Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Why in the world would you own bonds?

bridgewater.com

Post reply on HN
Print view View original

11–20 of 532 posts

Re: Why in the world would you own bonds?

#11

Post by every »

Trying to speculate on the commercial bond market is exceedingly difficult and risky. Even the experts often take a beating. But using certain sectors of the bond market as a savings and retirement mechanism can be quite effective. Consider US tax-free municipal bonds (munies). They are safe, with defaults at a miniscule percentage of corporate bonds. And many are backed with third party insurance against defaults. Their returns are multiples of US Treasuries, CDs, money markets and savings accounts. And all distributions are tax exempt with the exception of any capital gains. Not very exciting. Sort of like watching grass grow. But it grows and grows. My own investments in this area are with: https://investor.vanguard.com/mutual-funds/profile/overview/...

edit: And by investing in munies you're also investing in US infrastructure. Munies fund all that stuff. Bridges, fire stations, schools, roads, water treatment plants, ports, electrical grids, etc, etc, etc. Might even make you feel like a good citizen...

Re: Why in the world would you own bonds?

#12

Post by dannyw »

adeelk93 wrote: post #10

“Nobody wants bonds because the yields are too low” is basically the same statement as “nobody goes to that restaurant because it’s too crowded.”

This argument doesn't work when the Federal Reserve, an entity unconcerned about ROI, is purchasing bonds out of thin air.

They now own $7 TRILLION of US govt bonds. This number was less than $100 billion before the GFC.

https://www.pgpf.org/blog/2021/01/the-federal-reserve-holds-...

So, yes, no investor wants bonds. Why would you buy something that's a guaranteed loss? It's increasingly just the Fed.

Re: Why in the world would you own bonds?

#14

Post by TedDoesntTalk »

Aunche wrote: post #5

FDIC insurance maxes out at $250,000, so it won't cover you if you're super rich or a foreign government. In that case bonds still make sense. US bonds are currently more stable and have better interest rates than any other bonds from developed countries, so people will continue buying them for the time being.

> FDIC insurance maxes out at $250,000

That's PER checking account, and if they are joint checking accounts, then the max is $500,000 per account.

Re: Why in the world would you own bonds?

#16

Post by ggm »

Why in the world would you want capitalism?

Bonds exist because people want to lay off risk. Its not about the yield, as much as its about the risk. Sure, you want an upside, and the yield is about the upside. But the motivation in the first place, is about the risk.

"as safe as houses" turns out, not to be that safe.

"as good as gold" is still pretty good, but the next unobtanium is out there.

by and large, absent revolution, governments make good on their financial promises. Even the Soviets paid up on the baku oil shares, in the end. So sometimes, even WITH a revolution you get back some money.

Bonds are about risk. Why would you want to lay off risk? Because thats what risk avoidance is.

Re: Why in the world would you own bonds?

#17

Post by paxys »

adeelk93 wrote: post #10

“Nobody wants bonds because the yields are too low” is basically the same statement as “nobody goes to that restaurant because it’s too crowded.”

Bond yields aren't low because everyone is buying bonds, it's because the government is keeping them artificially low.

Re: Why in the world would you own bonds?

#18

Post by paxys »

TedDoesntTalk wrote: post #14
Aunche wrote: post #5

FDIC insurance maxes out at $250,000, so it won't cover you if you're super rich or a foreign government. In that case bonds still make sense. US bonds are currently more stable and have better interest rates than any other bonds from developed countries, so people will continue buying them for the time being.

> FDIC insurance maxes out at $250,000 That's PER checking account, and if they are joint checking accounts, then the max is $500,000 per account.

Slight correction – it is for all your accounts at a single institution combined.

Re: Why in the world would you own bonds?

#19

Post by ISL »

pascalxus wrote: post #8

What i find particularly scary is the run on the banks scenario the author outlines. this really smashes the idea that bonds are the safe thing to get your money back. I know a lot of bonds have been selling, that's why the fed needs to buy so much every month, to make up for all that selling people are doing. Personally, i'm surprised even more people haven't been selling bonds. With the threat of inflation looming…

Bonds are a safe way to get your money back. It just might not buy as many cheeseburgers as you expected.

Re: Why in the world would you own bonds?

#20

Post by vecinu »

The conclusion kind of scares me, especially coming from Dalio.

> so they could very well impose prohibitions against capital movements to other assets (e.g., gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected.

Who truly believes this is a likely scenario? A number of folks I know are already considering fleeing the US but if this was to pass, that number would skyrocket and I can't imagine a good outcome in the next few decades from capital flight in the US.

Post reply on HN