VBND vs VAF vs VGB

Discussion in 'Shares & Funds' started by sfdoddsy, 29th Jan, 2020.

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  1. dunno

    dunno Well-Known Member

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    Hi @sfdoddsy

    If you look at the first chart in my earlier response you will see during the run up to Feb 2008 the all equities portfolio was worth more than the portfolio containing bond. That higher starting balance, (given the same withdrawal from both) makes all the difference.

    If you are saying "what if" the starting capital is the same for both. Obviously, a bond component is better at least in the short to medium return in that scenario.

    Bonds smooth volatility. They also reduce long term returns. It’s just a risk for reward trade- off.

    I think people who believe that the reduced volatility from bonds will help them cope with long term sequence of return risk when viewed in purchasing power terms are wrong. I have formed that view from looking at the data.

    My point in this thread is to think about the whole picture of risk and return of bonds over a lifetime not just an arbitrary starting point. Capital doesn’t normally just appear; it is made and saved. If you make lots of money outside financial markets (wages, private business etc) you can afford bonds to smooth the “investment” ride, if you can generate enough outside financial markets why not just go 100% bonds or even just cash for ultimate smoothness in investment return if that is what appeals? A lot of what is best when you have plenty of money comes down to circumstances and preferences.

    I am interested in reviewing my thoughts on bonds at the moment as a stress test to the information I pass onto people that I am working with (off line) that don’t have a lot of options currently and could really benefit from their money that is locked up in super working to its fullest potential.

    Bonds offer volatility reduction but at the cost of a reduced long-term return.

    Time in equities also offers volatility reduction (long term returns are less volatile than short) without a reduction to return. Greatest impact for a young person is to get them to recognise and act on this.
     
  2. Nodrog

    Nodrog Well-Known Member

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    We be wonderful when any general conclusions are reached if you could share here:).
     
  3. dunno

    dunno Well-Known Member

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    This is the conclusion:

    My resolve for my personal circumstances has only been enhanced. I do not like cash or cash denominated investments. Cash only for transactions, ownership of productive capacity for wealth creation and preservation, the risk of 100% equities is mitigated in my circumstances by a low enough withdrawal % to be historically robust in a functioning capitalist society.
     
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  4. Nodrog

    Nodrog Well-Known Member

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    Thanks. That’s what I like to hear:).

    543467AA-E588-4445-B793-A11DA4959BF7.png
     
  5. dunno

    dunno Well-Known Member

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    You had better keep that one for when the markets are down 40% and the bond fraternity are giving us heaps of "told ya so's":eek::)
     
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  6. oracle

    oracle Well-Known Member

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    If that happens @Nodrog will just show off his LIC dividend checks to the bond fraternity and hit back with “told ya so dividends are less volatile than stocks prices”

    Cheers
    Oracle
     
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  7. Nodrog

    Nodrog Well-Known Member

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    Been through that. Just made me love the market even more. Volatility, bring in on I say. The sooner in life investors get to experience a nasty sharemarket event the better.
     
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  8. Redwing

    Redwing Well-Known Member

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    Sounds interesting
     
  9. oracle

    oracle Well-Known Member

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    As long as they are not scared off for life to invest in market. I think experiencing bear market early can be a good thing.

    Sometimes hear stories some investors are not ready to jump back into the market after experiencing the GFC.

    Cheers
    Oracle
     
  10. pippen

    pippen Well-Known Member

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    As silly as it sounds but i recall william bernstein saying young accumulators should get down on their hands and knees and pray every night for a decades long bear market getting stocks at rock bottom prices! Job security pending i guess! It would test ones resolve no doubt! Thats why i love reading about the elder statesman and there GFC experiences as well as the tech wreck and 1987 crash etc etc and see how they pulled through when 'this time its different' is mentioned eveywhere!
     
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  11. Nodrog

    Nodrog Well-Known Member

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    Dividends, distributions I don’t discriminate. Our goal has been to build our wealth to the stage where even in a savage long drawn out bear market any cut to equity income will still be less than living expenses. Hence there’s always some cash to reinvest at all times. If it meant cutting back on a few “wants” to free up funds for reinvestment I’d do it. Continuing to invest at all stages of our life including retirement is important. This continues to reduce one’s Safe Withdrawal Rate being the best protection in creating / preserving wealth and when we’re gone our chosen charities will benefit.

    Look at @SatayKing, nearly 70 and he’s as keen (I’d suggest obsessive:D) as ever to keep buying equities. And he’s 100% equities.

    Once a saving and investing habit is established when younger it’s likely to stay with you for life. A wonderful thing.
     
    Last edited: 10th Feb, 2020
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  12. Nodrog

    Nodrog Well-Known Member

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    Either way the investor will find out what’s right for them (maybe even NO equities) early on. Far better than finding this out and doing something stupid later in life when less human capital remains or is gone.
     
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  13. oracle

    oracle Well-Known Member

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    I personally feel it is far better for new equity investors to have mentor and the right advise to cultivate the right temperament to be successful equity investor.


    Things like

    long term equity returns compared to other asset class
    Why equity returns are superior and equity risk premium
    ignore media sensationalism
    Accept volatility and not be scared of it
    Market cycles of boom and bear periods
    General wealth building advise like saving and investing

    knowledge about the above can alleviate fear and build confidence and help guide new investors through tough times and set them up for long term success

    Being part of this forum with likes of @Nodrog and @dunno etc sharing their experiences and wisdom are the right place for new investors IMHO.

    I think a lot of new equity investors on this forum are well prepared for the inevitable bear market when it does eventuate

    I mean look at Thornhill and what he does through his seminars I am sure he has successfully turned a lot of people into successful equity investors who otherwise would have never gone near shares.

    cheers
    Oracle
     
  14. Nodrog

    Nodrog Well-Known Member

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    Here we go, something for the Bondies although with the title:
    Bond Funds Are Hotter Than Tesla“:):

    Bond Funds Are Hotter Than Tesla
     
  15. The Falcon

    The Falcon Well-Known Member

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    There is no guarantee of anything. We have about 100-120 years of data which in terms of the human experience is nothing at all. There is no guarantee that the US prevails in the next 50 years and it’s public companies have any meaningful value. It’s all a punt. German and Japanese Public stock holders lost their shirts as a result of WW2, as did Russian stockholders due to the revolution. They never got it back. Also remember when things turn to total custard it is the bond holders who take the asset (company) and its future prospects, not stock holders.

    If you had a 10-20% bond allocation you’d still be in largely the same situation. The decision is not, or need not be all or nothing. Just trying to offer some balance here. We don’t need to be stock OR bond enthusiasts :)
     
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  16. Nodrog

    Nodrog Well-Known Member

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    Balance doesn’t match my confirmation bias:D.

    I suppose at the heart of my beliefs is that the one thing sharemarkets have that bonds or any other class for that matter don’t have, the thing that has you in a position of having “won the game” early in life and is the one thing that drives the world and creation of wealth along with it - HUMAN ENTERPRISE!

    Other issues with equities as mentioned come back more to home country bias. Simply fixed by owning a globally diversified portfolio.

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    Last edited: 10th Feb, 2020
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  17. The Falcon

    The Falcon Well-Known Member

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    The other issues are much more significant than spreading some risk via the Australian exchange but that is another discussion and what many would see as only fringe possibilities, perhaps for another time. My point is that nothing is guaranteed.
    I take your point on the human enterprise thing - from where I sit I am doing more than enough human enterprise and prefer to keep some fixed interest and cash to be able to fund short-medium term expenses such as a PPOR upgrade without having to sell equities at an inopportune time. It's all about me in that case :)
     
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  18. Nodrog

    Nodrog Well-Known Member

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    He he yes, it’s all about me again:).

    The discussion has been fun and educational. The beauty of having “won the game” generously is that there is a great deal of flexibility around asset allocation ranging from conservative to aggressive. The beauty is that being in this fortunate position just about any of these choices is likely to work well. Risk tolerance predominantly will likely determine the final decision.

    Maybe because MY human enterprise is zero that’s why I feel the need for lots of equities:confused::D.
     
    Last edited: 11th Feb, 2020
  19. Nodrog

    Nodrog Well-Known Member

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    At a guess what do you think your equity / bonds % allocation will be when you retiree?

    I recall you posting your allocation to VBND was 17%? Unless I missed it do you have any allocation to Aus Bonds eg VAF? Thanks
     
  20. The Falcon

    The Falcon Well-Known Member

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    Good question. I’ve got two pools of assets, pre-super access and post super. The SAA for each sits at 80/20 and 90/10 respectively, as well as international fixed interest there is also AUD cash in these portfolios. Outside of this sits a large unlisted investment which will be realised at some point and will be invested in the listed portfolios, though I may also add some unlisted property later as well as I’ve now got some resources to pull those apart.

    I’d suspect long term that portfolios will converge around 80/20 or 85/15. No AU fixed interest in the mix. If anything I’d consider a small AU private debt exposure in SMSF but that’s situational and a long way off. Ended up implementing International fixed interest with VIF (Treasuries) rather than the aggregate bond fund.

    Setting up an Australian Money Market Account( Which I know you use) for TDs to meet short term tax liabilities, but that’s not part of the long term planning.