yes, back then the fed was raising rates 1% at a time. Money markets paid 10%. Tax free munis 13%. Mortgage rate 14%Quote from sneakoner:
Holy jeez I just did a search for a historical yield of 30-year bonds and it peaked at 15% in the early 80's.
Quote from oldtime:
yes, back then the fed was raising rates 1% at a time. Money markets paid 10%. Tax free munis 13%. Mortgage rate 14%
noboby wanted to buy a five year cd because they knew by the time it matured they could be making a lot more
everybody was making 10% and not even keeping up with inflatioin. at 10% you double your money every seven years
for diversification just for diversification's sake, if you don't want to be in 100% stocks (which I still think long term is the best place to be) you could look at GLD or one of the commodity etf's. And no kidding, it's probably a little early, but at some point here, an inverse bond fund. But we are talking 10% or less of your total liquid net worth. Personally, I keep 10% of my stock portfolio in GLD. But that is just to adjust for inflation.Quote from sneakoner:
Money markets aren't paying anything right now and I thought bond funds would be the next best thing - low risk with high enough return to beat inflation...I was right with the short term and intermediate term funds but I didn't realize how volatile long term bond funds are.
gotta disagree with you Frank, the funds let the bonds mature and rollover. If the new bonds they buy have a higher yield eventually it catches up. So there is no difference from an individual who buys a bond and lets it mature and then buys a new one at the new rate and a bond fund, who just does all that for you at a reduced cost in most cases.Quote from FrankSlaughtery:
to the op - bond funds are way different than owning individual bonds b/c by definition they never mature. you can't just say "it's down 30% but i'll wait for it to rebound" b/c there is no maturity. it may rebound years later but you don't know for sure.
i've seen financial advisors put their clients money into bond funds as cash alternatives and the client thinks they won't lose money b/c it's a bond fund and the advisor only did it so they can get paid whereas they wouldn't get paid if it was in cash.
long duration bonds (>10 years) esp long bonds will get crushed during a rising rate environment. the 30 and 10 year yields are in a classic uptrend now which means rates are heading up after hitting a low last summer (1.39 on the 10 year). you can easily be down 25%+ in a long duration bond fund.
just b/c bernanke said he won't raise rates for 100 years doesn't mean long rates won't go up. he doesn't control long rates only short ones.
with the bullish employment report yesterday the economy is looking up which is terrible for bonds. the fed is buying a majority of all treasury debt issued - what happens when they stop? i'm not saying they're going to tomorrow but the market will begin to price end an eventual pulling back of QE.
my advice - if you need cash w/ the next 6 months put it in a mm fund that's fdic insured or the bank. if you still want to diversify switch to a shorter duration fund (duration less than 5 ideally less than 2.5).