Comments on: Short-Term versus Long-Term Bonds http://www.canadiancapitalist.com/short-term-versus-long-term-bonds/ Helping you invest and prosper Sun, 12 Feb 2012 00:54:40 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Interest Rates are Heading Up | Canadian Capitalist http://www.canadiancapitalist.com/short-term-versus-long-term-bonds/#comment-342661 Interest Rates are Heading Up | Canadian Capitalist Thu, 16 Dec 2010 04:48:23 +0000 http://www.canadiancapitalist.com/2007/07/04/short-term-versus-long-term-bonds#comment-342661 [...] yields also means that existing holdings will fall in value. Bond investors may want to consider shortening the duration of their bond holdings. Post a [...] [...] yields also means that existing holdings will fall in value. Bond investors may want to consider shortening the duration of their bond holdings. Post a [...]

]]> By: confused http://www.canadiancapitalist.com/short-term-versus-long-term-bonds/#comment-325824 confused Thu, 02 Dec 2010 13:41:11 +0000 http://www.canadiancapitalist.com/2007/07/04/short-term-versus-long-term-bonds#comment-325824 Would it be better to invest in a short term bond etf or a long term bond etf? With 25 years plus until retirement. Would it be better to invest in a short term bond etf or a long term bond etf? With 25 years plus until retirement.

]]> By: A Primer on Bonds – II (Investing in Bonds) « Finance Blog http://www.canadiancapitalist.com/short-term-versus-long-term-bonds/#comment-235965 A Primer on Bonds – II (Investing in Bonds) « Finance Blog Mon, 26 Jul 2010 12:23:54 +0000 http://www.canadiancapitalist.com/2007/07/04/short-term-versus-long-term-bonds#comment-235965 [...] facing more fluctuations. It is true that the variation could go both ways but I’ll point to more knowledgeable commentaries for [...] [...] facing more fluctuations. It is true that the variation could go both ways but I’ll point to more knowledgeable commentaries for [...]

]]> By: A Primer on Bonds – II (Investing in Bonds) | Million Dollar Journey http://www.canadiancapitalist.com/short-term-versus-long-term-bonds/#comment-235954 A Primer on Bonds – II (Investing in Bonds) | Million Dollar Journey Mon, 26 Jul 2010 11:30:40 +0000 http://www.canadiancapitalist.com/2007/07/04/short-term-versus-long-term-bonds#comment-235954 [...] facing more fluctuations. It is true that the variation could go both ways but I’ll point to more knowledgeable commentaries for [...] [...] facing more fluctuations. It is true that the variation could go both ways but I’ll point to more knowledgeable commentaries for [...]

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/short-term-versus-long-term-bonds/#comment-53369 Canadian Capitalist Wed, 04 Jul 2007 22:58:02 +0000 http://www.canadiancapitalist.com/2007/07/04/short-term-versus-long-term-bonds#comment-53369 Fair enough. In fact, we are talking about the same thing. Instead of taking on interest rate risk for a lower expected return, it is better to take on market risk in equities for a higher expected return. Still, a bit of short bonds adds a bit of stability to a portfolio. Fair enough. In fact, we are talking about the same thing. Instead of taking on interest rate risk for a lower expected return, it is better to take on market risk in equities for a higher expected return. Still, a bit of short bonds adds a bit of stability to a portfolio.

]]> By: FinancialJungle.com http://www.canadiancapitalist.com/short-term-versus-long-term-bonds/#comment-53339 FinancialJungle.com Wed, 04 Jul 2007 20:23:06 +0000 http://www.canadiancapitalist.com/2007/07/04/short-term-versus-long-term-bonds#comment-53339 My comments were more in the context of long bonds, but I like your perspective. Renters' rent obligations are reminiscent of bond coupons. As for RRSP, since it's meant as a retirement account, my preference is to hold equities (and perhaps short-bonds) instead of long bonds. My comments were more in the context of long bonds, but I like your perspective. Renters’ rent obligations are reminiscent of bond coupons.

As for RRSP, since it’s meant as a retirement account, my preference is to hold equities (and perhaps short-bonds) instead of long bonds.

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/short-term-versus-long-term-bonds/#comment-53328 Canadian Capitalist Wed, 04 Jul 2007 18:54:10 +0000 http://www.canadiancapitalist.com/2007/07/04/short-term-versus-long-term-bonds#comment-53328 FJ: We look at things from a slightly different perspective. For me, a home and the associated mortgage are not considered part of my investment portfolio. Even if you did, renters have to account for their own negative bond as well, by thinking of their rental payments as negative coupons. Let's say that you have a mortgage and an investment portfolio, most or all of which is in RRSPs (I think this is a very common situation). Should you hold bonds then? I would say yes, at least a little bit because you are not giving up too much return and are lowering the overall portfolio volatility. But this is only true if you are able to hold bonds within the RRSP. A good case can be made for being 100% in stocks if an entire portfolio is in taxable accounts. Mike: I suppose investors who bought 30-year bonds for their fixed income portion in the eighties would be very satisfied with the results. In general though, long bonds may not be worth the extra interest rate risks. FJ: We look at things from a slightly different perspective. For me, a home and the associated mortgage are not considered part of my investment portfolio. Even if you did, renters have to account for their own negative bond as well, by thinking of their rental payments as negative coupons.

Let’s say that you have a mortgage and an investment portfolio, most or all of which is in RRSPs (I think this is a very common situation). Should you hold bonds then? I would say yes, at least a little bit because you are not giving up too much return and are lowering the overall portfolio volatility. But this is only true if you are able to hold bonds within the RRSP. A good case can be made for being 100% in stocks if an entire portfolio is in taxable accounts.

Mike: I suppose investors who bought 30-year bonds for their fixed income portion in the eighties would be very satisfied with the results. In general though, long bonds may not be worth the extra interest rate risks.

]]> By: Phil S http://www.canadiancapitalist.com/short-term-versus-long-term-bonds/#comment-53327 Phil S Wed, 04 Jul 2007 18:49:23 +0000 http://www.canadiancapitalist.com/2007/07/04/short-term-versus-long-term-bonds#comment-53327 I don't get the analogy between mortgage and bonds either. I am mortgage free as well, but I don't foresee my condo's value increasing at 4.5% a year for the next 10 yrs. In fact, conventional wisdom says that home values tend to go in the opposite direction of mortgage interest rates... Interest rates go up, homes become less affordable, fewer people can afford so it becomes a buyer's market as prices come down? For long bonds, 25% of my RRSP is already in Real Return Bonds (bought a few years ago), which amazingly mature around the time that I hit retirement age so they worked out perfectly for me (GoC only sold two or three series of Real Return Bonds the last time I checked). But that's the absolute most that I want to dump in that one single asset class - on ROBTV they recommend not to have more than 5% of your portfolio in a single investment. As my RSP gets bigger with future contributions, I figure that my Real Return Bonds will some day eventually get down to 5%. =0P I don’t get the analogy between mortgage and bonds either. I am mortgage free as well, but I don’t foresee my condo’s value increasing at 4.5% a year for the next 10 yrs. In fact, conventional wisdom says that home values tend to go in the opposite direction of mortgage interest rates… Interest rates go up, homes become less affordable, fewer people can afford so it becomes a buyer’s market as prices come down?

For long bonds, 25% of my RRSP is already in Real Return Bonds (bought a few years ago), which amazingly mature around the time that I hit retirement age so they worked out perfectly for me (GoC only sold two or three series of Real Return Bonds the last time I checked). But that’s the absolute most that I want to dump in that one single asset class – on ROBTV they recommend not to have more than 5% of your portfolio in a single investment. As my RSP gets bigger with future contributions, I figure that my Real Return Bonds will some day eventually get down to 5%. =0P

]]> By: FinancialJungle.com http://www.canadiancapitalist.com/short-term-versus-long-term-bonds/#comment-53319 FinancialJungle.com Wed, 04 Jul 2007 17:55:35 +0000 http://www.canadiancapitalist.com/2007/07/04/short-term-versus-long-term-bonds#comment-53319 Mike - You're correct. When you hold a $200,000 mortgage, you're essentially shorting bonds. i.e. minus $200,000 in bonds. Since I don't have a mortgage and my bond position is $0, I'm holding $200,000 more bonds than a typical homeowner. It doesn't make much sense for homeowners to hold long bonds, when they can earn higher and tax-free yields by paying down their mortgages. BTW, inside RRSP, the yields are tax-deferred, not tax-free. Mike – You’re correct. When you hold a $200,000 mortgage, you’re essentially shorting bonds. i.e. minus $200,000 in bonds. Since I don’t have a mortgage and my bond position is $0, I’m holding $200,000 more bonds than a typical homeowner.

It doesn’t make much sense for homeowners to hold long bonds, when they can earn higher and tax-free yields by paying down their mortgages. BTW, inside RRSP, the yields are tax-deferred, not tax-free.

]]> By: FourPillars http://www.canadiancapitalist.com/short-term-versus-long-term-bonds/#comment-53305 FourPillars Wed, 04 Jul 2007 17:00:33 +0000 http://www.canadiancapitalist.com/2007/07/04/short-term-versus-long-term-bonds#comment-53305 I like the idea of owning only short term bonds as per Bernstein but I also wonder if there isn't some diversification benefits to owning short, medium and long term bonds since they aren't always correlated to each other? On the other hand, my main goal for investing in bonds is to offset volatility in the equities portion so if the short term bonds achieve that goal then that might be good enough. FJ - I never understood the idea that a mortgage is akin to being invested in bonds, is this what you mean? or the opposite? It seems to me that with a mortgage, you owe someone else money whereas bonds are the opposite - someone owes you money. Mike I like the idea of owning only short term bonds as per Bernstein but I also wonder if there isn’t some diversification benefits to owning short, medium and long term bonds since they aren’t always correlated to each other?

On the other hand, my main goal for investing in bonds is to offset volatility in the equities portion so if the short term bonds achieve that goal then that might be good enough.

FJ – I never understood the idea that a mortgage is akin to being invested in bonds, is this what you mean? or the opposite?

It seems to me that with a mortgage, you owe someone else money whereas bonds are the opposite – someone owes you money.

Mike

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