VBND vs VAF vs VGB

One stoic individual!

 

Me to given we only have a few percent cash in the portfolio now but I don’t go checking the actual drawdown amount. Prefer not to know.

As you say most don’t like seeing their capital shrinking day after day and the scary headlines bombarding the media. But the lower the market goes and the longer it stays there despite it potentially creating some discomfort at times the better especially for accumulators which despite being retired still includes us.

May have to dig up that great post of yours - “be strong ... “

As for Bonds well they’ll never be for me. Equities for wealth and it’s volatility for “character building”. Like exposure therapy (no not @SatayKing flashing again) the more often and longer one experiences volatility the easier it gets to cope with.

 

Only for the select few.

 

Ha. Somewhat fortunate timing, though I don’t really believe in that . Holding lots of cash for tax bill, TD ladder for future DCA into risk assets and all fixed interest bought already (no DCA). Makes for a very “risk off” portfolio profile at the moment given that initial investments started late Jan with 12 month DCA to risk assets followed by 2 more large lump sums in early 2021 and 2022.

If the PE was marked to market it would be hammered

 

No. I’d take umbrage if he wanted to break with the plan!

 

I just updated closing prices for the month in my spreadsheet which calculates my monthly transfer from investment to savings. This number has relevance to how we live life.

This month the number is $75.67 more than last month which means despite the volatility the difference is negligible.

Maybe I am psychopathic and lack emotion, but I really find it hard to care about the quantum of capital when it doesn’t impact our day to day life.

Knowing the long term drivers of "safe" withdrawals as applied to our circumstances – I like you prefer lower market prices and choose volatility over “safe investments”

 

I'm not sure but guessing PE arises from a private business sale?
Much disruption to the business yet? Or other businesses you have visibility into?

So far, I see the market reaction of 10% as not much more than a bit of a probe to the date to take the temperature of the economy. (market likes to have these 10-20% check-ups every year or so.)

Coronavirus itself is probably not the main game. It is more whether it reveals an underlying fragility like say people (companies) being too close to the line with debt etc to withstand a bit of disruption.

The probe is in – and we await the results. Is the economy sick? Or resilient? The path the market takes going forward diverges immensely dependant on the underlying health of the physical economy.

 

Correct guess. International Shipping, China heavy + Debt I’m seeing a lot of large importers across industries running very low on stock within 4-6 weeks. Production is significantly hampered. I’ve seen scheduling running out to end April still without all hands on deck. My feel is recession Q2. No warranty!

 

Being a stubborn old geriatric (you may have noticed oh ye who has the patience of a saint) in regard to safe withdrawals I kept it simple by looking at historical worst case scenario for dividends. I haven’t done anywhere near the research as you on SWR or have the intellectual capacity and skill to analyse it but based on capital our SWR is comfortably below 2% which makes use reasonably bulletproof baring a catastrophic event in which case it doesn’t matter. Given the enjoyment I get from saving / investing I expect that at some stage that will be comfortably below 1%.

Some would suggest that this equates to “having won the game” so go conservative eg those horrible Bond things. Like @SatayKing I say phooey to that. My aspirations extend beyond my time on this planet. Hence equities it is for our circumstances.

 

Wondered how things were going with the markets and rate cuts

Term Deposits would be getting decimated



1 year price only



5 years

 

It's at odds with some post's on this thread, but as always Nick Magguilli is an interesting read

3 Reasons Why You Should Invest in Bonds – Of Dollars And Data

During the market volatility last week, I got the following text from a friend:

Finally the bonds in my portfolio are serving a purpose

I responded:

No, the bonds in your portfolio were always serving a purpose. You just didn’t realize it until now.

Despite my comment, my friend makes a good point.

When I first started investing in 2012, I constantly questioned why I owned bonds. Actually, I hated the bonds in my portfolio. Oh, I underperformed the S&P 500 again? Thanks bonds.

But, after weeks like last week, I am reminded of their importance. This is what owning bonds is all about.

When the S&P 500 drops 4% in a day and your portfolio is only down 2.5%, that’s a win. It’s a small win, but one that can make all the difference psychologically. While others are panic selling, bonds keep you away from your financial tipping point.

However, bonds can play a much bigger role in your portfolio than emotional support. Here are three reasons (backed with data) as to why you should invest in bonds.

Cont...

 

Shallow Risk of Equities Vs Deep Risk of Bonds :

Shallow Risk vs. Deep Risk - Keatingwealth

 

Bond yields deep sea diving

 

Why I'm More Worried About the Bond Market Than the Stock Market - A Wealth of Common Sense

 

I recognise the potential future risks of government bonds in the current environment.

But I've been made even more aware of the risks of equities. Especially Australian equities.

I've (mentally) split my portfolio between growth (mostly global) and income (mostly Oz)

My bond investments are (again mentally) part of my global growth bucket. That bucket is down 1.5% this calendar year.

My income bucket (100% equity franked Aussie shares) is down 14%.

(The chart is a back test, not the actual portfolio, and I use Vanguard's wholesale funds, not the ETFs)



For CGT reasons (and because I also have a chunky cash reserve) I wasn't planning on tapping the total returns of either this financial year.

Although I must admit it was tempting a few weeks back since I have significant CGT payable from earlier profit taking).

So I'm letting everything ride.

But I'll be very curious to see how the dividend income I'm expecting from the Oz bucket (based on historical returns) holds up under a real economy jolt as opposed to the GFC fiscal one.

 

Bonds have also have had a hit during this downturn

VAF is down 1.34% this Financial year

Cap Gain -3.03%
Income 1.70%
Total R -1.34%


Last 12 months

 

Interesting topic as I just saw the same discussion in the Bogleheads forum.

I think corporate bonds combined with the deviation from NAV due to liquidity has caused this. For me I've never invested in bonds and never will.

Cash is king for my save haven assets.

 

Yes. Principle is guaranteed unlike Bond Funds and Cash provides the best liquidity and optionality for bargain hunting in times like these. The expected correlation between Bonds and Equities doesn’t always work.

 

Agreed, more often than not it does, but not always

In other news

 

One would expect bond prices to rise as the rate goes down.

But like the many other wonky things lately, long-term bond yields have actually risen as rates go down.

Apparently the market sees the rate cuts as desperation, and not a reflection of what might actually happen long-term.

Much like equity markets last year, bonds also had an excellent year for capital gains.

But over the long term they tend to revert to the underlying yield.

If you look at the second chart, that is exactly what has happened, albeit in just a year.

The same thing occurs as far as I can go back on Sharesight.



As of right now I kind of wish I'd chosen 100% cash instead of 60/40 bonds/cash for the defensive component of my portfolio.

But as of right now I wish even more that I'd chosen to put less into the OZ income bucket which is down 30% this calendar year, more into the international bucket which is down 'just' 13%, and more still into the defensive bucket which is down 2%.

I'm waiting with bated (but nervous) breath to see if the dividend strategy (Oz portion) pays off. I suspect the March quarter will hold up, but the June one will be the test.