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30-year U.S. bond yields less than S&P dividend rate

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Re: 30-year U.S. bond yields less than S&P dividend rate

#111

Post by im3w1l »

H8crilA wrote: post #65
bluetwo wrote: post #55

Earlier quoted context omitted.

But if you did want to buy bonds, any citizen can setup an account at: https://treasurydirect.gov Also you can buy iBonds and TIPS, which are protected against inflation.

Any good brokerage allows for trading bonds. Interactive Brokers does. The bond market is far larger than the stock market. If you wanna know "what's going on" better become familiar with at least the basics of it (interest rates, how they relate to bond prices, spreads for risky credit, floating rate vs fixed rate, inflation protected securities, carry trades). And it's not true that most bonds are held via ETFs (ex…

Based on hazy recollections, isn't the big obstacle that normally bonds are traded in too large units to be convenient for an average person?

Re: 30-year U.S. bond yields less than S&P dividend rate

#112

Post by H8crilA »

ethbro wrote: post #82
H8crilA wrote: post #65

Earlier quoted context omitted.

Any good brokerage allows for trading bonds. Interactive Brokers does. The bond market is far larger than the stock market. If you wanna know "what's going on" better become familiar with at least the basics of it (interest rates, how they relate to bond prices, spreads for risky credit, floating rate vs fixed rate, inflation protected securities, carry trades). And it's not true that most bonds are held via ETFs (ex…

Is it fair to say that one reason the bond market is so large is because of capacity and simplicity? The impression I get is that when you start talking in terms of $x0M+ US regular investment (e.g. on Monday, then again on Tuesday) stocks become a less viable option (due to liquidity and risk of orders moving the market). Bonds also seem more simplified and standardized, in that there are fewer weird / unmodelable f…

Bonds are actually more complex. Try understanding covenants on bonds, it is not easy. There are hedge fund strategies that rely on better (than market) understanding of the legalese, triggering weird cases of technical defaults (i.e. defaults other than through a lack of timely payment) and whatnot.

Re: 30-year U.S. bond yields less than S&P dividend rate

#113

Post by im3w1l »

tryptophan wrote: post #12

The dividend yield doesn't matter (alone). The more common way to return cash to shareholder's is via buybacks. The actual 'yield' of the market should thus be calculated as div yield + buyback yield, giving the investor yield, which is what intellectually honest people should compare to treasury yields.

Also got to take into account all the newly emitted stock, e.g. employee rsu (my understanding is that most companies net dilute over time).

Re: 30-year U.S. bond yields less than S&P dividend rate

#114

Post by throwaway34241 »

smabie wrote: post #62
mabbo wrote: post #16

Earlier quoted context omitted.

I'm in an interesting position related to this. In Canada, most people lock into their mortgage rate for 3-5 years. After that, you've got to renegotiate a rate but you're also free to switch banks. It's like starting over again at whatever you currently owe. I locked into mine 4 and a half years ago, so renewal is coming up this summer. Meanwhile, my home's value has skyrocketed (thanks to an insane Toronto housing…

Why would you ever want to pay off your mortgage? Mortgages are the best and cheapest way to get debt. Considering the rate environment, the rate risk isn’t a big deal, IMO. Hell, I would even go a step further: dump that 200k into a levered S&P 500 (2x should be good). Unless the world falls apart, you’ll definitely be a millionaire in 10 years. And if you do 3x, maybe even 5 years (that’s some more risk though). I…

A 2x levered S&P 500 ETF will always be buying when the market is high and selling when it's low (the debt will end up less than 50% of the value if the market goes up, requiring them to buy more to maintain 2x leverage, and the reverse when it's down).

So if the market doesn't move in a straight line you make less than 2x the S&P 500 return over time, including losing extra money in neutral and bear markets.

Re: 30-year U.S. bond yields less than S&P dividend rate

#115

Post by smabie »

throwaway34241 wrote: post #114
smabie wrote: post #62

Earlier quoted context omitted.

Why would you ever want to pay off your mortgage? Mortgages are the best and cheapest way to get debt. Considering the rate environment, the rate risk isn’t a big deal, IMO. Hell, I would even go a step further: dump that 200k into a levered S&P 500 (2x should be good). Unless the world falls apart, you’ll definitely be a millionaire in 10 years. And if you do 3x, maybe even 5 years (that’s some more risk though). I…

A 2x levered S&P 500 ETF will always be buying when the market is high and selling when it's low (the debt will end up less than 50% of the value if the market goes up, requiring them to buy more to maintain 2x leverage, and the reverse when it's down). So if the market doesn't move in a straight line you make less than 2x the S&P 500 return over time, including losing extra money in neutral and bear markets.

Sure, check out my post:

ETFs, Volatility and Leverage: Towards a New Leveraged ETF Part 1

https://smabie.github.io/posts/2019/10/04/vol.html

The word you’re looking for is volatility drag. Even so, levered ETFs are a good investment for most investors

Re: 30-year U.S. bond yields less than S&P dividend rate

#116

Post by imtringued »

mkagenius wrote: post #2

Idk if this belongs at HN but if it does, then isn't this the greatest opportunity post 2008 crash to invest in to the markets?

The problem with this type of thinking is that it could always go even lower and by selling now you end up missing a lot of potential profit. The window of the global optimum is often only a few days wide.

Re: 30-year U.S. bond yields less than S&P dividend rate

#117

Post by imtringued »

mabbo wrote: post #16
mkagenius wrote: post #2

Idk if this belongs at HN but if it does, then isn't this the greatest opportunity post 2008 crash to invest in to the markets?

I'm in an interesting position related to this. In Canada, most people lock into their mortgage rate for 3-5 years. After that, you've got to renegotiate a rate but you're also free to switch banks. It's like starting over again at whatever you currently owe. I locked into mine 4 and a half years ago, so renewal is coming up this summer. Meanwhile, my home's value has skyrocketed (thanks to an insane Toronto housing…

Just 3 years? Usually you can ask the bank to guarantee the current interest rate for up to 15 years. Of course you will have to pay a premium on top of the market rate interest but e.g. getting 3.3% instead of 2.6% is not a bad deal compared to being surprised 3 years later that your original 1.5% rate is now 2.5%. 1% additional interest on a $600k house could mean that your monthly payments go up by $500. That shouldn't be taken lightly. However, negotiating a different interest rate after 10 or 15 years often makes sense because you have already accumulated equity. You no longer owe interest on the full sum. If only $200k are remaining on the loan then your monthly payments would only increase by $167.

If you want to get into the stock market then do it in a sustainable way. Don't try to time the market, you probably won't win a second time and lose your money before you have fully understood how the stock market works. Get a small financial buffer. Enough to stay unemployed for 6 months. Put the surplus into a conventional portfolio. If you don't care about the stock market but want to get your cut then focus on ETFs that index the market (S&P 500 is a classic) and put the rest in bonds. I recommend starting today. Just spend $100 on a random ETF to become familiar with the selling/buying workflow.

Most important rule always do your own research. Let strangers (financial advisors, friends, maybe random people on the internet) help you figure out yourself but never take their word as the truth.

Re: 30-year U.S. bond yields less than S&P dividend rate

#118

Post by vikramkr »

AznHisoka wrote: post #109
vikramkr wrote: post #89

Earlier quoted context omitted.

The performance of actively managed hedge funds would disagree with that. Doesn't seem like anyone can manage it consistently https://www.cnbc.com/2019/03/15/active-fund-managers-trail-t...

Yep people like to distinguish between “dumb money” and “smart money” but the truth is there is no such thing as smart money.

I agree theres nonsuch thing as smart money, but there probably is a distinction between dumb and not dumb money - like someone putting a part of their savings in an index fund versus someone putting their entire net worth on far out of the money AMD calls

Re: 30-year U.S. bond yields less than S&P dividend rate

#119

Post by imtringued »

smabie wrote: post #81
Ididntdothis wrote: post #67

Earlier quoted context omitted.

"I can’t really imagine a world in which the annualized yield of SPY over 10 years is less than 2.7%." Seems your imagination is lacking. From 2000 to 2010 it was negative. I wonder if the current market is the only market you ever have seen. Housing prices also have collapsed not too long ago in the past.

You’re time period is very convenient, including two crashes and none of the recovery. That said, point taken.

That would match the behavior of a boomer liquidating his portfolio before retirement.

Re: 30-year U.S. bond yields less than S&P dividend rate

#120

Post by H8crilA »

im3w1l wrote: post #111
H8crilA wrote: post #65

Earlier quoted context omitted.

Any good brokerage allows for trading bonds. Interactive Brokers does. The bond market is far larger than the stock market. If you wanna know "what's going on" better become familiar with at least the basics of it (interest rates, how they relate to bond prices, spreads for risky credit, floating rate vs fixed rate, inflation protected securities, carry trades). And it's not true that most bonds are held via ETFs (ex…

Based on hazy recollections, isn't the big obstacle that normally bonds are traded in too large units to be convenient for an average person?

Over the phone - sure, nobody at Goldman Sachs will pick up to receive your buy order for $10k, but many bonds trade on electronic markets. You can just place an order there.
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