UnThreaded | Threaded | Whole Thread (21) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: temsike Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35397  
Subject: Bonds vs Bond Funds--Again Date: 12/29/2009 5:20 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 2
There have been a dozen or more threads in which advocates of individual bonds spread fear that, were rates to drop at exactly the wrong time, you would not get your money back out of the bond fund when you needed it, and therefore buying individual bonds must be safer. In response, others (at least some of whom I would consider experts in the bond market) have responded that as long as your duration is greater than your need for the funds, you will not lose money, and that comparing a non-rolling bond ladder to a fund--equivalent to a rolling bond ladder--is not a valid comparison.

More recently, the final twist on this endless circle has been a claim by anti-bond-fund posters that since at some point you will need the money, even if you are investing for the long-term, at some point you will need the money and your principal will not be safe.

In response to this, I will excerpt and summarize one of the major academic books elucidating how bonds respond to price changes, Fabozzi's Fixed Income Mathematics (1993), pp175-190 or so, the chapter called "Price Volatility Measures: Duration," sub-chapter "Role of Duration in Immunization Strategies." Note that Fabozzi uses the term "immunize" to mean ensuring that the amount that you get out of a "bond portfolio" (the term here can mean either a ladder of individual bonds, a bond fund, or a grouping of bond funds, as long as the duration is the same across types).
<snip>

Full thread: http://www.bogleheads.org/forum/viewtopic.php?t=44475

Comment: Now that we got rid of Junkie, let's continue to explore this always interesting (religious) topic.

I'm a cheap, lazy, index investor. For me, indexed bond funds are better than individual bonds. I feel exactly the same way about picking stocks. Indexed stock funds are better than individual stocks.

My favorite quote: "Before the deduction of the costs of investing, beating the stock market is a zero-sum game. After the costs of investing, beating the stock market is a LOSER'S game.

Even more so for bonds! That's why Junkie is a loser who doesn't realize it YET.

The costs of investing are: expense ratios, commissions, bid-ask spreads, market impact costs, and taxes.

If you DON"T know these for your portfolio, you're flying blind. I know every single cost of my port. Do you?
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (21) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Dividend Growth Investing

Good Time for Dividend Champions?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement