sorry for being oldschool, but i will simply stick to my investment plan. that’s exactly why i made it^^
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This is a good point actually. Most of us stick to buy and hold until FI strategy, which means that we’ll start selling in 10-15 years. In this long period of time, even if we’re not getting best deal by buying overpriced stocks or bonds, we’ll still make good money on it. That’s the power of simplicity and time+compound interest.
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Guys, hi
I recently joined the forum, as after being just a reader for quite some time, realized that would appreciate your feedback on couple of points. (actually I asked the similar question in parallel thread, but was advised (thanks!) to move it here as more appropriate)
I am now re-shaping my portfolio and trying to come to a view on the bond part.
From one side we have wisdom of B.Graham, who says that at all times bonds should be min. 25% of your portfolio; Bogleheads portfolios with substantial pieces of bonds (including such as TIPS); and Jim Rogers telling us that we are going to face largest crisis in our lives soon…
On the other side, we are now in interest raising environment where EU will join US on this way rather sooner than later. Plus “some well-informed Bogleheads make a strong case that the “bond” component of a three-fund portfolio might well be filled with non-brokered bank CDs instead of a traditional bond fund”, and even some Bogleheads guru recommending the replacement of a traditional high-grade bond funds with a 50/50 mix of emerging markets bonds and a high-dividend stock fund.
What is your view on bonds in general? Should we still keep it and really treat the rest as market noise or reality changed?
So far I am more inclining towards more classical approach, i.e. to keep bonds (in my case around 30%) and considering splitting them in three parts 10% each using Vanguard’s ETFs:
•US market – BDN, Total Bond Market ETF, which has 63% US Gov and 27% low IG, more as protection
•US market – VCSH, Short-Term Corporate Bond ETF, c.100% IG, mainly because of short duration
•International market – BNDX, Total International Bond ETF, international diversification
Any comments or criticism would be highly appreciated!
Thanks!
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Yeah, fixed income options aren’t looking any good these days. Any CHF denominated or CHF hedged especially, all yield negative or far below 1%, which just isn’t enough for me to bother. Besides I’d have to pay high taxes on typically much higher nominal yields, which cancels out all the little profit there is to have. So I’m keeping it mostly just in cash and personally considering money in my pillar 2 a part of the bond pile as well - if worst comes to worst, I can leave Switzerland and take it all cash. Negative or almost zero yielding bonds is what they largely invest it in anyway.
He’s been telling that for years, you have to admit the guy is terrible at market timing:
2011: 100% Chance of Crisis, Worse Than 2008: Jim Rogers
…
2016: $68 TRILLION “BIBLICAL CRASH” Dead Ahead? Jim Rogers Issues a DIRE WARNING
Nevertheless, central banks planned withdrawal from QE in near future is somewhat concerning - both bonds (rates) and stocks could suffer from this
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Hi libraryboy
conventional boglehead wisdom is that bond aren’t necessarily there for return (but of course is nice to have), but to lower overall portfolio volatility and provide an uncorrelated asset to use to rebalance.
Because of this, it doesn’t really make sense to use bond in a currency which is not your home currency. You don’t necessarily want to add a layer of extreme volatility like currency exchange rate may cause. Bond are there to be stable.
Now, as hedgehog nicely put out, you need to consider your overall portfolio. I personally dump cash, bond, 2nd pillar and part of my 3rd pillar together under one asset name: fixed income.
After I did this, I saw that I actually don’t have to buy any bond and I even have more fixed income that I would like. So I don’t buy bond personally, since are already covered in my fixed income asset.
That said. We don’t know what is coming, and making adjustment to one Investment Plan based on rumors and possible rate hike is still market timing. Find a combination of asset that you feel you can “survive” a crash, like 80/20, then calculate your overall portfolio including 2nd and 3rd pillar and then stick to the plan.
Just my 2 cents
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If you buy international bonds ETF, the currency exchanges are there anyway. Vanguard sells their ETFs in USD. Additionally the fund managers to buy other countries bonds, they have to exchange currency first. With this plan you’d have to stick to only Switzerland based bonds. This however brings the risks of lack of diversification. You put all your eggs in one basket.
Otherwise, I agree with your post. I also keep 20% of fixed income and I consider this as bonds part of my pillars, gold, bonds invesrments and cash. I think it’s reasonable strategy to stick to the original plan and rebalance from time to time.
I don’t know if I’m explaining it well. You want bond to be stable, not to have a value changing quickly from day to day. If you have bond in EUR but are calculating everything in CHF, you may see large swing in your fixed income uncorrelated to what bond are doing, simply because of the EURCHF exchange rate. The conventional wisdom says to avoid this risk. If you are ok in accpeting FX volatility in your bond, than you should be ok to increase stocks allocation: that’s how you increase returns.
it’s better to do 90% stocks, 10% fixed income in CHF than let’s say:
75% /25% with EUR bonds. Since you have Eur bonds, the 75/25eur split may have the same volatility/risk as the 90/10chf. But for the same volatility you want more return to be on the optimal portfolio line, so you should choose 90/10chf.
I hope it’s clearer now what I meant.
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Which Bond ETF would you recommend in CHF without FX volatility? I’m not sure if anything like that exists. Especially, if one would like to be internationally diversified and doesn’t like negative real yields of Swiss government bonds.
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“bond” and “CHF” on justetf.com results in 11 hits, among which 3 are non-domestic.
on a first glance, iShares Core CHF Corporate Bond (CH) seems to be the only intereting thing, with quit some internationality. ~1.7%p.a. since 2014
i wont make a statement on recommmendability^^
Distribution yield for bond funds is the most useless stat ever
Weighted Average Yield To Maturity 0.20%
TER 0.15%
Weighted Average Coupon 1.29% => taxes are like 0.2-0.5% expense
It’s a money burning fund and a gamble on rates
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Is there somewhere an analysis of a us bond fund vs. exchange rates?
For example for BND. It seems that the return is right now not that bad even with FX fluctuations.
Bonus question: what’s the difference between BND and it’s managed counterpart VBMFX other than being not managed and costing less?
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speaking of bonds, here is an interesting pdf
It’s a presentation, but I think is sufficiently clear. Unfortunately there isn’t any link to more explanations and it’s not clear to me what happens if they substitute all bonds with just cash.
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The only interesting products I found out (after trying to buy single bonds but finding it too difficult) are US bond ETFs with expiration date to build a bond ladder https://www.ishares.com/us/strategies/ibonds so to reduce the rising rate risks. In Europe and CH as usual there is nothing like it yet available
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I am currently reading “The millionnaire expat” from Andrew Hallam. The author gives a couple of 3 ETFs Portfolio ideas you should/could build according to where you would like to retire. I am summarizing but the recipe is mostly the same for each nationality, just like the one mentioned in the blog:
-> one part in bonds according to your risk profile and also on whether you will get some retirement money in the country where you expect to retire.
-> the rest in stocks with 50% all world and 50% from the stock index where you expect to retire
I personally have no idea at this point since my partner is Canadian and I am French, therefore it is very open at the moment.
In the book for people in my case, who don´t know where they will retire, he suggests the global nomad portfolio which consists of 2 ETFs only:
-> ishares MSCI world
-> ishares global Inflation linked Govt bond UCITS (IGIL)
I really like this portfolio since it is simple, but at this stage I have the following questions:
-> Is there a big currency risk should we decide to stay in Switzerland? The ETFs are global and I plan to make regular purchase in the next 30 years.
-> The author suggests IGIL which is inflation linked. This one contains 30% UK bonds which I am not too happy with (not really global) but performed quite well recently (yes I know, it should not be a reason to buy 
) Therefore I am also considering to simply go with IGLO (ishares global Government bond). Do you know what would be the best option to consider between both? A mix of the two? Or it just makes no sense to accumulate any bond at the moment and I have to wait for yields to be higher?
I know I have to take into account 2nd pillar and 3rdpillar and cash as bonds but somehow it does not really work with me. It probably sound stupid but I would like to have a reference point when I make purchases for the rebalancing.
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so what do you do with your stocks in pillar3? are you telling me you are full cash in pillar 3a and wnats to ignore this to have an asset allocation only for taxed accounts?
That doesn’t really make any sense and can be very risky, you could end up with a total asset allocation very growth averse (lots of cash), also very risky because then you cannot FIRE.
Since I have pillar 3a with VIAC you can easily rebalance by changing your strategy. Also it makes a lot of sense to include them in your strategy.
Not sure I get fully your comment. Actually I have started with VIAC this year which is my first full equity 3rd pillar. I opened 4 portfolio since I have a 5th one with approx 36k full in cash (opened when I arrived in Switzerland and no clue about investing). I do consider the other 4 for equity allocation.
As far as the 5th one is concerned I havent decided what to do since I may need it for home purchase. Any view on my other questions regarding bonds ETFs?
Hi,
Could someone explain a little about inflation linked ETFs ? Is it really something to look for ?
Thanks
An interesting article (in Polish, so use Google Translator if interested) about investing in bonds with a passive portfolio.
Surely you’ve read before how having bonds in together with stocks “smoothens the ride”. But this article provides correlation coefficients of certain stocks and bonds.
And so, backtested over the last 40 years (1978-2018), apparently the best bond ETF to accompany VTI (US Stock Market) was TLT (iShares 20+ Year Treasury Bond). VTI on its own has delivered CAGR of 11.7% with StdDev of 15.0%, and 60% VTI 40% TLT delivered CAGR of 10.9% with StdDev of 10.3%. That’s only 0.8% lower return by 5% lower volatility. The maximum drawdown went down from 50% to 26%.
I wonder, do you think this strategy has a chance to work in the future? When I’m close to retirement, I would really consider keeping 20-40% out of the stock market in order to combat volatility. The question is: are bonds still a sane choice, or should we just stick with CHF. When you look at TLT returns, it has been growing in the past, but the last few years it’s just flat. But maybe when the next crisis comes, the investors will jump on US treasuries once more?
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they cherry picked the time frame too well, end of 70s was when interest rates peaked at double digits
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Yup there has been a super long bull markets for bonds since the beginning of the eighties.
With current interest rates so low and debt levels so high, I would be surprised if bonds really perform better than stocks in the next crisis…
EDIT: I just looked at the factsheet of TLT: the duration of the fund is 17.31 years. In other terms, if interest rates go 1% higher, the fund loses 17.31% in asset value (and the other way around if rates go lower). Well, I don’t want to play nor forecast the next direction of interest rates, but with current low rates, a hike would really hurt…
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