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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: How to diversify into bonds Date: 1/9/2014 9:43 PM
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EnCoderer,

You wrote, I'm reminded of 2009 where people lost their jobs and needed to tap their portfolio to keep the lights on -- at a deep loss in some case.

So, now that we have a mortgage, I want to plan for an eventuality like that even though I find it unlikely and almost intolerable. So it would be useful to have a meaningful portion of the portfolio in debt instead of all equity.


I must point out that bonds were definitely not a good hedge against stocks in 2009. Had you been forced to sell then, you would have taken huge losses. Most *buyers* made out like bandits.

I lost my job in 2008 and didn't get a new one until 2009. My hedge against an emergency was simply cash - I had enough to last me a year even without unemployment benefits. Fortunately I found a contract position before unemployment benefits expired. All the crash cost me was the inability to save (unemployment was adequate to cover most expenses) and it made me react too conservatively with my investment purchases - which was a cost in its own right. How you might ask?

I was watching several preferred and debt instruments as the market was tanking. They eventually traded for a fraction of their par value. One of the preferreds I was watching hit $5.50 and it pays a coupon of $1.75. I bought some close to that price; but had I had the courage of my conviction and not been worried about my job and that issuer surviving the crash, I could have afforded to buy enough so I could live off the interest payments. I could also easily be a millionaire today had I reacted differently; but I'm not sure I could have slept at night for all the worry.

What would things have been like for me if the issuer had folded? What if everything I'd bought went bankrupt? And what would I have been going through if I'd bought those issues before the crisis, thinking they were safe investments?

In my view we're pre-crisis once again - though its anyone's guess when or how it will manifest.

Food for thought.

- Joel
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