When will it pop

[SirJosephPorter]

Fact is, most folks cant afford to buy all these various investments.
And you need serious cash for bond brokers to get you the good deals on bond prices (and yes they do sell the exact same bond issue for different rates to different investors).
So they buy a bond holding mutual fund.
Which charges a fee to ladder the bonds and buy and sell bonds to tune the fund for maximum return (and tax leverage).
The fee is usually a killer in comparison to the fund returns and once again the little guy with only a few bucks to invest usually gets stiffed.

i wouldn't buy a bond fund, I think they are a ripoff, they charge very high management fee.

So there you have it SJP, bonds in a nutshell.
No longer do you buy them and stick them under the mattress.
Today you actually need to participate, or you need to hire someone to do it for you.

This is where we disagree. There are many different types of investments, each suited to a different temperament. There is no such thing as the right type of investment or the wrong type of investment. Some people do precisely that with bonds, they stick them under the mattress until maturity and it works for them.

A few rules for would be investors.
Do not listen to SJP.
Do not listen to Trex, I freely admit I dont know much about bonds.
Do not get financial advice from internet boards.
Hire a good financial advisor or if you are into mutual funds try hard to get a well recommended broker who will refrain from churning your account and ease off on the hidden costs.

Trex

Now here we finally agree on something. The only way towards sound investment strategy is to get a good investment advisor, one who matches your temperament. I am lucky to have found such an advisor with Scotia McLeod. She has made me rich over the years.

 

[JLM]

Here is an example of making money on a bond. This is made simply to illustrate a point.
I'm glad neither of you are my advisors. My calculations have that $100 bond sitting at $910,043.82 after 50 years @ 20%

I get closer to $1.5 million using the old rule of thumb where 72 is the magic number divided by 20= 3.6, inverse the 3.6 and X 50 = 13.88 so you double the $100 14 times and knock off a tad which comes to something under 1.6384 million ??????????

 

[Trex]

Here is an example of making money on a bond. This is made simply to illustrate a point.
I'm glad neither of you are my advisors. My calculations have that $100 bond sitting at $910,043.82 after 50 years @ 20%

The glories of compounding interest.
And without running the numbers I am assuming the interest is compounding at 20%.

That would involve active participation and a fixed rate of 20% annually on interest.

As an example I just gave the flat return
I mean for sake of argument Joe could have put it all the profits into Microsoft or shorted Iceland.

Trex

 

[JLM]

If you must invest in bonds and want lucraniveness and safety buy into the Gov't Bond Fund inside a mutual fund. It pays something every month without fail. Mind you I think it would be silly to put more than 5-10% of your portfolio into something like that, except it's a good place to store money while wait for a market correction (crash) so you have ready cash for bargain shopping.

 

[petros]

Why blame me, petros? I didn't give that example.

Compounding interest is something far far far too many fail to comprehend when it comes to debt and repayment.

 

[JLM]

The only way to get good financial knowledge is by losing a few tens of thousands yourself (I had the added advantage of having two or three financial advisors do it for me) .. So don't fully trust anyone, except for maybe fixed income funds. For equities make sure you look at where it's been, if it's been climbing for awhile don't touch it with a 10' pole.

 

[Trex]

SJP,
You dance around like an ant on a griddle.
Multiple posts and all

You said this:
quote
Be careful of the bond market? That is one thing you don’t have to worry about, unless you are speculating in bonds. And if you are speculating, you deserve all you get.

But if you have bought bonds for income, why would bonds going down affect you? Unlike stocks, the face value of a bond is guaranteed provided you hold the bond to maturity.

So suppose you have a bond which pays 5%, set to mature in 10 years. You are collecting interest every year. Now interest rates go up, the bond slips form 100 $ to 80$. Why should you care about that? You still keep getting your 5%. Hold the bond for 10 years and you are guaranteed to get your 100 $ back.

So if you hold bonds for interest income it generates, you have nothing to worry about. If you hold bonds to make a quick buck (for capital gains), you may well get burned, and you would deserve it.
unquote

I said this:
quote
SJP
Bonds loose value as interest rates rise.
And corporate bonds are in no way guaranteed.
Short terms are no problem as they are readily redeemable with a minimal downside.
Long term bonds lock you in over the life of the bond issue.
If interest rates are more likely than not to rise (which they are) long bonds suck.
unquote
you then said this:

quote
Bonds never lose the face value. Their market value may drop as interest rates rise, but if you keep the bond to maturity, you are guaranteed the face value. So if you bought the bond for interest income, you don’t have to worry about bond value dropping.

And what do you mean corporate bonds are not guaranteed? Of course they are guaranteed by the corporation. If you buy a Bell bond with a face value of 100$, Bell guarantees to pay you 100 $ at the maturity (or earlier, if Bell recalls the bond earlier). The only way you won’t get your 100 $ is if Bell goes belly up.

If you buy corporate bonds from big corporation such as Bell, any of the banks etc., they are quite safe. If you buy junk bonds, that is a different story. But provided you hold government bonds or corporate bonds issued by big reputable corporations, they are quite safe.

As to long bonds, again it depends upon why you bought them. If you bought them for the interest income, why would you care if they drop in value? How is that going to hurt you? It will hurt you only if you sell. Hold it to maturity and you are OK.
unquote

I then responded with a long winded blurb on bond investing.
That long winded blurb was strictly in reference to this all of the above :
more specifically this:
Quote Trex:SJP
Bonds loose value as interest rates rise.
And corporate bonds are in no way guaranteed.
Short terms are no problem as they are readily redeemable with a minimal downside.
Long term bonds lock you in over the life of the bond issue.
If interest rates are more likely than not to rise (which they are) long bonds suck.
unquote

You say I am agree ing with you or repeating what you say.
Where above do you see that?
If anything you seem to be tap dancing around multiple posting and then agreeing with me.

To repeat: Buying long bonds into rising interest rates is a bad play.
Holding bonds for returns is fine as long as the bonds were purchased at times of higher interest rates.
We were talking about buying bonds NOW.
To get your friends $100,000 a year on CSB's purchased today you would need 5 million invested.
That is a stupid move in times of low interest rates.

Correctly structuring a bond ladder is not speculating on bonds.
Structuring a bond portfolio to return capital gains as well as interest is the way it usually is done.
Mixing risk and maturity dates is essential.
That is not speculating.
It is simply a balanced and laddered portfolio of bonds.
As I have said a good financial advisor will have to buy and sell bonds in your portfolio to keep it current and balance it appropriate to current financial climates.
That is in no way with agreeing with you.

On post 41 you disagree with me and state that it is not necessary to hire a good financial advisor or actively look after your bond investments at the top of the response.
And then at the end of the response you say your own financial advisor has made you rich after admitting you own bonds.

You tap-dance around so much its difficult to understand what you are saying at the best of times.

Trex

 

[SirJosephPorter]

Compounding interest is something far far far too many fail to comprehend when it comes to debt and repayment.

Compound interest is easy to understand, there is nothing difficult about it. Have you heard of the rule of 72? It is widely used in investment, it is very useful and it makes short work of compounding, it makes compounding easy to understand.

Rule of 72 basically says the following:

A X B =72.

Now, B may be rate of interest, inflation (even rate of population growth, though that has nothing to do with investing) etc. A is the number of years in which the quantity to which B is applicable (portfolio, prices, population etc.), doubles.

So let us say your portfolio grows at the rate of 8% annually, that means it will double in 9 years. If it grows at the rate of 10%, it will double in 7 years.

This has wide applicability. Let us say inflation is 3% annually, The prices will double in 24 years. Or say population growth is 3% every year. Population of the country will double in 24 years.

So compounding is easy to understand. Incidentally, the rule of 72 can easily be proven mathematically.

 

[SirJosephPorter]

The only way to get good financial knowledge is by losing a few tens of thousands yourself (I had the added advantage of having two or three financial advisors do it for me) .. So don't fully trust anyone, except for maybe fixed income funds. For equities make sure you look at where it's been, if it's been climbing for awhile don't touch it with a 10' pole.

I can understand a financial advisor losing tens of thousands, JLM. It depends upon the circumstances.

My financial advisor lost tens of thousands for me during the two Bush meltdowns (actually more than that, my losses in the recent Bush meltdown ran into six figures), the dot com meltdown and the one in 2008. I don’t blame her for that. Nobody could have foreseen that, it is hardly the financial advisor’s fault.

However, within two or three years after the first Bush meltdown, I had made that up and more. Similarly, while I lost 10% of my portfolio in 2008, I gained 30% in 2009, achieving an impressive rate of return of 13.5% for the two years, 2008 – 2009 combined.

So it depends upon the context in which you lose tens of thousands of dollars. 2009 was a very good year, the best I have ever had. Stocks shot through the roof. Practically anything you invested in, made money for you. Forget about losing ten of thousands, if your advisor lost you even a few thousand last year it is time to get a new advisor. Anything less than 20% return in 2009 indicates poor financial planning and a total lack of investment skills.

 

[JLM]

I can understand a financial advisor losing tens of thousands, JLM. It depends upon the circumstances.

My financial advisor lost tens of thousands for me during the two Bush meltdowns (actually more than that, my losses in the recent Bush meltdown ran into six figures), the dot com meltdown and the one in 2008. I don’t blame her for that. Nobody could have foreseen that, it is hardly the financial advisor’s fault.

However, within two or three years after the first Bush meltdown, I had made that up and more. Similarly, while I lost 10% of my portfolio in 2008, I gained 30% in 2009, achieving an impressive rate of return of 13.5% for the two years, 2008 – 2009 combined.

So it depends upon the context in which you lose tens of thousands of dollars. 2009 was a very good year, the best I have ever had. Stocks shot through the roof. Practically anything you invested in, made money for you. Forget about losing ten of thousands, if your advisor lost you even a few thousand last year it is time to get a new advisor. Anything less than 20% return in 2009 indicates poor financial planning and a total lack of investment skills.

That's because you understand the concept of buying low. A lot of people don't.

 

[SirJosephPorter]

SJP,
You dance around like an ant on a griddle.
Multiple posts and all

You said this:
quote
Be careful of the bond market? That is one thing you don’t have to worry about, unless you are speculating in bonds. And if you are speculating, you deserve all you get.

But if you have bought bonds for income, why would bonds going down affect you? Unlike stocks, the face value of a bond is guaranteed provided you hold the bond to maturity.

So suppose you have a bond which pays 5%, set to mature in 10 years. You are collecting interest every year. Now interest rates go up, the bond slips form 100 $ to 80$. Why should you care about that? You still keep getting your 5%. Hold the bond for 10 years and you are guaranteed to get your 100 $ back.

So if you hold bonds for interest income it generates, you have nothing to worry about. If you hold bonds to make a quick buck (for capital gains), you may well get burned, and you would deserve it.
unquote

I said this:
quote
SJP
Bonds loose value as interest rates rise.
And corporate bonds are in no way guaranteed.
Short terms are no problem as they are readily redeemable with a minimal downside.
Long term bonds lock you in over the life of the bond issue.
If interest rates are more likely than not to rise (which they are) long bonds suck.
unquote
you then said this:

quote
Bonds never lose the face value. Their market value may drop as interest rates rise, but if you keep the bond to maturity, you are guaranteed the face value. So if you bought the bond for interest income, you don’t have to worry about bond value dropping.

And what do you mean corporate bonds are not guaranteed? Of course they are guaranteed by the corporation. If you buy a Bell bond with a face value of 100$, Bell guarantees to pay you 100 $ at the maturity (or earlier, if Bell recalls the bond earlier). The only way you won’t get your 100 $ is if Bell goes belly up.

If you buy corporate bonds from big corporation such as Bell, any of the banks etc., they are quite safe. If you buy junk bonds, that is a different story. But provided you hold government bonds or corporate bonds issued by big reputable corporations, they are quite safe.

As to long bonds, again it depends upon why you bought them. If you bought them for the interest income, why would you care if they drop in value? How is that going to hurt you? It will hurt you only if you sell. Hold it to maturity and you are OK.
unquote

I then responded with a long winded blurb on bond investing.
That long winded blurb was strictly in reference to this all of the above :
more specifically this:
Quote Trex:SJP
Bonds loose value as interest rates rise.
And corporate bonds are in no way guaranteed.
Short terms are no problem as they are readily redeemable with a minimal downside.
Long term bonds lock you in over the life of the bond issue.
If interest rates are more likely than not to rise (which they are) long bonds suck.
unquote

You say I am agree ing with you or repeating what you say.
Where above do you see that?
If anything you seem to be tap dancing around multiple posting and then agreeing with me.

To repeat: Buying long bonds into rising interest rates is a bad play.
Holding bonds for returns is fine as long as the bonds were purchased at times of higher interest rates.
We were talking about buying bonds NOW.
To get your friends $100,000 a year on CSB's purchased today you would need 5 million invested.
That is a stupid move in times of low interest rates.

Correctly structuring a bond ladder is not speculating on bonds.
Structuring a bond portfolio to return capital gains as well as interest is the way it usually is done.
Mixing risk and maturity dates is essential.
That is not speculating.
It is simply a balanced and laddered portfolio of bonds.
As I have said a good financial advisor will have to buy and sell bonds in your portfolio to keep it current and balance it appropriate to current financial climates.
That is in no way with agreeing with you.

On post 41 you disagree with me and state that it is not necessary to hire a good financial advisor or actively look after your bond investments at the top of the response.
And then at the end of the response you say your own financial advisor has made you rich after admitting you own bonds.

You tap-dance around so much its difficult to understand what you are saying at the best of times.

Trex

There is no contradiction here, Trex, it is perfectly consistent. Let me summarize what I said once again.

If you are buying bonds for the interest income, there is no need to hire a financial advisor or to actively look after your bond investments (buy or trade them actively).

If you are investing in bonds for a quick buck, for a capital gain, then you must know what you are doing and a financial advisor would be a good idea.

There are several strategies for bond investing. One is to invest for capital gains, another to invest for interest income. You seem to be confusing the two. For capital gains strategy, I fully agree with everything you say. But what you are saying does not apply to the interest income strategy.

And sure I own bonds, but I don’t ladder them. I am not interested in trading the bonds for capital gains. I use bonds to give stability to my portfolio (that is a third bond investment strategy), which is majority stocks. Bonds fluctuate much less than stocks (unless to are buying very long term strip bonds, say of 20 or 25 year duration, they fluctuate fully as much as stocks, they are very sensitive to interest rate fluctuation).

I use the non equity portion of my portfolio to give stability to the portfolio, to minimize the fluctuations. And also bonds generate interest income for me. But I am not interested in trading bonds for capital gains. Most of my portfolio growth comes from capital gains and dividend income (I own stocks in several dividend paying companies, such as BCE, banks, REITS etc.).

In short, there are many strategies of bond investing. You are considering only one, investing for capital gains. Everything you say makes perfect sense, for that strategy only. So there really has not been any disagreement between us. However, consider any other strategy and what you say may or may not apply.

 

[VanIsle]

When will it pop? No time soon according to today's news.
Canada's housing booms continues to outpace recovery in developed countries

at 11:55 on March 23, 2010, EDT.

THE CANADIAN PRESS
Share|http://forums.canadiancontent.net//...covery in developed countries&content=&lng=en

TORONTO - Canada's housing boom continues to outpace developed countries around the world with housing prices in the fourth quarter up 19 per cent year over year.
A new Scotiabank global real estate trends report says year-ago comparisons are amplified by the sharp drop in sales and prices at the end of 2008, but still represent a remarkable turnaround in a short time.
The strong performance has carried through into 2010, with sales in the first two months just slightly behind the near-record levels seen in late 2009.
The report says exceptionally low mortgage rates - and the expectation that borrowing costs will soon be headed higher - are adding a sense of urgency to buying.
While most Canadian regions will remain sellers' markets this spring, a steady increase in the number of listings and a rise in construction are helping to restore a more balanced market.
Meanwhile, housing prices in countries including the U.K., Japan, and the U.S. were still below year-earlier levels in the final quarter of 2009.

 

[#juan]

Well - maybe you and your wife should take a Vancouver Island vacation sometime. It's really quite nice here.
Years ago we were asked to transfer to Vancouver. It would have been a promotional move for my husband. We lived in Courtenay at the time. We said no because we had just built a house in Courtenay for one thing but more importantly, we knew we could not afford a house in Vancouver. I don't like Vancouver anyway. I don't like any big city in any province.

VanIsle
I think we are going to get our turn at high housing prices in Nanaimo. Last week a house about a block from us sold for just under $400,000.00. This week another house on our street went on the market for $450,000.00. If the trend is upward we could get close to Victoria, or close to where Victoria is now.

 

[JLM]

When will it pop? No time soon according to today's news.
Canada's housing booms continues to outpace recovery in developed countries

at 11:55 on March 23, 2010, EDT.

THE CANADIAN PRESS
Share|

TORONTO - Canada's housing boom continues to outpace developed countries around the world with housing prices in the fourth quarter up 19 per cent year over year.
A new Scotiabank global real estate trends report says year-ago comparisons are amplified by the sharp drop in sales and prices at the end of 2008, but still represent a remarkable turnaround in a short time.
The strong performance has carried through into 2010, with sales in the first two months just slightly behind the near-record levels seen in late 2009.
The report says exceptionally low mortgage rates - and the expectation that borrowing costs will soon be headed higher - are adding a sense of urgency to buying.
While most Canadian regions will remain sellers' markets this spring, a steady increase in the number of listings and a rise in construction are helping to restore a more balanced market.
Meanwhile, housing prices in countries including the U.K., Japan, and the U.S. were still below year-earlier levels in the final quarter of 2009.

I think you may want to keep your fingers crossed VanIsle, could be that the more momentum it gathers the louder the pop. :smile: