Dave Explains Why He Doesn't Recommend Bonds
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- Опубліковано 11 вер 2013
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Biggest lesson i learnt in 2023 in the Bonds market is that nobody knows what is going to happen next, so practice some humility and low a strategy with a long term edge.
Nobody knows anything; You need to create your own process, manage risk, and stick to the plan, through thick or thin, While also continuously learning from mistakes and improving.
Uncertainty... it took me 5 years to stop trying to predict what’s about to happen in market based on charts studying, cause you never know. not having a mentor cost me 5 years of pain I learn to go we’re the market is wanting to go and keep it simple with discipline.
Could you kindly elaborate on the advisor's background and qualifications?
The advisor that guides me is Sonya lee Mitchell, most likely the internet is where to find her basic info, just search her name, She's established.
I searched her up, and I have sent her an email. I hope she gets back to me soon. Thank you
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.
The key is to hold it to maturity.
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.
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.
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
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
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?
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.
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
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.
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.
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.
So should I invest in bonds ? I'm lost some people say no and some people say yes ?
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 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
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.
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"?
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
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.
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.
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
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.
Almost 10% on Bonds now. Treasury knows we have trouble on the water.
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.
@@vote_usa_first if you aren't getting 5% then you need a new bond guy
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 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 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.
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.
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%.
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?
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.
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
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.
Time to update this video...? interest rates have only dropped and 5% seems pretty good right now.
Does this apply to Treasury Savings bonds that offer 9.62% now
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.
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
My fear is that every couple of years, congress has the debt ceiling battle where we come down to the wire about defaulting on our debt. That’s what scares me about owning bonds.
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 $28.5mn is chump change to you then you’re probably here to humble brag. Congrats, you succeeded. Good luck in your investing.
If you hold a bond at 5% and rates go DOWN to 4%, you’re feeling great bc no one else can get the rate you have now!
Imagine owning a bond at 10+%
Bonds are rallying, yields are falling... 2018 to date Bonds have outperformed the S&P 500 which is precisely why you diversify into other asset classes like Bonds. Just remember that in the 2008 crash an Intermediate Bond returned +6% when the S&P 500 crashed -37%, when that happens you will thank your stars for owning some bonds.
Does this still apply when returns and interest rates are so low now? Also, not sure if the same thing in 2008 would happen now. This year is a different case.
Very informative, thank you.
Agree completely. Bonds are total garbage when investing long term. For short term they can be useful though.
Exactly. Bonds are good for sources of income funds...not for investment.
@@joshhoward1289 so would you recommend them for a partial emergency fund?
Thank you for teaching us
The whole point of bonds in a blended portfolio is to hold it til maturity and Reinvest the coupon payments. If interest rates go up stocks decrease and you will reinvest accordingly you keep your portfolio split balanced, do you end up buying stocks lower than average and bonds with higher yields. Although I don’t think people under 50 (or older ) should even consider bonds unless they are planning on retiring within 10 years
I'll take the guaranteed interest rate, thanks. When do you see banks paying more than 2%? Not for a very long time.
That time is now
CIT bank savings account gives 2.45% APR right now
Go for US federal bonds then. 20 year AA 2% p/a. 2 ticket dates a year. 5k$ 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
Great video! I fought with my financial advisor over having any bonds in my portfolio, and after last year I had enough.
You need to zoom out the y axis when you look at bond's chart
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.
I demand a higher return now. Why can't I buy one?
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?
He is talking about bond derivatives, not the bond investment itself. I'd be curious to know his thoughts on Treasury Inflation protected bonds.
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.
Dave you need to take in to consideration the suviourship bias on the index. Plus remember you can ladder your bonds to reduce duration risk.
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.
Great explanation. Thank you!
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.
Keep in mind there are no cookie-cutter solutions. What might be good for one person may not be good for another. I believe Dave is referring to specifically investing for retirement.
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.
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.
I started laughing when he said when interest rates go up... .... ..... I love the guy and what he dose but that's funny to me even today i hear people what if rates go up... i just ask them how?
Still laughing ?
@@shaochiavang yes, they tried raising rates after like 10 years… they couldn’t make it to half the Official inflation rate before banks are going under and we had to stop easing rates
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.
At 60 just opened up one..what to do and should i deposited anything at this point?
he didn't mention that bonds and equaties are not highly correlated. also he didn't mention all the 65 year old men that retired in 2000 that if they had been entirely in stocks died in less than the 10 years needed for stocks to pay a penny In profit. that if they were to live past 75 would have been broke because they had to sell all their stock cheap to pay living expenses. versus those that lived off their bonds and didn't have to sell stock for 10 years when it actually started gaining value. BTW stock had better returns than stocks that entire decade.
Would Dave recommend I savings bonds or EE savings bonds?
He would never :) But I would. EE if you can hold for 20 years, otherwise I bonds.
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.
I agree that interest rates woll most likely go up in the next 10 years. I have been researching whether to go with short term cd's instead of bonds in my portfolio.
Aaron Shaefer short term treasury bonds. Yw
Always cool common sense. That's why people listen to Dave. Bravo. You're always someone with the best insight for the Joe Sixpacks of the world.
Balanced funds may or may not be more aggressively into stocks at this time. It depends on the fund. They don't all do the same thing at the same time. Some think it's currently worth it to be heavier into stocks. Others are more defensive and keep a higher percentage in bonds.
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.
correlation not mentioned once.
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.
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.
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.
Bond ladders are a good way to hedge against falling equities.
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.
What if your mutual funds includes bonds?
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.
What about Series I bonds that match Inflation?
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.
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.
9 years later we saw Silicon Valley First Republic blow up because they had long term bonds and then interest rates increased. Bonds are sh**.
Nobody can become financially successful over night. They put in background work but we tend to see the finished part. Fear is a dangerous component, hindering us from taking bold steps we need in other to reach our goals.
Dave. Quality bonds held to the end of the term do serve a purpose. That kind pf play makes sense for an investor that has low risk tolerance.
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.
You only lose & gain money when you sell. You also make money when interest rates go down. Warren buffet has made a lot of money in bonds.
so should I have some in my Roth ira or what? and what should I do with them? what about in my individual account?
great advise
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.
The bond IS substantially less volatile IF you hold the bond until maturity, which is what you should do. Why do you think wealthy individuals often buy large amounts of bonds, especially tax free municipal bonds. The tax free provision makes the bonds far more attractive to high net worth individuals.
how about investing in municipal bond funds for a tax-exempt investment?
Didn’t finish the video, but if you’re 65, strapped for cash during a time like march/april 2020, when you sell off your assets to get liquid cash available, you keep more of your value initially invested. if you’re 20 and see your equities drop (by a significantly larger %) then you just wait it out. Bonds are about protecting your wealth vs. obtaining it with equities.
I would like to see the data that suggests bonds are not significantly less volatile than stocks
let's also not forget correlation, since volatility is not everything
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..
What about at present with I bonds at 9.6%? Lol
9.6% ends October 31
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.
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
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