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Negative bond yield?

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  • #31





    should I look for an alternative 
    Click to expand…


    There aren’t any attractive investment options today (that I can identify), but I increased my gold allocation to 5% this week. Gold becomes more attractive as real yields become more and more negative, and/or when sh*t hits the fan, and global bond yields suggest that sh*t may hit the fan before long.

    Despite this, I don’t like investing in gold and wouldn’t recommend a big allocation. Dalio has suggested a 10% allocation in the past and I wouldn’t exceed that in the absence of major upheavals in the way the world operates.
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    I would disagree with that.  If you are a long time investor, any drop presents a good option.  Even if it goes down further the next day, you still got a better deal than you would have the day previous.  Many years later, the market will almost certainly be higher and that investment you made when the market went down 3% in a day, will look just fine.

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    • #32
      This is all mental accounting.
      Important points - price you bought, price at which you sell/derisk.
      Whether you win or lose comparatively is the compounded rate between these 2 points.

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      • #33
        Aside from stuff in the thread already, remember that bonds have convexity that is inversely related to their duration and yield.

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        • #34
          My main problem with gold is the zero or negative yield on it.
          It’s hard to find it attractive compared to other currencies, which have a positive yield, particularly resource/EM currencies.

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          • #35
            Yeah if negative, in US safer to mattress stuff. Gold for unstable currency concerns over any other specific currency. Eg us collapse but stable canada and mexico.

            If one is just entering bonds for short term safety, it may make more sense for direct bonds itself than a fund as you're paying for something already invested and a premium to that ladder right at the wrong time. But go ahead since we are pretty well funded in there already and would love a bump in prices. ??

            If one is flight to safety for only short term and 'time the market' a short term bond or ultra short bond fund us the answer. Long term bond funds you better be ready to commit for a bit or be surprised when you pull out your funds on the strike prices.

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            • #36
              The negative yield bond is in essence paying a premium to have someone guaranty you a future payment.  The quips in the articles are true, business school didn't teach you this in your economics classes.

              Institutional investors buy negative-yield bonds often because they are required to, typically under their own charter, by law, or by other third-party agreements such as lending or pension agreements, etc.

              There are large entities and individual investors choosing to hold physical cash in this environment.  This isn't free, and carries its own set of inherent risks.

              Holding wealth in general is a risky proposition.  You have something to lose.  There is a cost to securing your assets and preventing loss.

               

               

               

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              • #37










                should I look for an alternative
                Click to expand…


                There aren’t any attractive investment options today (that I can identify), but I increased my gold allocation to 5% this week. Gold becomes more attractive as real yields become more and more negative, and/or when sh*t hits the fan, and global bond yields suggest that sh*t may hit the fan before long.

                Despite this, I don’t like investing in gold and wouldn’t recommend a big allocation. Dalio has suggested a 10% allocation in the past and I wouldn’t exceed that in the absence of major upheavals in the way the world operates.
                Click to expand…


                I would disagree with that.  If you are a long time investor, any drop presents a good option.  Even if it goes down further the next day, you still got a better deal than you would have the day previous.  Many years later, the market will almost certainly be higher and that investment you made when the market went down 3% in a day, will look just fine.
                Click to expand...


                The attractiveness of an investment has nothing to do with whether the price went up or down during the last day, month, year, or decade.* Instead, it depends on the prospective return and the uncertainty (risk) around that return.

                The prospective return to stocks (especially US stocks) is much lower than the historical average, and the likely return to bonds is as low or lower than at any time in history (barring an unprecedented period of deflation). Gold can't be considered an investment, but may be a hedge against loss of confidence in the Fed, the dollar, and the financial system as a whole -- or maybe not. This is why it is tough to identify attractive investment options today.

                To understand why price changes shouldn't drive investment decisions, consider an asset that offers a $1 per year payout that is almost certain to grow at 1.55% per year (the approximate long-term real growth in annual S&P 500 earnings from Shiller's spreadsheet). If the owner offers to sell it for $10, then I would recommend you invest a substantial sum, and if the owner drops the price to $5 then you should probably borrow against your home equity to buy more.

                On the other hand, if the owner offers to sell it for $100,000, then you'd be foolish to buy it, and if he then dropped the price to $50,000 you would still be foolish to buy it. This is true even though it will eventually be worth much more than $50,000 or even $100,000; you just need a very long investment horizon.

                 

                *Because prices change faster than intrinsic value (Shiller showed this for US stock market returns), a price drop usually results in a better valuation and a higher risk-adjusted return, but that isn't necessarily true, and it shouldn't be true in an efficient market driven by rational investors.

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                • #38
                  All this is to say, should some change their asset allocation from a 70-30 stock-bond portfolio or whatever allocation is in your investing statement?  I think most here would agree no.

                   

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                  • #39
                    Consider that the price of your bond goes up when the yield goes down. Investors might be calculating that the Long Bond will go even "more negative."

                    This whole situation seems over blown. Are the politicians pushing the narrative that Trump can't be re-elected if a Recession hits? There no indicators that the US Economy is faltering.

                    Starting to feel like a "no-brainer" or a "fat pitch."

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