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Are Bond Funds Good Long Term Investment?

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Are Bond Funds Good Long Term Investment?

Postby burghere » Wed Apr 24, 2013 3:45 pm

I know in the short term, interest rates may rise, but i'm talking about long term say 10-20 years to invest in a bond fund.
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Are Bond Funds Good Long Term Investment?

Postby haniel » Wed Apr 24, 2013 4:13 pm

Every great investor that ever has been will tell you that, in the long term, stocks are always a better investment than bonds. The stock market averages a gain of 10-11% per year (this includes recessions and crashes). If you are investing money and do not need it within the next 5 years, you are always going to be much better off investing in the market. As time progresses, and you get closer to the time at which you will need the money, you should start shifting your assets to safer investments such as CDs, money market funds, or bonds. In other words, bonds are best for short term investments when you need to make sure you will have the money in a few years.

Lets say that, for example, you invested $10,000 in the stock marker today and it crashed tomorrow. In 10 or 20 years, you would have significantly more money than if you had invested that $10,000 in bonds today. Even though the market crashed and you immediately lost a lot of your wealth, it is regained and grows significantly faster than investing in the bonds. The only time you want to invest in bonds is because they are very a lot safer than the stock market in the short term. If you invested $10,000 in bonds then the bond market can't "crash" tomorrow and lose a bunch of money for you. However, you are not making much interest from bonds, especially with the current interest rates.

EDIT: So I suggest you invest in index funds (these follow the major indexes such as the DJIA, S&P 500, and the Nasdaq. You will average 11% gain every year. Do not forget that, as time progresses you want to shift your money into safer investments. Imagine if you were 1 month from retirement and the stock market crashed?

@Nobel obviously you don't know wtf you are talking about. The dow has gained 44% since march 09. Hate to break it to you, but this is a much greater yearly gain than 11%. The data shows that the market has historically averaged 11% return. This includes the depression and recessions. Keep your opinions out of it, there is only room for actual facts here. Haha, leave it to this guy to equate the 2008 stock performance to the next 10-20 years. And yes, you are bad at math.

@zuma let's take a look at the DOW since 1929:
http://finance.yahoo.com/echarts?s=^DJI+Interactive#chart1:symbol=^dji;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
But on second thought, screw that. Let's focus on the anomaly that occurs when we have two adjacent and drastic recessions within an 8 year period.

In other words, you're absolutely right. The stock market is a terrible idea, assuming we have a drastic recession every 4 years for the rest of time.

@zuma when did I say "buy and hold"? I didn't o.O And I'll reiterate that the past 10 years have been an anomaly in the larger period of 81 years. For someone to imply that the market for the next 20 years will be similar to the last 10 years (I'm referring to Nobel, not you) shows an lack of understanding of the financial markets.

It is common for inexperienced investors to focus on the recent performance of the stock market and discount anything else. They will be "scared out" when the market has corrections, and will be confident when the market is booming. This strategy leads to the opposite of a logical investing strategy, buying high, and selling low.
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Are Bond Funds Good Long Term Investment?

Postby tupac94 » Wed Apr 24, 2013 4:25 pm

You normally will rate a better return through stocks. Like Dex said most financial advisers, sites, magazines will tell you the further out you are from retirement the more you should have in the market, stocks, options, ETF's commodities, REIT's. The second thing you are likely to hear is diversify, diversify. The closer you get the more you want to shift into fixed income which includes bonds, CD, treasuries, so that you are now investing for income more than growth. The main shift in thought regarding being in the market, is the buy and hold strategy, which hurt so many in 2008. If the same people would have bought and sold those same stocks over the same 10 year period their gains would have exceeded the 10-11% normal 10 year average. What these people had were unrealized gains so now the shift is to realize your gains. Once you hit a certain amount or percentage in gains, within one year or a couple of years, then sell a portion of that holding, that way you get back a portion if not all of you original investment. Then you can roll that back into more of the same of move on to something else. Just take a look back and see the ups and downs over any 10 year period to see how selling several times and re-buying in dips would have benefited the investor better than the buy and hold.

So the theory Dex mentioned still holds but with modifications. Another benefit of this is you pay taxes as you go along instead of paying on one large amount in 20 years, putting you in a higher tax bracket. Hopefully you can take advantage of putting the maximum you can into an IRA so you can defer or pay no taxes on these realized gains.
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Are Bond Funds Good Long Term Investment?

Postby tier » Wed Apr 24, 2013 4:46 pm

You normally will rate a better return through stocks. Like Dex said most financial advisers, sites, magazines will tell you the further out you are from retirement the more you should have in the market, stocks, options, ETF's commodities, REIT's. The second thing you are likely to hear is diversify, diversify. The closer you get the more you want to shift into fixed income which includes bonds, CD, treasuries, so that you are now investing for income more than growth. The main shift in thought regarding being in the market, is the buy and hold strategy, which hurt so many in 2008. If the same people would have bought and sold those same stocks over the same 10 year period their gains would have exceeded the 10-11% normal 10 year average. What these people had were unrealized gains so now the shift is to realize your gains. Once you hit a certain amount or percentage in gains, within one year or a couple of years, then sell a portion of that holding, that way you get back a portion if not all of you original investment. Then you can roll that back into more of the same of move on to something else. Just take a look back and see the ups and downs over any 10 year period to see how selling several times and re-buying in dips would have benefited the investor better than the buy and hold.

So the theory Dex mentioned still holds but with modifications. Another benefit of this is you pay taxes as you go along instead of paying on one large amount in 20 years, putting you in a higher tax bracket. Hopefully you can take advantage of putting the maximum you can into an IRA so you can defer or pay no taxes on these realized gains.
NO
Bonds and stocks are generally invested in opposite markets. When stocks are hot bonds are cold. When stocks are cold , bonds are hot. There is a bond bubble right now, and it may have already burst. If you buy Bonds, make sure you buy short term. One or two years. Make sure you know what kind of bond you are buying and the rating on the bond.
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Are Bond Funds Good Long Term Investment?

Postby radmund » Wed Apr 24, 2013 4:57 pm

No.

"So I suggest you invest in index funds (these follow the major indexes such as the DJIA, S&P 500, and the Nasdaq. You will average 11% gain every year."

Dex is a goof. When did that happen Dex? It hasn't happened in the last 10 years. It was closer to zero than 11%...and the Nasdaq to 100% higher 10 years ago. Last I checked losing half your money doesn't equate to a 11% return. Maybe I'm bad at math.
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Are Bond Funds Good Long Term Investment?

Postby erwinek67 » Wed Apr 24, 2013 5:00 pm

Get Ready...10 years of "Buy and Hold", ..might be ready to Break Even...crawling back to zero.

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=s+p+500&sid=&o_symb=s+p+500&freq=2&time=13


Compared to a Long Term Corp. Bond Fund for ..10 years

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=DEEIX&sid=0&o_symb=DEEIX&freq=2&time=13&x=24&y=15

And maybe you traded out in Sept....Winner Bonds, whether you traded or not.

@dex....The Stock Markets alright and it'll beat bonds, it's "Buy and Hold" that's no good....
You have to ...Trade...Stocks and Bonds, and if you don't they'll skim away your profits, you can't beat them, you have to join them....The Stock Market 1929 - 1995 (up to the Start of the Internet) was a different animal.
1995 - 2010 is volatile, with major moves manipulated by bloody crooks, and they're not through either..I predict it'll all calm down when "Baby Boomers" are all past retirement, and pension calculations, are finalized..Financial Books are Dated Material, and if we wait for them to confirm it, Well then they took your money..again.
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