Stocks for the long run?

Sarenco said:
German bond yields range from around -0.70% (3 months) to +0.06% (30 years).

By favouring securities at the short end of the yield curve, you are implicitly claiming that the market has mispriced longer-term yields.

Market participants already know the demands of certain institutions for bonds of different durations. There is no reason to believe that isn't already reflected in bond prices.
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You are not listening. I am not claiming that cash or short bonds are good investments - they are terrible investments in an institutional wrapper. But long term bonds are simply accepting wealth destruction over that longer term - no justification for that at all. Not a good place to be but IMHO the retail investor has no choice but to hold her risk reducing assets in cash/short instruments and hope for some return to normality.
 
elacsaplau said:
Me shocked! Me very shocked. Please explain in the Irish context.
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Oh dear I hope the Sunday World are not looking in - I have blown the cover. Trusting you are not taking the pis*, I will try to explain.
The UFR was a compromise to get the new solvency regime over the line in 2016. The essence of Solvency II is to be market based. But with the low interest rates its initial intended introduction in 2012 was postponed until the UFR compromise was agreed. The cynics say that without the compromise the German annuity market and possibly even the UK annuity market would be technically insolvent.
Ireland not very big on annuities. I am not expert on pension fund legislation but I think the Minimum Funding Standard is a pure market based test and so the UFR does not apply. But we know that many defined benefit schemes do not meet the MFS.
 
Duke of Marmalade said:
Are you shocked to know that.....pension funds value their liabilities on the assumption that they will ultimately earn 3.75% p.a.?
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warrants....
elacsaplau said:
Me shocked! Me very shocked. Please explain in the Irish context.
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gets
Duke of Marmalade said:
Explanation about the UFR...….blah, blah blah...….I am not expert on pension fund legislation but I think the Minimum Funding Standard is a pure market based test and so the UFR does not apply. But we know that many defined benefit schemes do not meet the MFS.
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warrants......
An Oh dear of my own plus
1. The MFS is not a pure market based test;
2. If there is a weaker valuation basis, I'd love to know it; and
3. Whether schemes meet the MFS or not is irrelevant to the assertion that shocked! ;)

Your central point about being wary about bonds is valid, completely so!!
 
elacsaplau said:
warrants....

gets

warrants......
An Oh dear of my own plus
1. The MFS is not a pure market based test;
2. If there is a weaker valuation basis, I'd love to know it; and
3. Whether schemes meet the MFS or not is irrelevant to the assertion that shocked! ;)

Your central point about being wary about bonds is valid, completely so!!
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continuing on the premise that you are discussing in good faith (possibly nigh eve based on past experience) I thought the MFS was based on current annuity rates available in the market but correct me if I am wrong.
 
I have to agree with @Sarenco from what I know about bonds there seems to be good reason to have them in your portfolio. Negative yield bonds can still generate a positive return, you are only guaranteed to lose money if you hold them to maturity but what if yields fall further after you buy you can sell them and make a positive return.

If inflation falls below the yield of the bonds so we end up with deflation surely a negative yielding bond is better in this instance so it better than cash.
And bank rates are so low what if we see negative interest rates ? Where are we going to store our money , we would have to pay to store it in vaults so negative yielding bonds have a place in a porfolio.

And when stock markets go down do people not move to bonds ? It still seems bonds are worthwhile and a good diversification.
 
Duke of Marmalade said:
….I thought the MFS was based on current annuity rates available in the market but correct me if I am wrong.
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This is indeed true for pensioners but not true for active and deferred members.

Anyway, the MFS is a point in time discontinuance standard so future investment growth is irrelevant for calculating the pensioner liability (coz based on annuity buy-out cost) and just wrong for the other two cohorts.

And, of course, MFS is just one of a number of valuation bases - none of which use, as suggested, the fabled return (unless by coincidence!)

It was a bluff......it didn't work...….no matter!
 
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Fella said:
Where are we going to store our money , we would have to pay to store it in vaults so negative yielding bonds have a place in a porfolio.
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That is precisely why negative yields exist today despite every text book and John Maynard Keynes taking it as axiomatic that zero is a floor to interest rates. Storage is indeed an issue for institutions and possibly your good self Fella but for ordinary folk like me it will be the mattress before I ever pay anybody to hold my deposits. Even for institutions there is a definite floor where indeed they would resort to the vaults. Maybe JMK overestimated the floor but it surely can't be far off these levels.
I am aware of the math and that technically bonds could still rise in price and a real shrewdie like yourself could then sell. AFAIK sarenco is not arguing that long bonds are good investments because of these trading possibilities. He is arguing a buy and hold strategy and that price movements will be uncorrelated with equity movements and thus good for the nerves but not of itself adding any extra value. A 20 year bond yielding -1% after AMC will yield precisely that but its price movements along the way will be a palliative for the equity roller coaster. A lot cheaper to buy nerve tablets.
And when stock markets go down do people not move to bonds ? It still seems bonds are worthwhile and a good diversification.
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Yes, that is the reason for the modest negative correlation observed in recent times. sarenco has mentioned that he got a 2% kicker to compensate for the recent X% plunge in equity prices. I am not denying its existence merely that I think sarenco has greatly overstated its relevance. But believe me if interest rates spike (say 2% :eek: !) because of the need to fund this bug, equities will likely dive in sympathy. I think it was sarenco himself who alluded to this perfect storm.
 
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joe sod said:
The english language has...…..
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grammatical rules also, Joe ;)

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Edit:

Ah, Joe - you've just done a Marc on me!

MFS = Minimum Funding Standard (basically it's a b/s standard that checks the solvency of Irish DB pension plans ) :oops:
 
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So this thread isnt about "Stocks for the Long Run" then???

Ye should just exchange contact details to argue over the minutiae of ....

The saying " he knew more and more about less and less until eventually he knew everything about nothing" comes to mind.
 
Freddie said:
So this thread isnt about "Stocks for the Long Run" then???

Ye should just exchange contact details to argue over the minutiae of ....

The saying " he knew more and more about less and less until eventually he knew everything about nothing" comes to mind.
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Freddie the debate has developed into is there a role for long bonds in a retail investment portfolio, quite important. Have you anything to contribute to that debate other than smart ass cliches?
 
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This thread is very educational to an uneducated sole like myself. It's making me think I should add long bonds to my portfolio although I'm also thinking about what Duke said the floor for yields and bond investment and wondering will Gold be the beneficiary if we reach that floor.

Please continue the debate because I for one learn alot thanks
 
Duke of Marmalade said:
Freddie the debate has developed into is there a role for long bonds in a retail investment portfolio, quite important. Have you anything to contribute to that debate other than smart ass cliches?
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This post is so far off topic it should be renamed. Otherwise what's the point in having titles or categories. Thats what I have to add.

Debate....with statements from yourself like "you are not listening" "let me try to expain" , pretty condescending to me.
 
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Freddie said:
This post is so far off topic it should be renamed. Otherwise what's the point in having titles or categories.
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The first line of OP makes it clear that this thread is about how shares compare with bonds. I don’t quite know what you were expecting from the title. Perhaps it was what to bring with you on a marathon in which case I hope the following image is of some help.
4429
 
As with all your posts you are always right. Just borrowing the bolding, you need to use, to show us mere morals how irrefutable your views are.

I'm sure you'll need to get the last word/post on this...you're that type of person I think.

I'm sure Brendan will step in soon after.
 
Duke of Marmalade said:
The first and foremost consideration for an asset class is its long term growth prospects. Next we consider its short to medium term price volatility in its own right. If it cuts mustard on this risk reward assessment then we consider as a bonus its diversification possibilities.
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I disagree.

I don't invest in bond funds within my pension for their long-term growth prospects and I'm fairly unconcerned about the short to medium-term price volatility of those bond funds.

I invest in bond funds for their potential to diversify my equity-heavy portfolio. I am solely concerned with reducing volatility at an overall portfolio level.

Retail investors have some advantages over institutional investors in the after-tax space. Retail deposits don't currently attract a negative interest charge. 5-year State Savings Certs currently earn 1% pa if held to term, whereas 5-year Irish Government bonds currently have a negative yield.

But none of that is relevant to my pension.
 
Sarenco said:
I invest in bond funds for their potential to diversify my equity-heavy portfolio. I am solely concerned with reducing volatility at an overall portfolio level.
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I have accepted the diversification aspect. You obviously rate that very highly. That is a personal value judgement, I guess.
If I were a financial advisor, which I am not and never was, I would be advising that the diversification benefit is hugely swamped by the long term negative drag of bonds at current yields. But their day may return.

Anyway, I have to be more circumspect in my comments - there be trolls about:oops:
 
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It's hard to see how @Sarenco is wrong here, investing in negative yield bonds is the correct decision from every evidence I can find.
 
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