Long duration bonds with index funds

[takuma sato]

Does anyone here have long duration bonds on their portfolio using index funds? Im talking 10+ year duration. Typically the US investor would use TLT ETF for this bet, but it can be bought in most countries. Is this a buy in your book at current prices? Some people are making big bets with 3x leveraged ETFs. Im considering a position on this as an hedge during a recession. I have my doubts that BTC will perform well on that scenario or if it will just follow the SP500 again, since I don't want to find out I would rather diversify.

This may be a decent bet, even tho you can get wrecked if long term bonds don't go down. So far the yield curve is still silly at such inverted levels, but the market seems to be ok with these rates and expects it to go lower. If they really go lower, who knows if inflation will not hit even harder eventually. All things considered, from a TA this looks like a buy, but things can always go lower. The macro aspect is hard to predict. But as with everything, if you wait for market confirmation you may miss all the best gains, but you will also protect yourself from getting wrecked if interest rates move up additionally.

PS: Im talking about index funds, not directly holding the bonds yourself.

[Don Pedro Dinero]

My reason for not holding bonds is that if the bond goes up, the yield goes down, which is already lower than inflation, and vice versa. For that I prefer to have cash in a deposit or an account that gives me interest, even if the interest in principle could be lower than the yield of the bond. And I would even less think of playing with 10-year bonds, precisely because of the long time you have the investment locked (which you can sell, but if it is at a bad time it will be at a loss).

[franky1]

i was just snooping at the SEC CEO gary genslers assets
https://www.crypto-law.us/wp-content/uploads/2022/07/gary-gensler-2020-disclosure_FINAL.pdf

and he has over $1m-$5m(of $42m-$120m) invested in SHARES of a investment that holds bonds as collateral. but he doesnt own bonds directly

[topbitcoin]

Initially I was quite interested in investing in bonds, but after I learned about the risks of this type of investment. enough to make me think twice about actually deciding to invest in bonds, because even though this type of investment provides more guaranteed security, especially if you invest in bonds issued by the state, because the bonds issued by the state are protected by and guaranteed by Constitution. This advantage is what makes me so interested in making this type of investment. But on the other hand, this investment also has quite high risks because we can lose the money we invest when the company experiences significant losses. And what's more, the interest rate is quite high, and this interest rate really affects the investment value directly. And if we sell bonds before maturity, we will experience quite a large loss.

[DeathAngel]

Long duration bonds can be a good investment option for those seeking stable income & protection against interest rate fluctuations. While they offer higher yields compared to short term bonds they are also more exposed to interest rate risk. Investors should carefully consider their risk tolerance, investment goals & market conditions before investing in long duration bonds. Diversifying a portfolio with a mix of bonds & other assets is generally recommended to manage risk effectively.

[franky1]

when you have maxed out your allowed deposit limits of investments and pension contributions where you are left with leaving funds accruing in a easy access normal banking account where the sum in that account then exceeds the FDIC insured amount ($250k) then you would put the excess into bonds, knowing you dont need to touch it short term because you have all the other amounts you can spend/dip into first

if you are on a lower income. when you have enough savings to cover emergencies in an easy access account. like house repairs, kitchen applience replacements and enough to cover 3-6months of unemployment expenses. and you are putting your pension contributions in. then put excess into bonds knowing you wont need to touch it for the full period

on a fixed term bond you only lose if you sell early. so if the 5%/year is good for you. and you wont touch it for 10 years. and you dont see a better investment to put the funds into. then put it into bonds. but in most cases getting 6%+ via other investments is possible so a 5% fixed 10% is a question you should ask only when you have filled up all other temporary savings/investment pots

[takuma sato]

when you have maxed out your allowed deposit limits of investments and pension contributions where you are left with leaving funds accruing in a easy access normal banking account where the sum in that account then exceeds the FDIC insured amount ($250k) then you would put the excess into bonds, knowing you dont need to touch it short term because you have all the other amounts you can spend/dip into first

if you are on a lower income. when you have enough savings to cover emergencies in an easy access account. like house repairs, kitchen applience replacements and enough to cover 3-6months of unemployment expenses. and you are putting your pension contributions in. then put excess into bonds knowing you wont need to touch it for the full period

on a fixed term bond you only lose if you sell early. so if the 5%/year is good for you. and you wont touch it for 10 years. and you dont see a better investment to put the funds into. then put it into bonds. but in most cases getting 6%+ via other investments is possible so a 5% fixed 10% is a question you should ask only when you have filled up all other temporary savings/investment pots

I edited the original post to indicate the fact that I was talking about index funds, not holding the actual bonds yourself. TLT is an index fund that holds a ton of different bonds and always self-adjusts to have a 20+ average duration, which means if interest rates go higher it will be like leveraged betting, it's liquidation value will go up if these long term bond's yield goes down, approximately it should be around 20% on each point basis. This is a cool bet to make if interest rates are really going to go lower, but you are basically betting that we go into another QE round of low interest rates, not sure if 0, but perhaps, 1 to 2%?

In EU the 20 year German bond is already pretty low tho, so if they go lower, they either don't have that much of a margin to go lower, or go into near 0 again (and EU went negative interest rates for a period which is nuts).

The thing is, if they go back to QE, this may lead to more inflation, but if they don't lower rates, this may lead to bankruptcies as the higher interest rates hit the economy.  So who knows what they will do. Im leaning more towards the lower rates period which means these funds should go up. This is not investment advice since your strategy can get wrecked at any moment if they decide to raise rates again.

[franky1]

your original topic was not about index funds. it was about you long holding bonds yourself
because with index funds YOU dont hold the 10 year bond, the fund does, You are not locked in for 10 years
the fund decides whats in the basket and you just get the averaged interest of the basket each year

however now you moved the conversation to index funds.. you dont need to worry or care about "long holding"... its the portfolio fund manager that holds. and you just take your yearly interest.. short or long term. you choose

so you wont care or mind about length. thats the portfolios problem. and in most cases.. they dont sell early. because you selling your share is just a new customer buying your share. so no impact on the portfolio manager for them to need to sell the bond

that said.. you need to, if you are just going to invest and forget your shares.. when the current 5% bonds expire in X years.. if the interest rates have dropped again where 2% are the only options the portfolio manager can buy post-expiry. then it can affect your interest on your side if the portfolio manager gets heavy in 2% bonds basket average

most other investments EASILY make a swing between 7-12% so if you are looking for a strong support of 5% plus.. investing in other markets, it can do you well..

bonds (actually holding them) is only done as a last ditch effort to throw money at bonds when other investment plans have been filled

..
again people only buy bonds directly when they have tapped out all of their yearly deposit limits of other investment plans. and they dont want more then $250k(FDIC limit) left in a bank account.

most people prefer to buy real estate or other things that appreciate before buying bonds direct.

bonds usually top out at 6% interest max.. other investments start at 6% minimum

[Fortify]

Does anyone here have long duration bonds on their portfolio using index funds? Im talking 10+ year duration. Typically the US investor would use TLT ETF for this bet, but it can be bought in most countries. Is this a buy in your book at current prices? Some people are making big bets with 3x leveraged ETFs. Im considering a position on this as an hedge during a recession. I have my doubts that BTC will perform well on that scenario or if it will just follow the SP500 again, since I don't want to find out I would rather diversify.

This may be a decent bet, even tho you can get wrecked if long term bonds don't go down. So far the yield curve is still silly at such inverted levels, but the market seems to be ok with these rates and expects it to go lower. If they really go lower, who knows if inflation will not hit even harder eventually. All things considered, from a TA this looks like a buy, but things can always go lower. The macro aspect is hard to predict. But as with everything, if you wait for market confirmation you may miss all the best gains, but you will also protect yourself from getting wrecked if interest rates move up additionally.

PS: Im talking about index funds, not directly holding the bonds yourself.

It's only in the last year or two that I've started giving serious consideration to bonds, especially as they are such a solid investment with a guaranteed return that reduces instability in a portfolio. While you explicitly reference index funds, it was just a few weeks ago that I discovered you can buy the bonds directly in most brokerages and it could save a fair bit in unnecessary fees. If you do your basic math calculations then you're looking at 4% for a short term bond of a year, which would have been unthinkable a couple years ago when they were around half a percent. If you take the view that interest rates have leveled off and are coming back down again then now looks like the perfect time to lock down some stable income.

[Catenaccio]

Buying bonds is not good investment and in years with inflation, then high interest rates, buying bonds is stupid.

World Government Bonds, Yields and Inverted Yields

Inverted Yield Curve: Definition, What It Can Tell Investors, and Examples
Inverted yield is a predictor of economic recession but it is for macro economic. For individuals, it decides you lose money with bonds or get money from bonds.

[Don Pedro Dinero]

Buying bonds is not good investment and in years with inflation, then high interest rates, buying bonds is stupid.

Yes, that's why I said in my previous comment that I don't do bonds. I leave my money in interest-bearing accounts or deposits, which do not beat inflation but at least help to mitigate it, but bonds do not beat it either. And to beat inflation we have more volatile investments but also quite safe in the long term such as bitcoin and index funds.

[slapper]

Shelter from market downturns is necessary. However, long-term bonds carry risk. A minor interest rate increase can depreciate capital significantly. If interest rates fall, you're good, but that's a huge if, right? Predicting interest rates is like gambling. Though unusual, is the yield curve a reliable predictor? Inverted yield curves have predicted recessions, but the market's indifference may be a sign.

Now, ETF leverage. Definitely a bold approach. Gains and losses might be amplified. Thinking about utilizing them as a hedge is smart, but it's risky. Diversification is smart, but are long-term bonds your best bet? Shorter-term or floating-rate bonds may provide a better risk-reward ratio. A well-planned, diversified portfolio that matches your risk tolerance and investing horizon is the best hedge.

[franky1]

Shelter from market downturns is necessary. However, long-term bonds carry risk. A minor interest rate increase can depreciate capital significantly. If interest rates fall, you're good, but that's a huge if, right? Predicting interest rates is like gambling.

a bond does not lose value if you intend to hold for the full duration. the only risk is if YOU hold the bond and YOU decide to sell it early to cash out before expiry on a market that favours a better bond. then you have to sell yours at a lower amount to get some one to buy it off you

again if and when you have used all your other investment strategies and maxed out the allowed yearly limits of investing. then if you fill your normal bank spending account to the FDIC limit(presuming your normal account has interest) then you would put the excess into a bond knowing you wont need to touch a bond for its full duration and the interest on it is better then you bank account

just dont drawdown/sell/exit a bond before expiry if you want to ensure you dont lose valuable benefit of bond yield

this is why after doing IRA 401k and mutuals. then people invest in bond index funds. so they can tap in and out whenever without losing main capital value. then they also fill bank account for emergency fund to prevent needing to tap into investments.. then due to a FDIC risk of not all spending account being insured. then and only then do they put the excess into direct holding bonds making sure they never tap into any of the investments/bonds where the capital would sell at a loss the most after they spent their basic spending account amount

[takuma sato]

your original topic was not about index funds. it was about you long holding bonds yourself
because with index funds YOU dont hold the 10 year bond, the fund does, You are not locked in for 10 years
the fund decides whats in the basket and you just get the averaged interest of the basket each year

however now you moved the conversation to index funds.. you dont need to worry or care about "long holding"... its the portfolio fund manager that holds. and you just take your yearly interest.. short or long term. you choose

so you wont care or mind about length. thats the portfolios problem. and in most cases.. they dont sell early. because you selling your share is just a new customer buying your share. so no impact on the portfolio manager for them to need to sell the bond

that said.. you need to, if you are just going to invest and forget your shares.. when the current 5% bonds expire in X years.. if the interest rates have dropped again where 2% are the only options the portfolio manager can buy post-expiry. then it can affect your interest on your side if the portfolio manager gets heavy in 2% bonds basket average

most other investments EASILY make a swing between 7-12% so if you are looking for a strong support of 5% plus.. investing in other markets, it can do you well..

bonds (actually holding them) is only done as a last ditch effort to throw money at bonds when other investment plans have been filled

..
again people only buy bonds directly when they have tapped out all of their yearly deposit limits of other investment plans. and they dont want more then $250k(FDIC limit) left in a bank account.

most people prefer to buy real estate or other things that appreciate before buying bonds direct.

bonds usually top out at 6% interest max.. other investments start at 6% minimum

How do you rate the TLT bet as of right now? Looking at the chart, looks pretty bottomed. I was looking at older articles, found stuff like this:

https://www.seeitmarket.com/one-chart-for-investors-watch-long-bond-etf-tlt/

The descending triangle was bearish but this guy said to buy in, well we know what happened, now at still under 100, seems like a nice to buy, considering rates seem to be topped, keyword "seem", they can always raise again, but realistically, it seems inflation is going lower, and it's not on their interest to go into an election with high rates, it's unpopular, for both markets and families due mortgages being higher. So at the minimum possibility, I see them lowering them, however, as rates are lowered, it usually means the market tops after a while, or at least it's been the case 3 out of 3 times since the 2000's. So my possible bet is to buy TLT as an hedge in a recession, as my shares would go up since they are bought at higher yield, and I would be well diversified on a single fund, then to bet that BTC will do well and also to profit from ETF hype, im considering MSTR shares, at this point, it just tracks BTC. Im going to make a thread on this to see if anyone is holding this at all. Im not interested in buying big amounts of BTC with exchanges because they are all scams so I rather trust Saylor with the custody of the BTC, I don't even want to hold it long term just for a couple of years anyway.

[adaseb]

The time to buy these bonds was last month when rates were very high, right now it seems to be crashing down. The bond market is crazy these days.

If you want maybe do some DcA because you never know if rates actually peaked. Inflation can still spike up with the high gdp and low employment numbers. Also keep in mind the crazy amount of debt that the USA has to sell bonds to settle.