Mustachian portfolios

What if you plan to use the bonds for rebalancing? Let’s say stocks go down and in that case (historically happened, but not all the time) bonds go up. You could sell bonds high (in euro) and buy low ETFs (which are still in euro as per my portfolio).

Right that would work for your portfolio if you have EUR ETF stocks but my portoflio is mostly USD/CHF ETF stocks.

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It’s irrelevant for equity ETF, if you were to use USD or EUR or BTC or gold to buy the same stocks, you still end up with identical portfolio. So it shouldn’t (except if you’re on a platform with high conversion fees) impact your decision making.

If what you care is EUR and you track your net worth and returns in EUR it’s fine. If the currency you care about is CHF there can be some pretty wild swings short term due to fx changes (e.g. if you were holding EUR bonds in 2015, you just lost 20% of your “safe” portfolio overnight).

  • If you’re having hundreds of thousands in cash or bonds, bond ETFs would reduce the risk of your bank going bankrupt.
  • You could look into riskier, lower-rated bonds, which have higher yields (emerging markets bonds, for example).

Keep in mind that rising interest rates lead to lower bond prices.

Good you mention, I was actually looking into VWOB… It’s yield is quite high with >4% but of course for more risk. Still the volatility of this ETF does not seem to bad or scary. Still less volatile than the usual equity ETF such as VT. Or do you have any better recommendations for an emerging market bond ETF?

Damn, you’re right again. There are so many aspects to think about with these bonds…

Well, if you’re willing to take more risk I guess you could just increase your stock allocation instead.

Keep in mind that these are still USD-denominated bonds (even if they’re emitted by emerging countries), the USD/CHF Fx should add some volatility on top of it.

Right, good point but then I don’t have any bonds I could sell to rebalance and buy more stock ETFs in periods of downturn… or I guess I should just always keep some cash on the side for that, but then again why not invest this cash directly in stock ETFs in stead of keeping it for downturns…

Indeed, I remember having calculated -10% for USD/CHF just for 2020, which is a lot if you consider it could continue on like that… of course if you keep these bonds in USD for rebalancing with stock ETFs then it does not matter much as @evertruelife pointed out.

I’d say first thing, establish your desired risk level.
If you can stomach 100% stock, just go for it, keeping cash on the side for downturns would just be market timing and not very efficient
If based on your risk appetite you’d prefer to only invest 80% in stock, than the rest should be in a “safe” uncorrelated asset. Historically this asset was bonds, but now that bonds give negative interests cash is a very good alternative.

I think it still matters, because it’s adding more risk…when the time for rebalancing comes the value of your bonds will also depend on Fx, and its anyone’s guess if it will be up or down at that point


So gentlemen, to sum it up, what decent options do we have for bonds? Of course, usdchf fx fluctuations will always be a factor, but at some point it needs to be assumed…

I think the question is: why bonds? Did you run out of guaranteed cash account with no negative interests?


Cause bonds do go up usually when stocks go down. And until stocks go down you buy cheaper and cheaper bonds and sell at the right moment.

They go up because the negative interests go even further down, I’m not sure that makes it a better idea :slight_smile:

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That rule has been pretty much broken since 2008. Governments and central banks have printed money to manipulate interest rates to zero and below. Stocks and bond prices have both gone up since 2008 and bond prices can’t go up much more then they already have.

If stocks go down, bond prices should go down by less than stocks, but I would not expect them to go up much


Twice wrong assumptions; the TER is including sub-funds. So you pay 0.25% instead of 0.2%; but at the sametime you get freeand continuous re-balancing.

AUM doesnt matter here as wellas the underlying funds have massive AUM, meaning there is no risk that they cant trail their Index. Given that Vanguard invests multiple billions in the same Us and UK strategies, they have further prooven they can manage the Strategies and the case is there that they willfind enough funds over time. Clearly you can wait a year but rest assured, Vanguard is serios with these products and the market will buy them.


“Selling the bad because even worse is coming” is not a good long term strategy. :wink:

The point ofBonds is not their absolute return. The point of bonds is their low to negative correlation to Shares. And this correlation is still there. With systemic re-balancing, a loe to negative return correlation gives you a better performance than the sum of parts.

When we talk about Interest Rate Risks. We need to remember that not only Bonds have a maturity but Shares as well. When we see that nei bonds come at nearly zero return; we as well see that Shares currently comeat very high PE ratios. Thats quite the same. The Premium you get for Shares over Bonds is as well relatively static.

This means that even though we are currently in a low interest world and actual bond returns don‘t make much sense, actual Share returns actually don‘t make much sense either. Meaning that we should forget how nominal returns were these days and just Bank on the fact that Stocks plus Bonds gives us more than the Sum of Parts. For exactly this reason, the efficiency frontier is achieved by a combination of Stocks and Bonds but not Stocks alone. Tge ideal mix is somewhere in the range if 40/60 to 60/49. So we should hold Stocks and Bonds plus either Leverage (to get us back to a 100% Shares Return) or Cash (if the risk was too low).

I get the point that some people are concerned with low interest rates, but we need to remember that we should sistinguish between nominal and real interest rates. Plus we should not forget that Shares have the same Interest Risk. If we ignore the change in Interest we had the last 30 years, the realreturn of a current 60/40 Portfolio would probably beat the real return of a 60/40 from back im the 80s where we had high nominal imterest rates. The only reason why historically, that didnt happen was because Interest Rates have come down heavily and consequentially we realized corresponding paper gains on both Stocks and Bonds. The wuestion is if we post this Interest Cycle would want to speculate on a reversion in Interest Rates. If we wanted to do so, clearly we should then hold cash but not just to substitute Bonds but as well to substitute Shares.

If we dont want to speculate on Interest Rate developments; a Stock Bond Mix is still good these days…

This is true, but the premium you get for bonds over cash it’s not been static. Bonds used to give higher returns than cash, with higher variability. Nowadays you still get the added variability, with lower expected returns than cash.
Not sure how long this is going to last but at the moment we’re arbitraging the fear of banks of losing customers if they apply negative interests on saving accounts.
A negative correlation with stocks might still give bonds some benefits in a portfolio, but then cash is also uncorrelated with stocks…at a certain point it just becomes a good alternative


If we buy bonds in the current environment, yes we diversify into an asset not correlated to stocks, however the outcome seems highly likely to be a loss. See this article

“In fact, if you buy bonds in these countries now you will be guaranteed to have a lot less buying power in the future. Rather than get paid less than inflation why not instead buy stuff—any stuff—that will equal inflation or better? We see a lot of investments that we expect to do significantly better than inflation”

In Switzerland we actually have a cash-arb as retail investors right now.

If you want some lower volatility (hopefully negatively correlated with equities) exposure then just hold CHF.

Can hold ~CHF100k with a bank + ~CHF100k with IB and pay no interest. This is opposed to an institutional investor holding millions who would have to pay -0.76% for 2 year bonds or earn 0.138% on a 20 year bond with the SNB.

Since interest rate differentials are a thing this is somewhat equivalent to holding cash in other currencies (e.g. USD/EUR) at an arb too. Of course you have FX risk.

Makes cash slightly more appealing in this environment when asset valuations are so crazy. I am about 80/20 right now but scaling back to 100/0 with monthly adjustments over the next 1 year. Still have to be wary of sitting out the market for too long :slight_smile: .

One thing that has not been mentioned here is that chasing a bond with 1.5% nominal yield in USD or whatever currency which is expected to give maybe zero return long term due to higher USD inflation may give negative return after taxes because the owber pays 15-40% income tax on the 1.5% which reduces the return to somewhere around 1% for most of you.

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