thinking independently” but then gets mad when people don’t agree with him. He’s not the only person to think critically about money and finance.
@@robschneider8310 I disagree cuz I wouldn't call his thinking nonsense cuz when he tells beginners to diversify between the growth and international and do it for 40 years or more and start early he's definitely right that when u retire at age 65 u will have 1125000 dollars at retirement if u started super early at age 18!!!!!!!!!!!!!!!!!
@@robschneider8310 Your comment lacks substance, as well. No offense. I'm no finance guru. I don't even understand finance all that much. But what Dave is saying makes perfect sense to me. A better question is, does this apply to inflation bonds? I-bonds lock in the interest rate. However, they are capped at 10K per SSN. So Elon Musk can't come in and buy 10 billion I-bonds, lock in a 9% interest rate and make a boatload of money in one year.
Dave only has 1 tunnel vision, there's no other way but his way. Like everything, you just gotta take the best parts and what makes sense to you, you don't have to follow everything exactly as dave says. For example, according to dave, you have to either have cash to buy real estate or make 500k salary annually.
Given the current market volatility and uncertainty surrounding the Federal Reserve's interest rate policy, I'm considering whether to sell my $401k in equities. What are the most effective strategies for capitalizing on potential market downturns? Should I consider shifting some of my investments to bonds as a more conservative option?
Given the current market conditions and economic uncertainty, it might be prudent to consider holding some bonds as a more conservative investment. You may also want to consult with a financial advisor before making any significant changes to your equity holdings
You have a very valid point, I started investing on my own and for a long time, the market was really ripping me off. I decided to hire a CFA, even though I was skeptical at first, and I beat the market by more than 9%. I thought it was a fluke until it happened two years in a row, and so I’ve been sticking to investing via an analyst.
This is definitely considerable! think you could suggest any professional/advisors i can get on the phone with? I'm in dire need of proper portfolio allocation
My CFA ’Rebecca Noblett Roberts’ a renowned figure in her line of work. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.
Thank you for saving me hours of back and forth investigation into the markets. I simply copied and pasted her full name into my browser, and her website came up first in search results. She looks flawless.
He's being deceitful about the volatility of bonds. Intermediate term investment grade bonds ARE SUBSTANTIALLY LESS VOLATILE THAN STOCKS. Yes, it's true they don't perform as well over the long run.
He's pro mutual funds. Any investment advice he gives is for mutual funds. I personally don't like the extra fees of mutual funds that eat up your return.
May I draw your attention to the fact that being an accredited investor doesn't mean that you are a competent one. What I can point you to is a reading list. Fabozzi Fixed Income Analysis, The Bond Book Annette Thau, A History of Interest Rates Sidney Homer and Stigum Money Market.
Bonds are not only less volatile, they are less risky. The credit risk for government issuers is nil. The interest rate risk is only relevant on the secondary market. If you have a 5% interest bond and rates go up simply hold the bond. You can always buy other bonds at higher rates. Besides, creditors are payed before shareholders in the advent of a bankruptcy, thus reducing the risk of permanent and total loss of capital.
The main diversification power of bonds comes from the lack of correlation with stock returns, rather than lower volatility. Thus they acts as a damper when the stock martket falls sharply as in recent days and decrease the overall return when there’s a rally.
Of course the stock market outperforms the bond market. That's why it's a lower risk investment. That's the whole point. It's about the guaranteed income without being subject to crazy equity risk. There's a reason why financial planners recommend bond layering strategies for people heading into retirement, as to protect their wealth. The mutual funds are fine as long as they adjust their allocation properly, but unless you are a savvy investor who knows what they're doing, people aren't going to be able to have that kind of risk appetite when they go into retirement. The bond market wouldn't exist if there wasn't some form a decent return on the investment made.
It's relatively safe to recommend to a 30 yr. old that he go 100% into growth stocks. He can sit through the next 2-3 recessions there will certainly be in his lifetime and still have time to rebuild. But a 65 yr. old? In the 2008 recession the S&P 500 dropped 37%. "All stock" portfolios did worse. If that person had been in 30% stock and 70% bonds he would have lost less than 10%. Life is a gamble. You don't know how long you will live. Nor do you know how long the next drop in stocks will last. The purpose of bonds is mostly to preserve assets when stocks are dropping. There is no perfect answer to the stocks/bonds equation. But bonds do have a place in that equation and not all bonds are the same, of course.
@@thealgorist4160 volatility is fluctuation, risk is whether something will end up + or -. Basically it's short term vs long term. Look at Apple stock since the end of April 2020. It's been highly volatile, but there's very little risk of you actually loosing money if you keep it invested for 5-10 years.
@@Hotobu So by your conclusion owning Apple is low risk. Wow, saying that about the whole market is very wrong, saying that about a high growth, high risk (by definition) company is baseless. You have high reward for owning Apple because of high risk you took. There is no free money, high risk is compensated by high reward. It there would be guarantees as you say there would be no reason for an insured standard deposit bank account, would it ?
@@RS-tn4fs long time owner of Apple, ha ? Owning a single stock, whatever that is is high risk. In case of Apple that is confirmed by high fluctuations of the stock also (you can buy it at a high price and not recoup money in 10 years? Now is easy to say that didn't happen). As for stupidity I would recommend you to study a little, maybe you learn something also, reading a book would probably get you there in the end. You don't know what you don't know.
The problem with this is, people aren't immortal. They invest in a relatively short time frame even if it's 40-50 years. While equity should theoretically outperform debt over time, there will be a lot of years when equity tanks. You have to compensate for that somehow. I guess for Dave this makes sense as he has a lot of assets which aren't stocks, but for the normal person whose entire portfolio is in a 401k I don't think this advice holds. Also, if the bond market tanks, just hold it until maturity. It's not hard.
Why is Ramsey talking about trading bonds in the secondary market when the way most people use them is hold to maturity? When you hold to maturity on non callable bonds you don’t lose money even if interest rates rise.
I would like to ask Dave if he has 100% of his money invested in the stock market. Or does he keep a portion safe to live off of while the other money goes up and down with the market? Of course, he probably has so much money that a 50% drop in the market would not affect his lifestyle. If I had a net worth of $200 mil, and lost 50% I would happily live on $100 mil. The rest of us can't afford a 50% loss 3 years out from retirement.
The whole point of long term quality bonds in a portfolio is not about improving long term performance. It is about having some negative correlation / defense against stock market crash. Every people should know his/her own risk tolerance, what is biggest loss you can resist. You can have the best long performer portfolio which is 100% in stocks. But if you panic sell in the middle of a global crisis you are in trouble. I like to sleep well.
I just stay fully invested in equities. They’ll drop more rapidly in a crash but they also bounce back more quickly afterwards. You’re risking not capturing as much of the upside by timing your exposure.
Bonds offer a few boons: One, they can (read, can) move antithetical to stocks, which is important in overall portfolio-stability. Two - probably most salient - they provide a stream of income for those who need cash to meet the costs of living: stocks are likely to outperform bonds over the long run - but, if you require money a month from now, said equities probably won't be your ally. Third, short-term bonds are not so sensitive to interest-risk as to expose an investor to any sort of, "blood-bath." And, finally for this conversation, bonds can offer a reasonable "parking lot" for cash, for while person awaits a good investment opportunity.
I completely disagree. If you purchase a corporate bond today at 6% and hold to maturity you will earn the 6% plus receive the total of your initial investment. You lose nothing. Most retail investors do not purchase bonds to trade, they purchase and hold to maturity. Why does no one explain this?
corporations can go bankrupt and they could default on their obligations or submit a shareholder debt reorganization proxy vote where the bond holders are asked to take a cut if they are short in cash. there is no guarantee.
Apparently you never learned about opportunity cost. Your risk is the spread between what vehicle you are in opposed to what I could have been in at a higher return. For years bonds were barely outpacing inflation and there was really no reason to hold them at all. Times are a little different but if you think there is no risk in holding bonds longer than 6-12 months then you need to learn before you comment.
Oh dear God this is awful. Again, I love Dave's advice for getting out of debt, but his advice about investing is wrong.... The point of bonds is CONSISTENT INCOME. With your "growth stock" mutual funds, I only get that money if I sell as by definition most growth stocks don't issue a dividend. With a bond, I buy it, and get consistent, potentially tax advantaged income at the given rate until maturity. And simply saying "the graphs look the same" is deceitful Dave. The graphs look the same sure, but in a total bear market for bonds, the current market value of your bond may drop a percentage point or two, meanwhile your stock portfolio can have 20-30% taken away easily. The people who simply listen to this and take it as gospel could be in a world of hurt. I bet the people who were turning 65 in 2008 wish they had gotten into bonds sooner.
But, 20-30% drop from which height? If your stock portfolio went up 150% from 2000-2008 and then 30% drop, that's better than a bond portfolio growing 35% till 2008 and dropping 2%
You're right about individual bonds. But bond funds can lose a lot of money if interest rates go higher. You don't want to lose your principle in a bond index funds
@@sanjayaiyar4351 Yes 2% p/a for the next 2 years at best. Could you tell me what the interest rate would be 10 years from now? Certainly not 2%. Would be 0% for all certainties. And what if the bank goes bust?
Jacob Smith. A couple of things. 1) if you buy a bond with that much duration and rates happen to go up even a bit, your principal loss will be meaningful. That means if you need or want to cash out to invest in a better yield you’ll take a big hit. 2) yes it’s possible rates could go lower but why not use logic and look at your upside/downside. There’s way more room for rates to go up than further drop and we’re at historical lows. So... 3) put it in a bank account giving the same interest rate and pull your money if/when you want. 4) if you have more than the FDIC insured amount of $250k to invest in 20y treasury bonds then congrats.... but put $250k in a bank that allows you to pull your entire initial investment out with no loss when you please and then put the balance into your 20y treasuries. Either way you look at it, you’re making a stupid decision. Sorry to be harsh, but it’s true.
@@sanjayaiyar4351 1. Never did I invest in anything without the intention of owning it forever / till maturity. I would much rather do intraday trades(which is how I made a bulk of my money in stock markets) than to pull out of a perfectly good investment only to put it into a suspicious grade underlying. A bird in hand is always better than two in the bush. Especially so for fixed income investments. 2. 23.5 mil $ has been put into it. So yeah, big amount. 3. The interest promised remains the same. The US fed will pay out $100 on each $5k bond each year as interest. To me, the change in market price of the bond doesn't matter since I will still get $5k principal for each bond purchased at the end of 20 years. However, it would have become a trouble, had I used leverage. There would be a possibility of getting margin calls from bank. But since I didn't, there is nothing to worry.
Maybe you’re just rounding or something but you can get over 2.25% for 2y T bonds. But either way why are you not laddering this? With that much capital you want optionality so you can buy other assets should they significantly drop in price (stocks, real estate, etc). It almost never makes sense so lock up that much capital for 20y at that rate. Now if $28.5mn is chump change to you then you’re probably here to humble brag. Congrats, you succeeded. Good luck in your investing.
Every American is allowed 10k purchases a year in series I bonds. Current rate is locked in for 6.89 anuall percent Guaranteed…. Imagine that. You’re literally guaranteed to make money you can’t lose it. If every American max this out every year….. nobody would have to worry about retirement. This is a huge wealth building tool that also helps our country out a huge amount.
Muni-bonds provide tax free income in retirement which is why I like them. Each $1 million dollars moved to bonds provides me $50,000k per year tax free (using the 5% assumption) in retirement.
First, I love the show. A lot of great stuff. But I just double checked your statements by comparing the s&p 500 industrial average and the s&p Bond index over the past 10 years and the bond index had virtually no volatility which includes during 2008 when the only notable dip was in October and rebounded within a couple of weeks. I think it's fine if people avoid bonds, but it does in fact work to decrease volatility substantially.
+David Wade The bond market seemed stable during the 2008 crash because people were seeking a safe harbor. But there is guarantee the next time it occurs that the government could actually guarantee various markets like it did before. The 2008 crash was nothing like the 1929 crash.
Fue Chee Its actually less than double.. look at SPY.. think it hit about 155 before the crash. That 4x return was from the bottom. Dollar cost averaging during that period would have been great as well
“our company also holds a cash and U.S. Treasury bill position far in excess of what conventional wisdom deems necessary. During the 2008 panic, Berkshire generated cash from operations and did not rely in any manner on commercial paper, bank lines or debt markets. We did not predict the time of an economic paralysis but we were always prepared for one.”-Warren Buffet
I agree with Dave if you have ten or more years before retirement, but once you are in retirement, most people that age can't afford to lose half their wealth and possibly more in a bad market. I remember 2008 and although the market came back, it didn't matter if you were accumulating, but what if you needed that money to live on?
Really that is what it comes down to. At retirement, the people who disagree have now looked at their money as income, no longer as an investment. Income should not be gambled away on the stock market. But anything more than 3-5 years of income can and should still be looked at as investment money.
My (admittedly simple) plan is to invest in stock index funds until I retire and then switch over to a bond index fund. I'm investing in Vanguard's S&P 500 index fund (VFIAX) right now and planning on switching everything over to their Total Bond Market index (VBTLX) when I retire.
This is like the most contradictory video of Dave Ramsey I've ever seen. He is choosing stocks over bonds for the higher return (despite the higher risk) and yet advocates paying down low interest mortgages before investing in the market. Makes no sense.
Dave is saying - On the one hand bonds are slightly lower risk than stocks (as he said), and therefore the slight risk avoidance isn't worth too much. On the other hand, paying down a mortgage is a very low risk action because there is a tangible asset at the end of the transaction, albeit one that can go down in value as well.
You can buy bonds through an ETF these days so it's so easy to buy to gain a monthly income and sell when you want to easily liquidate to use your capital. Don't listen to Dave Ramsey for investing advice. He does not professionalise in this. That's why he recommends mutual funds.
Dave is leaving out one critical distinction: Stocks don't mature, bonds do. You can hold a bond to maturity and get your principal back, regardless of price volatility along the way. You can't do that with a stock. Given that fact, this entire rant by Dave is wrong and makes literally no sense.
Go for US federal bonds then. 20 year AA 2% p/a. 2 ticket dates a year. 5k$ minimum investment. Corporate bonds guarantee nothing. No matter how little they pay, there is never any guarantee of payment. If they go bust, you will be at best have to do with whatever you get. At worst, you would get nothing.
Very old video but VERY timely - buy bonds NOW - rates are going down which is the opposite of what Dave says here, so buy bonds and they will go up and you lock in the yield as well. Good info from Dave on this one!
Every day that you decide to hold your bond instead of selling is effectively the same as buying it that day because the history is irrelevant. So if you think about it in those terms, you are choosing to "buy" a bond at 5% when there are 6% returns available for the same product. That's a 1% annualised loss for every day that you continue to hold it. The fact that its such an undesirable asset to hold in this scenario is reflected in the market price, therefore if you choose to sell it would need to be at a discount. If you are happy with your 5%, then great, you'll get 5%. But you could have had more and all new investors are getting more.
I thought bonds were for income. Why would anyone invest in bonds expecting an aggressive return? I thought the "guaranteed" income was the primary reason for investing. Which means to maturity.
My concern with bonds is that companies and city government are piling up so much debt that they will sooner or later cannot pay back that debt and go bankrupt. Even the federal government has been running up debt to a point of no return. Bonds from good states and responsible cities are a piece of the puzzle. Right now the return is low and amount you have to put down is too high for me. I choose a balance fund for that.
The S+P 500 made about 8% per year on average between 1957 and 2018, a bond held at 8% for that long won't beat that as bonds don't compound, if you invest the income from bonds in more bonds or stocks you can keep up with things but that would seem to defeat the object of not investing in stocks.
bonds are good for medium term investment not long term strategies. That's why everytime some one asks you to invest in stocks, they will follow up with a statement that "it outperforms everything in a long run". Just chose a bond which has higher collateral than the amount they are borrowing. So that the credit risk goes down.
Intermediate term bonds are only 1/3 as volatile as stocks based on the standard deviation of their yearly returns. And long term treasury bonds are the best hedge against a stock bear market. For example in 2008 when the Sand P 500 was down 37% long term treasury bonds were up 23%.
Question for you, Dave: If you don't invest in bonds, but you invest in mutual funds (which is a combination of stocks, bonds, and cash), then are the mutual funds you are investing in, just basically a mix of stocks and cash? Thank you!
Dave Ramsey's investing advice is "Good Growth Stock Mutual Funds," composed of 25% in each of the following "classes": Growth, Growth & Income, Aggressive Growth, and International. @robberger has a good description of them with examples of each. Not a suggestion, just an explanation.
Hi VV... I'm from the future and yield rates are mooning. Getting ready with dry powder to purchase in 2024 hoping for a 1980-1981 like investment opportunity that will rocket in value as rates decline over the coming years. Oh and Dave ends up investing in bonds 😂
I rarely watch Dave Ramsey but this video was an EXCELLENT, simple snd digestable explanation on the basics of Bonds. You can learn about bonds in a much more sophisticated and mathematical way but this clears so much for me in my head. Thank you Dave ❤
So what do you do when you are retired or nearing retirement and need stability in your portfolio? Dave appears to be talking long term investment strategy here.
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got talking about investment and money. I started investing with $120k and in the first 2 months , my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and gets more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
I’ve been forced to find additional sources of income as I got retrenched. I barely have time to continue trading and watch my investments since I had my second daughter. Do you think I should take a break for a while from the market and focus on other things or return whenever I have free time or is it a continuous process? Thanks.
@@ClarieZwiehoff Quitting may not be the best approach if you ask me. This is where an AI comes into the picture. I barely have time to trade myself as my job swallows up most of my time. *MARGARET MOLLI ALVEY* , a licensed fiduciary whom has made me over 5 figures in profit in less than seven months, handles my investments. I could leave you a lead if you need help...
Its all about the right mix of bonds and stocks for an individuals' time frame, risk tolerance, and goals. Dave you are forgetting about sequence of return risk and the whole emotional aspect of losing big and panic selling at the bottom
Looking at a market over 50-60 years is a false read. We have huuuuuge swings in very short cycles these days. This line of thinking that investment advisers put forth is misleading. You don't have 50 years to experience the long term curve if you are even 30 years old! You have 35 years. You can lose 20-30% of your portfolio in a week in this economy. How long does it take to win that back!!! It might take 3 years to just get back your loss!!!
Bonds are rallying, yields are falling... 2018 to date Bonds have outperformed the S&P 500 which is precisely why you diversify into other asset classes like Bonds. Just remember that in the 2008 crash an Intermediate Bond returned +6% when the S&P 500 crashed -37%, when that happens you will thank your stars for owning some bonds.
Does this still apply when returns and interest rates are so low now? Also, not sure if the same thing in 2008 would happen now. This year is a different case.
This video was created in 2014. It's outdated. I'm retired. I own bonds as a hedge against the next bear market. In a bear market, bonds usually go up. Bonds outperformed stocks in the 1980's. It's complicated. We have yet to see a Ramsey book on retirement. I taught FPU.
In a rising interest rate environment, it's to stem economic growth, all ships rise during this time. But during real economic downturns they retain their value better than equity, and that's why you should always carry some $$ in bonds. Nobody thinks about 2015-2019. But everyone remembers 2007, and 2000. etc.
The whole point of bonds in a blended portfolio is to hold it til maturity and Reinvest the coupon payments. If interest rates go up stocks decrease and you will reinvest accordingly you keep your portfolio split balanced, do you end up buying stocks lower than average and bonds with higher yields. Although I don’t think people under 50 (or older ) should even consider bonds unless they are planning on retiring within 10 years
If an investor buys bond while the interest rate is higher on the bond that was purchased, then it is good, because when the interest rate is lower the bond will give less return, therefore, it is essential to keep the old bond, while the new bond will give less interest. Invest in bond when the interest rate is higher, and don't buy bond when the interest rate was below 1%. Because u will be stuck with the 1% and the price of that bond will be lower when u want to sell. It is also about the maturity date, if there are few years left then the price will f bond also drops.
A dollar today is worth more than a dollar tomorrow and certainly more than a dollar 20 plus years from now. Take a $10,000 bond bought today. 10,000 will buy you less in 20 years obviously. And same with the coupon payment. To buy bonds at these rates is absurd imo and that is why stocks like Hershey, Proctor and Gamble, Home Depot, Pepsi, etc are at all time highs. They are bond proxies due to low volatility and good dividends. Their par value grows too.
If you are looking for long term growth, you shouldn't be in bonds or bond funds. If you are looking for a short term say 20K to use as down payment for a house in two years then a bond with a 2 year maturity makes sense (just for example). If you have retired, you can plan your spending and use laddered bonds to provide that spending in the near term years. If you don't need the money within 10 years I can't see why you would invest it in bonds or bond funds. The expected return of a good total market fund is large compared to the interest you could possibly get off bonds and the risk is minimal over the 10 year period.
In what situation would Dave think Bonds are a good investment? would interest rates need to be higher? After all why do large institutions invest in bonds?
Ramsey is missing an important point here. You can't consider the risks and rewards of an asset by itself. You have to evaluate it in the context of your whole portfolio. Bonds may not be great on their own, but when you pair them with equities, they tend to reduce volatility - hence the conventional wisdom about shifting to bonds over time.
Agreed. And since bonds are sometimes up when stocks are down, you can rebalance from bonds into stocks when they are low. You still don't get quite as good long term returns as you do from a 100% stock portfolio...but stocks were basically flat from 2000-2009. 10 years is a long time to wait for that outperformance. A mix of stocks and bonds in a fund like Vanguard Balanced Index or Vanguard Wellington did better during that time period.
Bonds do provide a less volatile portfolio. If you have enough money to live when your stocks drop 40%, you don't need a bond. Bonds also gives you a small monthly income to play with. Most people need the money they are saving for living expenses down the road. Dave thinks everyone has his money. He also doesn't recommend pre nups. He talks to callers that are destroyed financially due to divorce. Pre nups keeps the lawyers fees down. Maybe he wants a continous caller base to boost his own financial success.
Dave is confused. He keeps saying he doesn't like bonds. What he means is he doesnt like bond funds. Owning a bond to maturity, and owning a bond fund, are two totally different things.
@@joy2come119 If you own individual bonds that are not part of a mutual fund or index fund, then you will not lose your original principle. However, if you own bonds that are part of a fund, if you ever try to sell that fund, you could lose part of your original principle if interest rates rise. However, if interest rates go down after you buy the fund, then you could actually sell for a profit.
also you really dont want to go more than 2 yrs out on a bond. and who cares about the fluctuations on the bond price. bonds arent meant to be traded. you buy it and hold to maturity. then you get your principal back plus interest.
Most retail buyers of bonds won't be traders. They can hold onto the bond until maturity and get their principal back and the interest too. Dave didn't explicitly demean the debt part of a bond but you got to wonder if that factor makes him dump on them. For some safety, buying a portion of a portfolio into fixed income like inflation bonds and Treasury bills is not wrong.
I disagree. I talked to a banker who deals with hnwi clients and he recommends to incorporate bonds in the portfolio. (he wasn’t trying to sell me anything btw)
We personally have a pretty substantial bond portfolio and are in the highest individual tax bracket of 37%. All of the bonds we own are in tax-exempt bonds and our average tax-effect yield on the entire portfolio is a little more than 7% annually. We do not sell any bonds but hold all of them to maturity or until they are called. We reinvest all of the earnings from them into the purchase of more bonds creating an effective growth model. The real beauty is that we pay zero income tax on any of them and have created a very nice retirement income that is about as rock-solid as they come. As we get nearer to retirement, we’ll begin shifting more and more of our growth investments into the income-based bonds. Right now, only about 30% of our investment portfolio is in bonds and the rest are in growth mutual funds.
Here's another thought. Who would sell their bonds when interest rate rises? Sure the value of your bonds fall as % increases, but when %increses why would you sell it unless you really need cash. Even when you really need cash, you should have emergency funds saved.
i disagree. if you need money in 2-3 yrs then bonds is a way to go. someone with a longer time horizon say 10 yrs plus stocks is the way to go. it all depends on your goal.
RAY DALIO, remember this name. He is one of the most successful investors in HISTORY! Watch Ray Dalio, read his books and others like him. Dave is a marketing genius, he knows how to sell his products and his ELPs, but he is NOT an investor. Dave wants you to go to his ELPs and give them your money.
+ondfritz2 Daves whole position is savings with low risk and then good growth. Ray is a different type of beast. That is not to say that Dave is that far out with his approach.
I agree with this assessment. Bonds return much less money than stocks. The only exception in my view is if you're planning on holding cash and you're buying short-term bonds that are paying more than the interest on your cash . For example right now cash in a Fidelity account is paying 4.5% but if you could buy a 3-month or 6-month Bond at 5.5% I think that's worth it
Logically, investing in the top 500 us companies by definition is investing in the winners at the time. Bonds are simply reverse loans for businesses where they're not legally obligated to pay you're interest rate. Since bonds are essentially loans and this show explains in simple terms why borrowing makes no sense financially, you're loaning money to people who are just as smart as the people who are doing into debt, but just a little smarter because they're not obligated to lose money. Therefore you're giving money to people who are financially unwise but just a bit wiser than the person in debt. Thus It makes less sense to invest in bonds.
Bonds are less volatile, but they also are not highly correlated. Pairing the two together makes the volatility of the portfolio lower than either class of asset on their own. Total return is NOT all that matters when you are having to live on the portfolio.
Its no brainer more money you are willing to Invest make sure shorter period waiting time it is with higher interest rate without investing all of your money ( general 10 to 20 precent of whatever amount you put into pension or saving account /fund ) so for example say you are not rich guy you will put in bonds ( especialy government debt bond and efti each month somewhere between 100 to 200 USD for next 30 Years will be around 150 thousand dollar since saving bounds double its worth and you didn’t lose anything and also capable to manage to minimize potential loss .
just like when interest rates go up - bond value goes down.. but doesnt that also mean in cases when the interest rates go down - the percieved bond value goes up (provided the interest rates are below the promises bond rates) - purely due to the negative correlation? Now, what are the cases where the interest rates may actually go down - when a lot of people aren't taking loans..
Today Fed just cut interest rates again... Now less than 1% - on the publish date of this video interest rates were 4.49%.... All financial instruments have pro's and con's ... There is no "BEST OR WORST" financial instrument... They are to be used together to achieve a desired result... One should properly understand and use proportionally ALL financial instruments. The whole point of the BOND is less volatility with guaranteed income.
The idea is to hold to maturity. Ramsey doesn’t emphasize that no matter what the interest rate environment is, if you hold to maturity, then you get your principal back. He focuses on short-term market gyrations and “paper” losses. He also forgets to mention that bond prices go up when rates go down. That is what we’re on the precipice of right now with rate cuts coming. He is partially wrong about the volatility, too. Yes, when looking at a chart, a bond’s mountains and valleys often does mirror a stock, but the degree of separation is often two-fold. Bonds do their job by protecting your principal, something that many older investors who went through many up and down market cycles now want to do as they enter their drawdown years with not many market cycles left in their investment lives. But yes, over time stocks do outperform bonds. However, you can get a close to stock market return with the right mix of stocks and bonds without having to be 100% in stocks, and that sort of risk aversion should always be a focus.
@@balej83 I agree, it's all about your means for sure! I know older investors who came of age during the heyday of interest rates and solely invested in CD ladders, and have no regrets. It's not always about trying to outperform the market at any cost, but more about your risk comfort level and what you need to be comfortable. I know many high income people that don't have a dime to their name, so no matter how much money they make, it's never enough and they're always on unstable ground.
I would like bonds if the yeild was above 7%... ATT pays 6.5% div and will probably grow 12% a year now that we are near a bottom, they have paid increasing divs for 40 years and will never go bankrupt... what's safer than att? Certainly not a bond lol
Dave, I respect your judgment. However, if interest rates go down... the bond value goes up. Also, as a retiree you need cash flow... bonds are a reliable source of cash flow. As a retire in this stock/bond environment... I find that 60% stocks, 30% short to intermediate bonds, and 10% cash preserves capital and generates sufficient cash flow to meet needs. Great show.
This guy sounds confused. If I purchase a $10k bond from municipality Somewhere Town USA, they now owe me the principal plus interest. YOU are now the BANK for the municipality. Why does that sound bad to you, Sir?
He's talking about the secondary market. If you seek to exit from a bond before maturity you would have to take a haircut on your principal face value as we are in a rising interest rate environment. So people looking for high yield quality bonds to exit from in 10, 20 years may not benefit as much. It all depends on your investment goals. If you're looking to dump a big piece of cash for dormant low yield but stable income, you can invest in treasuries or top triple A bonds and ride out until maturity. But those won't offer much of a payout since they are solid returns on investment which are oversubscribed. Only the big pension funds or mega billionaires can benefit from these big time. Retail investors won't earn that much high return off these as a long-term investment strategy compared to investing in equity. The riskier bonds with high yield are unwise to hold for too long and so if you are seeking an early exit before maturity strategy on these, you will likely take a haircut on the principal face value you paid in this rising interest rate market environment.
This aged like milk. Savings I-bonds getting 7.12% and going up 🚀 Inflation will run hot not forever, but for awhile. American capitalism would collapse if not for near zero interest rates to prop up asset prices and spending with stagnant wages
When I buy a bond, as long as the bond doesn’t default, there is no volatility with that bond. But when I buy a stock, it’s value can decline. I am not guaranteed anything with the stock. If you buy a bond expect to hold it til maturity otherwise you’re speculating
My moms account for retirement stocks fell in 2021 double digits and then recovered but advisor idiots had her half in bonds and they dropped double digits so it didnt diversify or help her at all. Just invest in a low index fund and leave it alone.
Hi I was wondering if I could have some advice. I’m looking to purchase my first home in July or August when my lease in my apartment comes up. I have about $900 in savings bonds that were to be used for my education but I’ve completed my education. I was considering cashing them and using the funds towards my down payment. Is is this advisable? Ty in advance.
what dave fails to mention is municipal bonds r tax exempt... you can buy a bond at 300$ hold it 5 years and get your 300$ back, during those 5 years you get 3% cash dividends and pay 0 tax... its risk free income you dont pay tax on
@That Guy sure thing, google MUB, it is a muni bond etf that pays 2.2% state and federal tax free... if u want 3% i recommend corporate bonds but you will be taxed, LQD is 3% HYG is 5.5%... also the annual dividends are payed monthly
If you are very wealthy, like I'm sure Dave Ramsey is, it's true that you don't need bonds. Most retirees though can't bear another 35% drop in stocks in the next recession, and there is ALWAYS a next recession. Stocks are for making money … bonds are for keeping that money. Dave highlighted the potential problem with long-term bonds when interest rates rise, but short and intermediate term bonds are less affected. Use bonds to collect interest payments, not to make big capital gains.
Accurate.
Is that something similar to hold boring big companies stocks, long term to collect dividends?
Agree! 👍
Yes but the interest rate on short term bonds are sometimes less than a high yield savings account
DR is spot on here. I disagree w him on a lot of stuff but the data totally backs him up here.
"If you sell it."
Uhhh.. that's the whole point of owning a bond. You don't have to sell it. If interest rates go up, you simply let it mature. Obviously 60-year-olds shouldn't be buying a lot of 30-year bonds.
+Brett Cook That's exactly what I was thinking. The whole point of buying a bond is to hold it till maturity.
exactly. ...I watch these and wonder if "I Dave 12% Ramsey am a critical thinker who independently looks at things" has ever independently looked at *real* returns of the stock market.
The point is that if interest rates go up and you don't sell, then you are making say 2% a year when you otherwise could be making 4% a year. So there is a cost whether you sell or not. One is a real cost the other is called an opportunity cost.
knpstrr Sure, but that's not the same as taking a loss, which is what Ramsey was implying. It's also why you set up bond ladders so that you can roll money out of maturing bonds into higher yielding bonds in a rising interest rate environment.
Either way, the way Ramsey describes it is a mischaracterization.
Tempest Sanguine he did seem to imply that. His viewers are mostly beginners - he should be more clear.
I like investing in close-end funds that pay monthly dividends. The trick is to hold long term and reinvest the monthly dividends plus buy more shares on a monthly basis or when ever you can afford to. This can be easily done because close-end funds are bought and sold on the stock market just like regular stock. That’d be enough to create a portfolio that would pay you between $50k to $70k in dividend income
Just because there are opportunities in the market doesn’t mean you should go in blindly. To understand the potential factors that contribute to your financial growth, I'll advise you to seek the help of a professional
I completely agree; I am 60 years old, recently retired, and have approximately $1,250,000 in external retirement funds. I am debt free and have very little money in retirement funds compared to the total value of my portfolio over the past three years. To be honest, having a portfolio-advisor for investing is genius!
I've been looking to get one, but have been kind of relaxed about it. Could you recommend your advisor? I'll be happy to use some help.
Finding financial advisors like Rebecca Nassar Dunne who can assist you shape your portfolio would be a very creative option. There will be difficult times ahead, and prudent personal money management will be essential to navigating them.
I searched for her full name online, found her page, and sent an email to schedule a meeting. Hopefully, she responds soon. Thank you.
I disagree.
The point of buying bonds near retirement isn't completely about the value of the asset, but the income that is received from it. Money managers recommend buying bonds near retirement so that retirees can have income, without being subject to a stock market crash.
In the past I would have agrred, but what income can you actually get from bonds with the interest rates so low?
stephen geraci In a normal market, bonds will yield a percent, possibly two, possibly 7. It depends on a lot of factors such as what type of bonds. There are a lot of factors.
No I would not buy bond right now. I don't think I would buy bond mutual funds for 30 years unless they were high yield bonds with an enormous track record. But when I am 5 to 7 years from retirement, I would do exactly what Dave recommended to the lady, buy a significant portion in Balanced funds.
I don't have a problem with anyone buying bond funds close to retirement. If I had acquired three million dollars and I lose 40 percent of my value five years from retirement, I either have to work longer or retire with a lot less money. If I have three million dollars with my money in more stable bonds, if I were to lose 3 percent, I can still retire on time with the same life style.
Yes it is possible that the stock market and bond market are just as volatile, however, not everyone's goal is growth, some people want capital preservation.
Connor P Thanks for the information. I'm 50 years old and have always followed what Jack Bogle and Vanguard have taught me and to use a bond index fund as a diversifier. Vanguard still sticks to that. Although I don't yet have a million, I have a nice amount in my 401K and I would like to retire in 12 years. I have 65% in the total market stock index fund and 35% in the total bond index fund. The market is at an all time high if I were to move my money out of the bond fund would you dollar cost average in or do it all at once? I do like the simplicity of John Bogle's advice and to stick it all in the Vanguard Balanced Index Fund and don't worry about it.
stephen geraci I am not too familiar with the Vanguard fund families. I prefer to buy mutual funds from T. Rowe Price. What Dave is trying to say with buying balanced funds is that right now they are extremely heavily weighted in stocks with very few bonds. The reason is because interest rates are not going to go any lower, they are only going to go up. When this happens (who knows when it will happen) a lot of bond owners are going to have rough stretches. Right now is an extremely difficult time for investment professionals because stocks are at an all time high and interests rates are at an all time low.
Typically balanced funds are weighted 60-70 percent equities and 30-40 percent bonds. What I like about them is that they are flexible and the fund managers have every bond and every stock in the world to choose from. They are not tied to a specific category. They can buy the best small cap stocks, the best mid cap stocks, the best large cap stocks, the best short term bonds, the best long term bonds, the best high yield bonds. It will give you access to many types of investments. They are a bit more conservative because of their diversification, they tend to hold up better in a number of different types of markets because of that spreading of risk and spreading of assets.
I own the T. Rowe Price Capital Appreciation fund (PRWCX) which has about 7 percent cash right now and 5 percent foreign bonds. A lot of balanced funds right now are weighted slightly heavier in cash because it is hard to find good value in stocks AND bonds right now.
I also like Dave's advice in buying growth an income mutual funds. I really like dividends. I feel that you can get some growth when the market goes up but you can get a steady income from the dividends. Even when the market is flat, there are still those dividends. Vanguard has a really good gold rated fund but I do not recall the name.
As far as whether you should move all your assets all at once or dollar cost average it....I don't know whether it would be better to do it one way or another. As for me personally, I don't think I would like to have all of my money in one mutual fund. What happens if the fund manager goes bad or has a bad stretch? I am just not comfortable with only one mutual fund. I listen weekly to the Dennis, Andy, and Adam on the Mutual Fund Show podcast. They always say to never have more than 12.5 percent of your total portfolio in one mutual fund. I have heard some people never put more than 5 percent. I would seek out more advise from professionals and get a second option. You could also listen or call in to the show for their advise. I have emailed in and been pleased with the response. Good luck!
Connor P thanks for the well thought out response. My money is all in index funds so there is no manager making buy and sell decisions, it just tracks the total market index and the fees are very low. I also hold the total bond market index which operates the same way. From what I have come to learn through reading everything John Bogle has written is very few fund managers can beat the indexes for long periods of time and I don't want to monitor when the fund manager is leaving and/or when their strategy changes. However, I am at a cross roads if I should limit my exposure to the bond index fund. Vanguard said they still think bonds are a good diversifier and if held until maturity you will not lose out and get your money back unlike stocks there are no guaranties. Thanks again.
Before you take this guys advice, first figure out what he's trying to sell. Mutual Funds!!!!
Why does Dave Ramsay lead people to invest with American Funds, Capital Group? One of the most expensive mutual funds companies in the industry? ....Because he doesn't make as much money selling Bonds!
American funds has plenty of bond funds... including in their balanced and target date funds. American Funds are just fine if you have a 401k and aren’t paying the front load. If you’re in those shoes then you’re winning.
Bonds, why not REIT's vs covered calls and Dividend stocks
Great point. Any expense ratio over .10% long term will CRUSH your returns. Ask me how I know lol
@@sociopsychological6637 How do you know?
@@joecurran2811 lol I had some mutual funds for 20 years
I was advised to diversify my portfolio among several assets such as stocks and bonds since this can protect my portfolio of about $400k for retirement. how do I go about this not get burnt in the market
Consider diversifying your portfolio with a mix of stocks and stable assets. Seeking professional advice now could provide valuable insights and strategies to navigate market uncertainties and protect your investments.
That’s impressive, have you always had a financial advisor?
I’ve just looked up her full name on my browser and found her webpage, very much appreciate this
Who cares about bond value if there's no intent to sell? The plan is to hold until maturity and live off the interest.
Johnny Rook. But his point is you might need the money and be forced to sell. Stocks increase more than bonds over the long run. Bonds made sense when rates were higher. Bonds could be a good source of $ if you needed it rather than selling stocks if they were down at that particular time of need. But now bonds earn so little we might be better buying stock index funds @nd having cash or other semi-liquid assets. Online bank accounts pay almost as much and are fdic protected.
Edward Hayes that’s why you don’t invest money you need, same as any other investment
Exactly. Now you need someway to beat inflation. If you own agricultural land and your house fully paid up, you can, infact very much limit the effect of inflation to a vast extend.
Don't trust Dave on this. He is sounding more and more like a stock broker.
that would not work in venezuela ,....haha!
@@edwardhayes6111 my corporate bonds pay 3%... just stay away from government bonds
I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.
I feel your pain mate, as a fellow retiree, I’d suggest you look into passive index fund investing and learn some more. For me, I had my share of ups and downs when I first started looking for a consistent passive income so I hired an expert advisor for aid, and following her advice, I poured $30k in value stocks and digital assets, Up to 200k so far and pretty sure I'm ready for whatever comes.
@@HudsonEthan-00 That's actually quite impressive, I could use some Info on your FA, I am looking to make a change on my finances this year as well
@@GabrielAnthony-09 My advisor is VICTORIA CARMEN SANTAELLA;
You can look her up online
@@HudsonEthan-00 The crazy part is that those advisors are probably outperforming the market and raising good returns but some are charging fees over fees that drain your portfolio. Is this the case with yours too?
This is why I have a (bit) of a problem with Dave. He applauds and pats himself on the back for “thinking critically,” “looking at data,” and “thinking independently” but then gets mad when people don’t agree with him. He’s not the only person to think critically about money and finance.
He says he thinks critically just to preface his nonsense and get credule people thinking he's a guru. He lacks actual substance.
@@robschneider8310 I disagree cuz I wouldn't call his thinking nonsense cuz when he tells beginners to diversify between the growth and international and do it for 40 years or more and start early he's definitely right that when u retire at age 65 u will have 1125000 dollars at retirement if u started super early at age 18!!!!!!!!!!!!!!!!!
@@robschneider8310 Your comment lacks substance, as well. No offense. I'm no finance guru. I don't even understand finance all that much. But what Dave is saying makes perfect sense to me. A better question is, does this apply to inflation bonds? I-bonds lock in the interest rate. However, they are capped at 10K per SSN. So Elon Musk can't come in and buy 10 billion I-bonds, lock in a 9% interest rate and make a boatload of money in one year.
I think that Dave's advice is solid save for his investing advice
Dave only has 1 tunnel vision, there's no other way but his way. Like everything, you just gotta take the best parts and what makes sense to you, you don't have to follow everything exactly as dave says. For example, according to dave, you have to either have cash to buy real estate or make 500k salary annually.
Given the current market volatility and uncertainty surrounding the Federal Reserve's interest rate policy, I'm considering whether to sell my $401k in equities. What are the most effective strategies for capitalizing on potential market downturns? Should I consider shifting some of my investments to bonds as a more conservative option?
Given the current market conditions and economic uncertainty, it might be prudent to consider holding some bonds as a more conservative investment. You may also want to consult with a financial advisor before making any significant changes to your equity holdings
You have a very valid point, I started investing on my own and for a long time, the market was really ripping me off. I decided to hire a CFA, even though I was skeptical at first, and I beat the market by more than 9%. I thought it was a fluke until it happened two years in a row, and so I’ve been sticking to investing via an analyst.
This is definitely considerable! think you could suggest any professional/advisors i can get on the phone with? I'm in dire need of proper portfolio allocation
My CFA ’Rebecca Noblett Roberts’ a renowned figure in her line of work. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.
Thank you for saving me hours of back and forth investigation into the markets. I simply copied and pasted her full name into my browser, and her website came up first in search results. She looks flawless.
He's being deceitful about the volatility of bonds. Intermediate term investment grade bonds ARE SUBSTANTIALLY LESS VOLATILE THAN STOCKS. Yes, it's true they don't perform as well over the long run.
+1. Exactly. I came here to say the same thing. They are an order of magnitude less volatile.
dude, bonds are crashing now
It is a bit more complex than that.
He's pro mutual funds. Any investment advice he gives is for mutual funds. I personally don't like the extra fees of mutual funds that eat up your return.
May I draw your attention to the fact that being an accredited investor doesn't mean that you are a competent one. What I can point you to is a reading list. Fabozzi Fixed Income Analysis, The Bond Book Annette Thau, A History of Interest Rates Sidney Homer and Stigum Money Market.
Bonds are not only less volatile, they are less risky. The credit risk for government issuers is nil. The interest rate risk is only relevant on the secondary market. If you have a 5% interest bond and rates go up simply hold the bond. You can always buy other bonds at higher rates. Besides, creditors are payed before shareholders in the advent of a bankruptcy, thus reducing the risk of permanent and total loss of capital.
The main diversification power of bonds comes from the lack of correlation with stock returns, rather than lower volatility. Thus they acts as a damper when the stock martket falls sharply as in recent days and decrease the overall return when there’s a rally.
I don’t understand the point of his volatility argument. Why not buy bonds when it makes sense and lean into equities when it doesn’t?
Of course the stock market outperforms the bond market. That's why it's a lower risk investment. That's the whole point. It's about the guaranteed income without being subject to crazy equity risk. There's a reason why financial planners recommend bond layering strategies for people heading into retirement, as to protect their wealth. The mutual funds are fine as long as they adjust their allocation properly, but unless you are a savvy investor who knows what they're doing, people aren't going to be able to have that kind of risk appetite when they go into retirement. The bond market wouldn't exist if there wasn't some form a decent return on the investment made.
The key is to hold it to maturity.
It's relatively safe to recommend to a 30 yr. old that he go 100% into growth stocks. He can sit through the next 2-3 recessions there will certainly be in his lifetime and still have time to rebuild. But a 65 yr. old? In the 2008 recession the S&P 500 dropped 37%. "All stock" portfolios did worse. If that person had been in 30% stock and 70% bonds he would have lost less than 10%. Life is a gamble. You don't know how long you will live. Nor do you know how long the next drop in stocks will last. The purpose of bonds is mostly to preserve assets when stocks are dropping. There is no perfect answer to the stocks/bonds equation. But bonds do have a place in that equation and not all bonds are the same, of course.
Why not just put cash in a high yield CD???
@@bspiderm interest from CDs are locked until maturity, while bond interest is immediately available after the cash settles.
Agreed. This comment makes sense.
Don't conflate the RISK of an asset with the volatility of that asset.
What is the difference?
@@thealgorist4160 volatility is fluctuation, risk is whether something will end up + or -. Basically it's short term vs long term. Look at Apple stock since the end of April 2020. It's been highly volatile, but there's very little risk of you actually loosing money if you keep it invested for 5-10 years.
@@Hotobu So by your conclusion owning Apple is low risk. Wow, saying that about the whole market is very wrong, saying that about a high growth, high risk (by definition) company is baseless. You have high reward for owning Apple because of high risk you took. There is no free money, high risk is compensated by high reward. It there would be guarantees as you say there would be no reason for an insured standard deposit bank account, would it ?
@@MarincaGheorghe you are so stupid and so arrogant
@@RS-tn4fs long time owner of Apple, ha ? Owning a single stock, whatever that is is high risk. In case of Apple that is confirmed by high fluctuations of the stock also (you can buy it at a high price and not recoup money in 10 years? Now is easy to say that didn't happen). As for stupidity I would recommend you to study a little, maybe you learn something also, reading a book would probably get you there in the end. You don't know what you don't know.
The problem with this is, people aren't immortal. They invest in a relatively short time frame even if it's 40-50 years. While equity should theoretically outperform debt over time, there will be a lot of years when equity tanks. You have to compensate for that somehow.
I guess for Dave this makes sense as he has a lot of assets which aren't stocks, but for the normal person whose entire portfolio is in a 401k I don't think this advice holds.
Also, if the bond market tanks, just hold it until maturity. It's not hard.
Lots of truth in that, but don’t buy bond funds, but they actual bond so you can hold it until maturity
Why is Ramsey talking about trading bonds in the secondary market when the way most people use them is hold to maturity?
When you hold to maturity on non callable bonds you don’t lose money even if interest rates rise.
you don't lose money, but you can earn less. If the fixed return is predetermined, there’s no benefiting from a favorable change in market conditions.
Good luck finding non-callable bonds.
I would like to ask Dave if he has 100% of his money invested in the stock market. Or does he keep a portion safe to live off of while the other money goes up and down with the market? Of course, he probably has so much money that a 50% drop in the market would not affect his lifestyle. If I had a net worth of $200 mil, and lost 50% I would happily live on $100 mil. The rest of us can't afford a 50% loss 3 years out from retirement.
That’s true, but bonds as we speak are falling like crazy! So he has a point in 2022.
He is diversified with Real Estate.
The whole point of long term quality bonds in a portfolio is not about improving long term performance.
It is about having some negative correlation / defense against stock market crash.
Every people should know his/her own risk tolerance, what is biggest loss you can resist.
You can have the best long performer portfolio which is 100% in stocks. But if you panic sell in the middle of a global crisis you are in trouble.
I like to sleep well.
global crisis you say
So, all you need to do is “don’t sell”
@@tchen8124 You might not have the option but to sell in some circumstances.
Just take low interest debt to pay your expenses lol Stocks > Bonds even in retirement
I use bonds for idle cash in my warchest so when a big recession hits then I got bonds increasing in value to buy bargains.
Now that's a good idea... it's basically cash to buy cheap stocks
Bonds are fine, but they are NOT cash. You need to have some cash as well.
YES glad someone else thinks this way
I just stay fully invested in equities. They’ll drop more rapidly in a crash but they also bounce back more quickly afterwards. You’re risking not capturing as much of the upside by timing your exposure.
@@Wildboy789789 it’s not a good idea
Bonds offer a few boons: One, they can (read, can) move antithetical to stocks, which is important in overall portfolio-stability. Two - probably most salient - they provide a stream of income for those who need cash to meet the costs of living: stocks are likely to outperform bonds over the long run - but, if you require money a month from now, said equities probably won't be your ally. Third, short-term bonds are not so sensitive to interest-risk as to expose an investor to any sort of, "blood-bath." And, finally for this conversation, bonds can offer a reasonable "parking lot" for cash, for while person awaits a good investment opportunity.
So basically, if you require fixed income, keep enough short-term bonds to cover your a$$ till the recovery.
I completely disagree. If you purchase a corporate bond today at 6% and hold to maturity you will earn the 6% plus receive the total of your initial investment. You lose nothing. Most retail investors do not purchase bonds to trade, they purchase and hold to maturity. Why does no one explain this?
corporations can go bankrupt and they could default on their obligations or submit a shareholder debt reorganization proxy vote where the bond holders are asked to take a cut if they are short in cash. there is no guarantee.
Apparently you never learned about opportunity cost. Your risk is the spread between what vehicle you are in opposed to what I could have been in at a higher return. For years bonds were barely outpacing inflation and there was really no reason to hold them at all. Times are a little different but if you think there is no risk in holding bonds longer than 6-12 months then you need to learn before you comment.
Oh dear God this is awful. Again, I love Dave's advice for getting out of debt, but his advice about investing is wrong....
The point of bonds is CONSISTENT INCOME. With your "growth stock" mutual funds, I only get that money if I sell as by definition most growth stocks don't issue a dividend. With a bond, I buy it, and get consistent, potentially tax advantaged income at the given rate until maturity.
And simply saying "the graphs look the same" is deceitful Dave. The graphs look the same sure, but in a total bear market for bonds, the current market value of your bond may drop a percentage point or two, meanwhile your stock portfolio can have 20-30% taken away easily. The people who simply listen to this and take it as gospel could be in a world of hurt. I bet the people who were turning 65 in 2008 wish they had gotten into bonds sooner.
But, 20-30% drop from which height?
If your stock portfolio went up 150% from 2000-2008 and then 30% drop, that's better than a bond portfolio growing 35% till 2008 and dropping 2%
Wow, I posted this comment only 2 months ago. Looking at the growth stocks performance lately, seems like a years worth of growth
You're right about individual bonds. But bond funds can lose a lot of money if interest rates go higher. You don't want to lose your principle in a bond index funds
You're actually losing money if you hold bonds due to inflation. That's why Dave Ramsey suggest only equities.
20 year US federal AA bonds. approx 2% p/a. Two coupon dates a year. Minimum ticket size of 5k$ US.
Jacob Smith why would you buy a 20y bond for 2% interest when you can get that in a bank account at numerous places? Makes no sense.
@@sanjayaiyar4351 Yes 2% p/a for the next 2 years at best. Could you tell me what the interest rate would be 10 years from now? Certainly not 2%. Would be 0% for all certainties.
And what if the bank goes bust?
Jacob Smith. A couple of things. 1) if you buy a bond with that much duration and rates happen to go up even a bit, your principal loss will be meaningful. That means if you need or want to cash out to invest in a better yield you’ll take a big hit. 2) yes it’s possible rates could go lower but why not use logic and look at your upside/downside. There’s way more room for rates to go up than further drop and we’re at historical lows. So... 3) put it in a bank account giving the same interest rate and pull your money if/when you want. 4) if you have more than the FDIC insured amount of $250k to invest in 20y treasury bonds then congrats.... but put $250k in a bank that allows you to pull your entire initial investment out with no loss when you please and then put the balance into your 20y treasuries.
Either way you look at it, you’re making a stupid decision. Sorry to be harsh, but it’s true.
@@sanjayaiyar4351 1. Never did I invest in anything without the intention of owning it forever / till maturity. I would much rather do intraday trades(which is how I made a bulk of my money in stock markets) than to pull out of a perfectly good investment only to put it into a suspicious grade underlying. A bird in hand is always better than two in the bush. Especially so for fixed income investments.
2. 23.5 mil $ has been put into it. So yeah, big amount.
3. The interest promised remains the same. The US fed will pay out $100 on each $5k bond each year as interest. To me, the change in market price of the bond doesn't matter since I will still get $5k principal for each bond purchased at the end of 20 years.
However, it would have become a trouble, had I used leverage. There would be a possibility of getting margin calls from bank. But since I didn't, there is nothing to worry.
Maybe you’re just rounding or something but you can get over 2.25% for 2y T bonds. But either way why are you not laddering this? With that much capital you want optionality so you can buy other assets should they significantly drop in price (stocks, real estate, etc). It almost never makes sense so lock up that much capital for 20y at that rate.
Now if $28.5mn is chump change to you then you’re probably here to humble brag. Congrats, you succeeded. Good luck in your investing.
Every American is allowed 10k purchases a year in series I bonds. Current rate is locked in for 6.89 anuall percent Guaranteed…. Imagine that. You’re literally guaranteed to make money you can’t lose it. If every American max this out every year….. nobody would have to worry about retirement. This is a huge wealth building tool that also helps our country out a huge amount.
Muni-bonds provide tax free income in retirement which is why I like them. Each $1 million dollars moved to bonds provides me $50,000k per year tax free (using the 5% assumption) in retirement.
@@Take_America_Back if you aren't getting 5% then you need a new bond guy
First, I love the show. A lot of great stuff. But I just double checked your statements by comparing the s&p 500 industrial average and the s&p Bond index over the past 10 years and the bond index had virtually no volatility which includes during 2008 when the only notable dip was in October and rebounded within a couple of weeks.
I think it's fine if people avoid bonds, but it does in fact work to decrease volatility substantially.
john Stetson tell that to Warren Buffet. But then again, what does he know 🤔
+David Wade
The bond market seemed stable during the 2008 crash because people were seeking a safe harbor.
But there is guarantee the next time it occurs that the government could actually guarantee various markets like it did before.
The 2008 crash was nothing like the 1929 crash.
Fue Chee Its actually less than double.. look at SPY.. think it hit about 155 before the crash.
That 4x return was from the bottom.
Dollar cost averaging during that period would have been great as well
@john Stetson That makes no sense. Mutual funds can hold various different types of assets. So, which type of mutual funds do you think are "garbage"?
“our company also holds a cash and U.S. Treasury bill position far in excess of what conventional wisdom deems necessary. During the 2008 panic, Berkshire generated cash from operations and did not rely in any manner on commercial paper, bank lines or debt markets. We did not predict the time of an economic paralysis but we were always prepared for one.”-Warren Buffet
I agree with Dave if you have ten or more years before retirement, but once you are in retirement, most people that age can't afford to lose half their wealth and possibly more in a bad market. I remember 2008 and although the market came back, it didn't matter if you were accumulating, but what if you needed that money to live on?
Really that is what it comes down to. At retirement, the people who disagree have now looked at their money as income, no longer as an investment. Income should not be gambled away on the stock market. But anything more than 3-5 years of income can and should still be looked at as investment money.
My (admittedly simple) plan is to invest in stock index funds until I retire and then switch over to a bond index fund. I'm investing in Vanguard's S&P 500 index fund (VFIAX) right now and planning on switching everything over to their Total Bond Market index (VBTLX) when I retire.
This is like the most contradictory video of Dave Ramsey I've ever seen. He is choosing stocks over bonds for the higher return (despite the higher risk) and yet advocates paying down low interest mortgages before investing in the market. Makes no sense.
He is targeting financial undisciplined morons.Math wins with smart people.
Dave is saying - On the one hand bonds are slightly lower risk than stocks (as he said), and therefore the slight risk avoidance isn't worth too much. On the other hand, paying down a mortgage is a very low risk action because there is a tangible asset at the end of the transaction, albeit one that can go down in value as well.
Haha true.
If you lose your job and have no mortgage life is much easier. You won't have financial ruin. That is his whole philosophy.
@@dpeagles still have to pay taxes and insurance
You can buy bonds through an ETF these days so it's so easy to buy to gain a monthly income and sell when you want to easily liquidate to use your capital. Don't listen to Dave Ramsey for investing advice. He does not professionalise in this. That's why he recommends mutual funds.
Does this apply to Treasury Savings bonds that offer 9.62% now
Dave is leaving out one critical distinction: Stocks don't mature, bonds do. You can hold a bond to maturity and get your principal back, regardless of price volatility along the way. You can't do that with a stock.
Given that fact, this entire rant by Dave is wrong and makes literally no sense.
Tempest Sanguine absolutely true! Great point. You may lose to inflation but if there is deflation your golden
I'll take the guaranteed interest rate, thanks. When do you see banks paying more than 2%? Not for a very long time.
That time is now
CIT bank savings account gives 2.45% APR right now
Go for US federal bonds then. 20 year AA 2% p/a. 2 ticket dates a year. 5k$ minimum investment.
Corporate bonds guarantee nothing. No matter how little they pay, there is never any guarantee of payment. If they go bust, you will be at best have to do with whatever you get. At worst, you would get nothing.
@@jacobsmith9455 buy government bonds instead?
2% basically covers inflation, not worth imo
Very old video but VERY timely - buy bonds NOW - rates are going down which is the opposite of what Dave says here, so buy bonds and they will go up and you lock in the yield as well. Good info from Dave on this one!
but if you just want to wait for them to mature then whats the problem?
I'd say time. During that time, some money couldve been invested elsewhere. 9ther than that, its good
Every day that you decide to hold your bond instead of selling is effectively the same as buying it that day because the history is irrelevant. So if you think about it in those terms, you are choosing to "buy" a bond at 5% when there are 6% returns available for the same product. That's a 1% annualised loss for every day that you continue to hold it. The fact that its such an undesirable asset to hold in this scenario is reflected in the market price, therefore if you choose to sell it would need to be at a discount.
If you are happy with your 5%, then great, you'll get 5%. But you could have had more and all new investors are getting more.
Lost potential gains, that’s his point
I thought bonds were for income. Why would anyone invest in bonds expecting an aggressive return? I thought the "guaranteed" income was the primary reason for investing. Which means to maturity.
I bought a savings bond (ee series)in 2013, if I cash out I will be losing money. Why does Dave advise to redeem them?
My concern with bonds is that companies and city government are piling up so much debt that they will sooner or later cannot pay back that debt and go bankrupt. Even the federal government has been running up debt to a point of no return. Bonds from good states and responsible cities are a piece of the puzzle. Right now the return is low and amount you have to put down is too high for me. I choose a balance fund for that.
The S+P 500 made about 8% per year on average between 1957 and 2018, a bond held at 8% for that long won't beat that as bonds don't compound, if you invest the income from bonds in more bonds or stocks you can keep up with things but that would seem to defeat the object of not investing in stocks.
bonds are good for medium term investment not long term strategies. That's why everytime some one asks you to invest in stocks, they will follow up with a statement that "it outperforms everything in a long run". Just chose a bond which has higher collateral than the amount they are borrowing. So that the credit risk goes down.
Intermediate term bonds are only 1/3 as volatile as stocks based on the standard deviation of their yearly returns. And long term treasury bonds are the best hedge against a stock bear market. For example in 2008 when the Sand P 500 was down 37% long term treasury bonds were up 23%.
Question for you, Dave: If you don't invest in bonds, but you invest in mutual funds (which is a combination of stocks, bonds, and cash), then are the mutual funds you are investing in, just basically a mix of stocks and cash? Thank you!
Yes the mutual funds he invest in are 100% equity. Meaning they have no bonds in them. I think it's kind of bad advice.
Dave Ramsey's investing advice is "Good Growth Stock Mutual Funds," composed of 25% in each of the following "classes": Growth, Growth & Income, Aggressive Growth, and International. @robberger has a good description of them with examples of each. Not a suggestion, just an explanation.
Hi Dave, I'm from the future. Interest rates actually ended up going almost to zero by 2022 and bonds went sky high, then sold off hard.
Hi VV... I'm from the future and yield rates are mooning. Getting ready with dry powder to purchase in 2024 hoping for a 1980-1981 like investment opportunity that will rocket in value as rates decline over the coming years.
Oh and Dave ends up investing in bonds 😂
I rarely watch Dave Ramsey but this video was an EXCELLENT, simple snd digestable explanation on the basics of Bonds. You can learn about bonds in a much more sophisticated and mathematical way but this clears so much for me in my head. Thank you Dave ❤
So what do you do when you are retired or nearing retirement and need stability in your portfolio? Dave appears to be talking long term investment strategy here.
Time to update this video...? interest rates have only dropped and 5% seems pretty good right now.
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got talking about investment and money. I started investing with $120k and in the first 2 months , my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and gets more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
I’ve been forced to find additional sources of income as I got retrenched. I barely have time to continue trading and watch my investments since I had my second daughter. Do you think I should take a break for a while from the market and focus on other things or return whenever I have free time or is it a continuous process? Thanks.
@@ClarieZwiehoff Quitting may not be the best approach if you ask me. This is where an AI comes into the picture. I barely have time to trade myself as my job swallows up most of my time. *MARGARET MOLLI ALVEY* , a licensed fiduciary whom has made me over 5 figures in profit in less than seven months, handles my investments. I could leave you a lead if you need help...
@@ThamaraSchlossarek Oh please I’d love that. Thanks!
*MARGARET MOLLI ALVEY*
Lookup with her name on the webpage.
Its all about the right mix of bonds and stocks for an individuals' time frame, risk tolerance, and goals. Dave you are forgetting about sequence of return risk and the whole emotional aspect of losing big and panic selling at the bottom
Looking at a market over 50-60 years is a false read. We have huuuuuge swings in very short cycles these days. This line of thinking that investment advisers put forth is misleading. You don't have 50 years to experience the long term curve if you are even 30 years old! You have 35 years. You can lose 20-30% of your portfolio in a week in this economy. How long does it take to win that back!!! It might take 3 years to just get back your loss!!!
OK......and then after those 3 years, you have 5+ years of your value increasing well over the initial balance before the crash.
Nico Parisi only if you add to your investment to buy more shares to increase and double its value
@@81easton no.
Bonds are rallying, yields are falling... 2018 to date Bonds have outperformed the S&P 500 which is precisely why you diversify into other asset classes like Bonds. Just remember that in the 2008 crash an Intermediate Bond returned +6% when the S&P 500 crashed -37%, when that happens you will thank your stars for owning some bonds.
Does this still apply when returns and interest rates are so low now? Also, not sure if the same thing in 2008 would happen now. This year is a different case.
This video was created in 2014. It's outdated. I'm retired. I own bonds as a hedge against the next bear market. In a bear market, bonds usually go up. Bonds outperformed stocks in the 1980's. It's complicated. We have yet to see a Ramsey book on retirement. I taught FPU.
How did your bonds do in 2022?
isn't part of the risk minimised by the fact that if a company were to be liquidated, then bondholders are payed before stock holders?
At 60 just opened up one..what to do and should i deposited anything at this point?
Agree completely. Bonds are total garbage when investing long term. For short term they can be useful though.
Exactly. Bonds are good for sources of income funds...not for investment.
@@joshhoward1289 so would you recommend them for a partial emergency fund?
In a rising interest rate environment, it's to stem economic growth, all ships rise during this time. But during real economic downturns they retain their value better than equity, and that's why you should always carry some $$ in bonds. Nobody thinks about 2015-2019. But everyone remembers 2007, and 2000. etc.
The whole point of bonds in a blended portfolio is to hold it til maturity and Reinvest the coupon payments. If interest rates go up stocks decrease and you will reinvest accordingly you keep your portfolio split balanced, do you end up buying stocks lower than average and bonds with higher yields. Although I don’t think people under 50 (or older ) should even consider bonds unless they are planning on retiring within 10 years
If an investor buys bond while the interest rate is higher on the bond that was purchased, then it is good, because when the interest rate is lower the bond will give less return, therefore, it is essential to keep the old bond, while the new bond will give less interest. Invest in bond when the interest rate is higher, and don't buy bond when the interest rate was below 1%. Because u will be stuck with the 1% and the price of that bond will be lower when u want to sell. It is also about the maturity date, if there are few years left then the price will f bond also drops.
A dollar today is worth more than a dollar tomorrow and certainly more than a dollar 20 plus years from now. Take a $10,000 bond bought today. 10,000 will buy you less in 20 years obviously. And same with the coupon payment. To buy bonds at these rates is absurd imo and that is why stocks like Hershey, Proctor and Gamble, Home Depot, Pepsi, etc are at all time highs. They are bond proxies due to low volatility and good dividends. Their par value grows too.
excellent comment
If you are looking for long term growth, you shouldn't be in bonds or bond funds. If you are looking for a short term say 20K to use as down payment for a house in two years then a bond with a 2 year maturity makes sense (just for example). If you have retired, you can plan your spending and use laddered bonds to provide that spending in the near term years. If you don't need the money within 10 years I can't see why you would invest it in bonds or bond funds. The expected return of a good total market fund is large compared to the interest you could possibly get off bonds and the risk is minimal over the 10 year period.
In what situation would Dave think Bonds are a good investment? would interest rates need to be higher? After all why do large institutions invest in bonds?
Ramsey is missing an important point here. You can't consider the risks and rewards of an asset by itself. You have to evaluate it in the context of your whole portfolio. Bonds may not be great on their own, but when you pair them with equities, they tend to reduce volatility - hence the conventional wisdom about shifting to bonds over time.
Agreed. And since bonds are sometimes up when stocks are down, you can rebalance from bonds into stocks when they are low. You still don't get quite as good long term returns as you do from a 100% stock portfolio...but stocks were basically flat from 2000-2009. 10 years is a long time to wait for that outperformance. A mix of stocks and bonds in a fund like Vanguard Balanced Index or Vanguard Wellington did better during that time period.
Rule number one of finances: never ask Dave if you’re out of debt.
You need to zoom out the y axis when you look at bond's chart
Bonds do provide a less volatile portfolio. If you have enough money to live when your stocks drop 40%, you don't need a bond. Bonds also gives you a small monthly income to play with. Most people need the money they are saving for living expenses down the road. Dave thinks everyone has his money. He also doesn't recommend pre nups. He talks to callers that are destroyed financially due to divorce. Pre nups keeps the lawyers fees down. Maybe he wants a continous caller base to boost his own financial success.
Yeah, Dave is definitely a wolf in sheeps clothing.
Dave is confused. He keeps saying he doesn't like bonds. What he means is he doesnt like bond funds. Owning a bond to maturity, and owning a bond fund, are two totally different things.
Thanks for clarifying. Now I have a better idea what to Google. Certainly this all will make more sense eventually.
Yes, you're the only person in these comments that understands this.
@@tortoisehead30 explain. I'm curious what the previous poster was getting at. I'm still learning
@@joy2come119 If you own individual bonds that are not part of a mutual fund or index fund, then you will not lose your original principle. However, if you own bonds that are part of a fund, if you ever try to sell that fund, you could lose part of your original principle if interest rates rise. However, if interest rates go down after you buy the fund, then you could actually sell for a profit.
He is talking about bond derivatives, not the bond investment itself. I'd be curious to know his thoughts on Treasury Inflation protected bonds.
also you really dont want to go more than 2 yrs out on a bond. and who cares about the fluctuations on the bond price. bonds arent meant to be traded. you buy it and hold to maturity. then you get your principal back plus interest.
how about investing in municipal bond funds for a tax-exempt investment?
Most retail buyers of bonds won't be traders. They can hold onto the bond until maturity and get their principal back and the interest too. Dave didn't explicitly demean the debt part of a bond but you got to wonder if that factor makes him dump on them. For some safety, buying a portion of a portfolio into fixed income like inflation bonds and Treasury bills is not wrong.
I disagree. I talked to a banker who deals with hnwi clients and he recommends to incorporate bonds in the portfolio. (he wasn’t trying to sell me anything btw)
We personally have a pretty substantial bond portfolio and are in the highest individual tax bracket of 37%. All of the bonds we own are in tax-exempt bonds and our average tax-effect yield on the entire portfolio is a little more than 7% annually. We do not sell any bonds but hold all of them to maturity or until they are called. We reinvest all of the earnings from them into the purchase of more bonds creating an effective growth model. The real beauty is that we pay zero income tax on any of them and have created a very nice retirement income that is about as rock-solid as they come.
As we get nearer to retirement, we’ll begin shifting more and more of our growth investments into the income-based bonds. Right now, only about 30% of our investment portfolio is in bonds and the rest are in growth mutual funds.
I listen to this guy for entertainment purposes. NOT financial advice.
Here's another thought. Who would sell their bonds when interest rate rises? Sure the value of your bonds fall as % increases, but when %increses why would you sell it unless you really need cash. Even when you really need cash, you should have emergency funds saved.
i disagree. if you need money in 2-3
yrs then bonds is a way to go. someone with a longer time horizon say 10 yrs plus stocks is the way to go. it all depends on your goal.
RAY DALIO, remember this name. He is one of the most successful investors in HISTORY! Watch Ray Dalio, read his books and others like him.
Dave is a marketing genius, he knows how to sell his products and his ELPs, but he is NOT an investor. Dave wants you to go to his ELPs and give them your money.
ondfritz2 bingo
+ondfritz2
Daves whole position is savings with low risk and then good growth. Ray is a different type of beast. That is not to say that Dave is that far out with his approach.
How do you feel about the phoenix capital group gas and oil??
I agree with this assessment. Bonds return much less money than stocks. The only exception in my view is if you're planning on holding cash and you're buying short-term bonds that are paying more than the interest on your cash . For example right now cash in a Fidelity account is paying 4.5% but if you could buy a 3-month or 6-month Bond at 5.5% I think that's worth it
Logically, investing in the top 500 us companies by definition is investing in the winners at the time. Bonds are simply reverse loans for businesses where they're not legally obligated to pay you're interest rate. Since bonds are essentially loans and this show explains in simple terms why borrowing makes no sense financially, you're loaning money to people who are just as smart as the people who are doing into debt, but just a little smarter because they're not obligated to lose money. Therefore you're giving money to people who are financially unwise but just a bit wiser than the person in debt. Thus It makes less sense to invest in bonds.
Why wouldn't you let it get to maturity?
What does getting it to maturity mean?
@@zakimerxero3771 I believe it means when the debt is due. If you take out before you don't get as much in interest.
Bonds are less volatile, but they also are not highly correlated. Pairing the two together makes the volatility of the portfolio lower than either class of asset on their own. Total return is NOT all that matters when you are having to live on the portfolio.
actually very highly correlated on long maturity bonds 10 20 and 30s average.
What about Series I bonds that match Inflation?
Its no brainer more money you are willing to Invest make sure shorter period waiting time it is with higher interest rate without investing all of your money ( general 10 to 20 precent of whatever amount you put into pension or saving account /fund ) so for example say you are not rich guy you will put in bonds ( especialy government debt bond and efti each month somewhere between 100 to 200 USD for next 30 Years will be around 150 thousand dollar since saving bounds double its worth and you didn’t lose anything and also capable to manage to minimize potential loss .
Exactly what I planned. Long-term 1st, then casino stocks that swing high volatility.
just like when interest rates go up - bond value goes down..
but doesnt that also mean in cases when the interest rates go down - the percieved bond value goes up (provided the interest rates are below the promises bond rates) - purely due to the negative correlation?
Now, what are the cases where the interest rates may actually go down - when a lot of people aren't taking loans..
Almost 10% on Bonds now. Treasury knows we have trouble on the water.
Today Fed just cut interest rates again... Now less than 1% - on the publish date of this video interest rates were 4.49%....
All financial instruments have pro's and con's ... There is no "BEST OR WORST" financial instrument... They are to be used together to achieve a desired result... One should properly understand and use proportionally ALL financial instruments. The whole point of the BOND is less volatility with guaranteed income.
Will the bond in this example pay 5% annually or over the life of the 10 years?
Asking as a student!
The idea is to hold to maturity. Ramsey doesn’t emphasize that no matter what the interest rate environment is, if you hold to maturity, then you get your principal back. He focuses on short-term market gyrations and “paper” losses. He also forgets to mention that bond prices go up when rates go down. That is what we’re on the precipice of right now with rate cuts coming. He is partially wrong about the volatility, too. Yes, when looking at a chart, a bond’s mountains and valleys often does mirror a stock, but the degree of separation is often two-fold. Bonds do their job by protecting your principal, something that many older investors who went through many up and down market cycles now want to do as they enter their drawdown years with not many market cycles left in their investment lives. But yes, over time stocks do outperform bonds. However, you can get a close to stock market return with the right mix of stocks and bonds without having to be 100% in stocks, and that sort of risk aversion should always be a focus.
@@balej83 I agree, it's all about your means for sure! I know older investors who came of age during the heyday of interest rates and solely invested in CD ladders, and have no regrets. It's not always about trying to outperform the market at any cost, but more about your risk comfort level and what you need to be comfortable. I know many high income people that don't have a dime to their name, so no matter how much money they make, it's never enough and they're always on unstable ground.
I would like bonds if the yeild was above 7%... ATT pays 6.5% div and will probably grow 12% a year now that we are near a bottom, they have paid increasing divs for 40 years and will never go bankrupt... what's safer than att? Certainly not a bond lol
What if I hold an i-bond or an ee-bond? The value of the bond doesnt go down because you can always cash out exactly what you put in.
If you hold a bond at 5% and rates go DOWN to 4%, you’re feeling great bc no one else can get the rate you have now!
Imagine owning a bond at 10+%
Dave, I respect your judgment. However, if interest rates go down... the bond value goes up. Also, as a retiree you need cash flow... bonds are a reliable source of cash flow. As a retire in this stock/bond environment... I find that 60% stocks, 30% short to intermediate bonds, and 10% cash preserves capital and generates sufficient cash flow to meet needs. Great show.
This guy sounds confused. If I purchase a $10k bond from municipality Somewhere Town USA, they now owe me the principal plus interest. YOU are now the BANK for the municipality. Why does that sound bad to you, Sir?
He's talking about the secondary market. If you seek to exit from a bond before maturity you would have to take a haircut on your principal face value as we are in a rising interest rate environment. So people looking for high yield quality bonds to exit from in 10, 20 years may not benefit as much.
It all depends on your investment goals. If you're looking to dump a big piece of cash for dormant low yield but stable income, you can invest in treasuries or top triple A bonds and ride out until maturity. But those won't offer much of a payout since they are solid returns on investment which are oversubscribed. Only the big pension funds or mega billionaires can benefit from these big time. Retail investors won't earn that much high return off these as a long-term investment strategy compared to investing in equity.
The riskier bonds with high yield are unwise to hold for too long and so if you are seeking an early exit before maturity strategy on these, you will likely take a haircut on the principal face value you paid in this rising interest rate market environment.
Zero coupon municipal bonds -- discounted purchase price and tax free federal state and local?
Because the stock market outperforms every time. It is idiotic.
What if your mutual funds includes bonds?
This aged like milk. Savings I-bonds getting 7.12% and going up 🚀
Inflation will run hot not forever, but for awhile. American capitalism would collapse if not for near zero interest rates to prop up asset prices and spending with stagnant wages
When I buy a bond, as long as the bond doesn’t default, there is no volatility with that bond. But when I buy a stock, it’s value can decline. I am not guaranteed anything with the stock. If you buy a bond expect to hold it til maturity otherwise you’re speculating
My moms account for retirement stocks fell in 2021 double digits and then recovered but advisor idiots had her half in bonds and they dropped double digits so it didnt diversify or help her at all. Just invest in a low index fund and leave it alone.
Hi I was wondering if I could have some advice. I’m looking to purchase my first home in July or August when my lease in my apartment comes up. I have about $900 in savings bonds that were to be used for my education but I’ve completed my education. I was considering cashing them and using the funds towards my down payment. Is is this advisable? Ty in advance.
what dave fails to mention is municipal bonds r tax exempt... you can buy a bond at 300$ hold it 5 years and get your 300$ back, during those 5 years you get 3% cash dividends and pay 0 tax... its risk free income you dont pay tax on
@That Guy sure thing, google MUB, it is a muni bond etf that pays 2.2% state and federal tax free... if u want 3% i recommend corporate bonds but you will be taxed, LQD is 3% HYG is 5.5%... also the annual dividends are payed monthly