Alternative to bonds (for bond loving husband)?

Investment Analysis Clubs Saul’s Investing Discussions
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New to this board. I’ve been reading MF for years, and use Stock Advisor to inform my stock purchases, since 2012. Before that I was invested in S&P, mid cap, and total market index funds. My individual stocks have done better than the S&P 500 so I have moved more of my money into them, and now I am trying to convince my husband to do the same.

He has 10-20% of his retirement 401K rollover in a bond fund and the rest in S&P 500.

Is there a “safe” alternative to a bond? I have never owned bonds because I want higher returns, but I wasn’t aware that you take on the risk of a stock yet still get lower returns. Maybe pick some of the low-risk options on Stock Advisor? I’m mid-40s and he’s not yet 40, so we have a long timeframe.

thanks!

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Is there a “safe” alternative to a bond? I have never owned bonds because I want higher returns, but I wasn’t aware that you take on the risk of a stock yet still get lower returns. Maybe pick some of the low-risk options on Stock Advisor? I’m mid-40s and he’s not yet 40, so we have a long timeframe.

You may want to read this year’s shareholder from Warren Buffett.

This passage, in particular applies:

I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.
It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.

Ian

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Hello Reallylovecoffee,

I think the first task is to convince your husband the bond market won’t be like it was for the last few decades.

Bears are wondering why stocks are still going higher if interest rates are going higher? Some delving into the numbers points to dividend and bond income strategies as having a head wind since they had a strong tailwind for 34 years from 1980 to July 2016. So why invest in a dividend income strategy with solid blue chip stocks that will feel a quasi effect that 10 year T-bonds are feeling right now? They way to go is growth stocks. This will be a shocker for a lot of people that are used to seeing dividends as a nice tangible return. For over 30 years that has been the case! Who will be adaptable and overcome the new reality? That’s why growth stocks are set to go higher and it little shocker why Saul is invested in such equity types.

(What an opinion, cite that source please!) Gladly, please review Stockcharts.com for $TNX CBOE 10 Year US Treasury Yield INDX. Keep in mind 10 YR T-bills were paying 15% in 1980, around 7% in 1990 and 1.5% in July 2016. Heck even monetary policy was speaking of negative interest rates, BOJ (Japan) did just that. Now 10YR T bills are around 3% and should continue going higher during the reflation side of increasing rates. In Summary, we had the down slide from 1980 to July 2016. Time for the up trend and guess how many bond strategy gurus from the 1960’s and 1970’s are still around in the game?

In terms of risk temperament, your husband has thirty years+ to go before social security! Seems like you are a retail investor and your husband is not. Perhaps you should inherit the family CFO title and take charge of his 401K. Regarding ideas, most notable people including Saul post their EOM portfolio summaries. I would take that as a crucial start if growth companies are your objective that fit within the knowledge base this board provides.

Seems like the board hot picks now are AYX, PSTG, NVDA, and ANET…in my opinion.

Scott
Long AYX, PSTG, and ANET

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Is there a “safe” alternative to a bond? I have never owned bonds because I want higher returns, but I wasn’t aware that you take on the risk of a stock yet still get lower returns. Maybe pick some of the low-risk options on Stock Advisor? I’m mid-40s and he’s not yet 40, so we have a long timeframe.

thanks!

Yes there are. The ones you know the company. How well? If someone refers to the CFO, CEO or CTO by name, you should be able to say, “Yeah he is the CFO of xyz, also on the board abc and helped start up efg and rst.

That takes time, (Don’t be throwing out names from Hubspot or even Arista, I am not there yet.) The idea is that the companies that are safe are companies you are intimately involved in.

My guess is you spend more time learning about coffee beans than the companies you will invest in. (I know I spend more time studying about boat plans for boats that I will never build.)

To convince your husband, do these two things.

First, down load the knowledge base, make it into a readable document, print it out and use a highlighter to read it.

Second, DON’T BUY ANY STOCKS! Fill out your Caps profile with all the stocks from Saul’s latest monthly profile. Just throw them down willy nilly.

Then, find analogs for your husbands investments, bond funds ect. Put them in his Caps profile. Wait a year.

If what happens happens as I expect, you husband will be interested in buying all of Sauls latest stocks.

DON’T DO IT!

Take the section of the knowledge base that shows how to evalate stocks and try to evaluate the companies that your husband holds bonds in, and the companies in Sauls most current portfolio. This is hard and tedious the first time so you might only get one of Saul’s companies and one of your husbands bond companies evaluated. (I know it is not apples to apples, but the health of the underlying companies matter. Often bond holders buy bonds in companies that they would never buy equities in. They do this because the bonds are asset backed, or they are senior debt. This is a false sense of security, yes the bond holder will not get completly wiped out, but they can see a huge hair cut based on the underlying companies and on MACRO economic conditions that no one has control over.

If you are losing money now. Go to cash until you have a plan to not lose money. If you are making money now, keep doing what you are doing until you understand the Saul method.

Even then, after a year of following Saul via Caps, move a little over each month. Look at one company, listen to the conference calls, go to the Edgar database, read the 10q and 10ks. Review the other documents there. Google the names of the priciples. Do they have integrity? How do YOU feel about them? (I trust my wife to gauge the people more than myself.) Then and only then, buy a few shares.

It has been my experience that money likes to fly away more than it likes to flock to me.

Cheers
Qazulight

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Well, that really depends on a lot of things, and this is probably not a good place to ask that question. My advice would be to do research on a good financial advisor that charges by the hour. Get good advice and follow it.

Someone has to know so many things before it is appropriate to answer that question. How many more years to you expect to need that money to support yourselves, or is that money you will pass down because you are living off a cushy pension and never have to touch it? Are you living off 4 to 4.5% of you liquid assets? Do you need more assets that appreicate faster or do you need a diversity of assets in case the market has a prolonged correction? Are the bonds very short term or long term. Long term bonds could take a large hit when interest rates rise. Short term (individual) bonds can be held to maturity, which mitigates principal risk.

One approch to living of assets is to have 3-4 years of living expenses in “safe” assets (CD, short term bonds) and the rest in a diversified portfolio. If the market is doing well, you live off the market. If the market crashes, you live of safe money until the market comes back and then you rebuild some safe money.

A very important question is, can your husband sleep at night if you put it somewhere else? Anxiety and heart attacks are not always worth a little extra return. Animosity if something goes wrong, is not a good dividend.

In your situation, there is a lot more to consider than returns. Spend the money on a qualified professional and get some good answers in addition to any other data you gather.

Pete

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10-20% isn’t all that much to have in bonds, but right now isn’t a good time to be holding or buying more long-term bonds. Interest rates have been going up, and the longer the term of the bond (or bond fund), the more the share price of the bond fund takes a hit when interest rates rise.

To get dividend income, you could also look at REITs - real estate investment trusts. Even very well-run ones have taken a price hit recently, even ones with a long history of steady or increasing dividends.Some good ones are now paying over a 5% dividend because the share price went down. This could be a “buy low” situation, though share prices could go even lower. You would need to do some digging to find good REIT stocks or mutual funds. Vanguard recently changed the composition of its REIT index fund.

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Bonds don’t have the same risks as stocks. I strongly urge you to speak to a professional about these topics.

No one on this board can accurately forecast the direction of the bond market. And ‘the experts’ have been calling for rising [long-term] rates every year for the last 10 and they’ve been right approximately 1 time.

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If your husband is unwilling to do any research himself, it would be a fool’s errand to “convince” him otherwise. Don’t try to make up his mind for him. You apparently hold separate investment accounts. Show him by example and let him come to his own realization - or not.

Brow beat him into a different position and you’ve got a marriage problem as soon as something goes wrong, and something is guaranteed to go wrong sooner or later no matter which investment strategy and vehicle you choose.

I’ve been following, make that learning Saul’s approach for about three years now. I lost my records from the first year in a computer mishap. I lost money, not a lot, but it was a loss my second year, third year I was up ~83%, more than made up for the loss the prior year. So far this year I’m up an astonishing 27% (just a little shy). I’m still a novice. I spend a lot of time reading and studying (I’m retired). I’m convinced that a portfolio of relatively few high growth really good companies is the single best way to make money in the market, but a lot of people can give you a gajillion reasons why I’m wrong, but all of them boil down to perceived risk. I’m willing to stomach the risk. Maybe your husband is not. He’s harboring more risk than he might imagine with bonds, but that S&P index fund is a pretty safe bet on slow and steady returns (BTW, this is what Buffet recommends for the disengaged investor).

Making money is good. Making a lot of money is even better. But you need to pay the price of admission. Accept the risks and engage in constant study. If you aren’t willing (or if your husband is not willing) to put in the time and effort, leave him alone about it and enjoy your life together.

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Thank you to everyone who replied! Lots to think about here.

I think I am not quite ready for this board (I can read it but I am not ready to apply the info). I read the knowledge base and one thing that jumped out at me was about bonds not being great.

I do hold some bond funds myself (I let the fine folks at Vanguard manage about 1/2 of my main rollover retirement account, and they have some bonds in there). I also have a 401K at my current job that is limited to mutual funds (including a few index funds). I use the non-Vanguard manged portion of my rollover retirement account to buy individual stocks and I’m only able to contribute a little to that, most of my savings goes to my (matched) 401K. My husband hasn’t looked at his rollover account in years and admits he allocated it willy nilly (it’s mostly an S&P index fund and some bond funds… but it’s been like that since his 20s. He’s a govt. employee and has a pension fund). He did say I could manage it, but I want him to be comfortable too (and our marriage is more important than any asset allocation).

Honestly, we could probably use a financial advisor to have a look at our “big picture.” I am just not sure how to find one (and in general I am pleased with my returns… of course more would always be welcome):slight_smile:

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I think I am not quite ready for this board (I can read it but I am not ready to apply the info). I read the knowledge base and one thing that jumped out at me was about bonds not being great.

Seriously, grab Sauls latest monthy report and throw Sauls stocks into your Caps page, come back each month and update your Caps page to his latest stocks. Don’t try and be fancy, just throw them in.

Use another name, or make your husband an account, throw those investments in. Wait a year.

You will be ready then. Take your time, you have it.

Cheers
Qazulight

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He has 10-20% of his retirement 401K rollover in a bond fund and the rest in S&P 500.

At your ages this is reasonable. I recommend this book (an easy read):
https://www.amazon.com/Little-Book-Common-Sense-Investing/dp…

A simple process which achieves long term benefits seems best suited for your husband’s rollover. This book will be helpful. I follow it for all but a portion of my portfolio and can attest to its truth and worth.

🆁🅶🅱