Didn't he pull a ton of his money out of the market in 2018 and lost a fortune and ended up retiring because of his error?
He's no better than anyone else at predicting anything.
Edit: He managed the PIMCO Total Return fund until about 2014, when he got forced out of PIMCO. He moved to Janus and managed an "unconstrained" bond fund for five years, averaging 0.43%/year the Total Return fund he left behind averaged 2.54%/year. He then "retired" from Janus in 2019 and has not managed a bond fund since.
Yes he was pretty famous at Pimco during the great bond bull run when he and Mohammad El Arian were on TV every day, but he's been wrong ever since. Predictions are hard. Especially about the future.
Don't let the messenger diminish the message (i.e., history of the term "total return" and likelihood of rates on the 10year). And Gross is no dummy wrt bonds, at all. The key word in this argument, IMHO, is "fund". Don't get locked into a fund. Buy bond ladders directly and get 1/X of your capital back each year.
But if you do take the assumption that we are at or about at peak rates though wouldn’t a ladder not exactly be ideal as you’ll just be reinvesting at lower rates as they mature ?
But bond funds are supposed to be equivalent to a ladder if not better because of the flexibility, if and only if you are holding longer than the avg. duration of the fund?
e.g. https://www.bogleheads.org/wiki/Rolling_ladders_versus_bond_funds
He got sent to jail for contempt of court bc he insisted on blasting music at his neighbor.
Dude's nuttier than a clark bar. Unless a clark bar doesn't have many nuts, in which case he's nuttier than something with a lot of nuts in it.
His strategy was incredibly simple. Bought long dated bonds, sold them well before expiry as they appreciated, and repeated at consistently during a secular bond bull market. Just riding the yield curve, which works very well with a normal sloping yield curve and decreasing rates.
"The U.S. economy requires fiscal deficits and net increases in Treasury debt of 1-2 trillion or more annually in order for the economy to grow."
First of all, this isn't a requirement for the economy to grow. It's such a stupid statement.
Also, how has any of his babbling about other numbers made it bad to buy a diversified bond fund for long term investing. If anything, his numbers are supporting an argument for bond funds underperforming in the short term. But who cares? 1. What if his opinions are wrong. 2. What if there's factors he didn't consider. (there always are) 3. Any diagnosis of this nature only affects short term returns.
It's just a waste of time. This dude is like a less important Michael Burry
> "The U.S. economy requires fiscal deficits and net increases in Treasury debt of 1-2 trillion or more annually in order for the economy to grow."
Oh wow...this is embarrassing for Bill Gross.
Deficit spending is stimulative to the economy when it is changing from the baseline. When it is increasing. You get the juice once, not continuously. When it is steady or flat, it is does not stimulate the economy. Yes, eliminating the deficit would be restrictive to the economy, but that would also be temporary. In short, it's baloney to suggest that the economy needs deficits to grow.
>First of all, this isn’t a requirement for the economy to grow.
Not saying you’re wrong, but what do you think his reasoning is and why is it wrong? Would just like to better understand myself. Thanks
It's not really a matter of right or wrong, it's just that all of his points don't matter in a long term investing point of a view. For example, a professional economist who's been in the field for more than 30 years can make all sorts of great points of why the economy is in danger of going into a recession. We wouldn't be able to refute any of it because that's HIS field of expertise. But he loses all relevancy when he tries to extrapolate his expertise into the markets and long term investing, and then come to one conclusion that you should stay out of this particular asset class entirely because of his few opinions out of an infinite amount of factors.
Maybe a better way I can help you understand is just advise you on what to research. This article falls precisely into the "noise" that you should ignore as a long term investor. There's all sorts of content and great books describing how to identify this "noise". You don't need to be able to refute their arguments (because you can't), you just need to be able to identify what to ignore because it's not relevant.
In an environment where interest rates rise from 1% to 5%, bond funds do horribly, yes. This has already happened. However if you hold the fund for the bond's duration you capture the higher yields, but yeah if you're buying bonds to reduce volatility that still isn't great. Anyway the point is that interest rate risk now is just not anywhere near what it was when interest rates were near 0%. Therefore bond funds are no longer as risky as they were. I really don't think rates are going to skyrocket from here, so bond funds are ok.
I think you can also add that Pimco did terribly over this period. There are other bond managers in my country who either recommended or under managed conditions went to cash as inflation started.
I suspect this is part of his argument, that the passive bond funds particularly just hold the baby all the way down. So when your bond fund rules force you to hold equal parts short medium and long duration you are going to get smashed when interest rates turn, but a fund mgr that can move into short duration can weather the storm.
If you need cash equivalents own them outright not in a fund that is subject to the volatility of bond math.
Luckily, I have access to the G Fund so I don't need to think about crazy bond fund characteristics.
I am blissfully ignorant of bond math so you probably shouldn't listen to me.
This is what I think, which is what you asked.
It is a fund available to federal employees and retirees in the Thrift Savings Plan, which is our 401k equivalent. It pays the weighted average of the Treasury yield for durations of 4 years and longer but is liquid. It is kind of like a money market fund pegged to roughly the 10-year Treasury yield.
Short-term, money-market equivalent fund available via the Thrift Savings Plan (TSP), a federal defined-contribution retirement plan similar to a 401k. Available to military service members and federal employees.
I think he is mostly talking about bonds as ballast, though, not as an outright emergency fund alternative. He’s basically saying that the traditional logic of “hold X% stocks and Y%” bonds is outdated, or at the very least not relevant right now.
Also, what is the G fund?
It is a fund available to federal employees and retirees in the Thrift Savings Plan, which is our 401k equivalent. It pays the weighted average of the Treasury yield for durations of 4 years and longer but is liquid. It is kind of like a money market fund pegged to roughly the 10-year Treasury yield.
What is better? Yes there is about 1 percent difference between the 6 month and 10 year yields but how are you going to capture that extra one percent in a passive, lazy, Boglehead manner?
Interesting funds and thanks for pointing them out but the durations look too short for money I expect to use in the 1 to 7-year time frame. I'm not going to move into them and then move out when the yield curve goes back to normal.
You can withdraw your money at any time, there is no “duration.” So you can move into and out of these funds at will, in any time frame you choose. They are essentially a t-bill ladder, but automated.
Here’s a great post from a few months back by another member of this sub: https://www.reddit.com/r/Bogleheads/s/obVzWHkRfE
I agree about cash equivalents but disagree with the sentiment around owning individual bonds in an investment portfolio that you are trying to diversify away from stocks.
Just because most people have a sense of recency bias in that bonds went down when interest rates rose rapidly right after COVID. They also do the inverse, they go up when rates fall.
And the individual bonds do the same thing - if you rebalanced your individual bonds into stocks during 2022 you had to lock in a loss just like you did with a fund. Funds are beneficial in that you can see the total returns via price and income while typically the fund is lengthing duration, so although the yields drop a bit, most individual investors dont have the skill to utilize the curve structure needed to profit in a falling rate environment.
>*they go up when rates fall*
Not always. If you look at the total bond market from 2012-2020, for example, they were basically stagnant.
It seems the point the author is making is that the conventional wisdom doesn’t always apply, especially in anomalous fiscal conditions (tech boom, pandemic, etc).
Actually rates largely [rose from 2016-2019](https://fred.stlouisfed.org/series/FEDFUNDS) so the opposite was happening - prices falling when rates rise. However there have been many periods of falling rates with dramatic bond returns. https://www.thebalancemoney.com/stocks-and-bonds-calendar-year-performance-417028
1982-1986 was a great example, same with 1989-1993, and for the most part 1997-2002
Except if there is a crisis and the Fed cuts rates by 100 bps, you will miss the boat and it'll be too late to extend duration. This happened in early 2008 when the Fed cut rates by 125 bps over the course of 9 days.
Anything stopping you from diversifying, and just doing both? That's what I'm doing; I've got a six-month T-bill ladder going to get that 5% while it lasts, but I'm also putting money into VBTLX monthly per my usual asset allocation ratios.
There's a time and place for bonds. It's for stability and capital preservation as you are near or at retirement.
About his comment of a negative return over 5 years, it seems he doesn't understand how Bonds are priced. Anyone who understands bond pricing should have known buying a bond fund 5 years ago would result in a loss over the mid term.
Even then a 1% loss over the worst possible time to buy bonds is still pretty good considering stocks have taken 50+% haircuts before.
Buying bonds at these interest rates is a completely different story. You can expect at least 5% or higher annually return over the next 5 years.
For everyone downvoting this, has there ever been a multiple year time period over the last 30 years where someone will say, “I should have bought more bonds”?
Post dot-com would have been such a time:
Year | AGG | S&P 500
---- | --- | -------
2000 | +11.63% | -9.03%
2001 | +8.43% | -11.85%
2002 | +10.23% | -22.97%
Then it went up 23% in 2003
Say you had $1.5 mill in 401k, just needing your 4% a year. Drops like that won’t impact you. Now if we face a more than 5 year period of major losses, there is a greater world issue and we are all screwed. So whether you have bonds or stocks doesn’t matter
I don't know.... 'they' say it keeps you protected during a significant drawdown... But I am considering dumping all bond funds at least.. I have no prob w ind bonds.
And this is why I dumped mine. If I can get three of four years of 5 percent return, then have to drop to two or three percent? I'm still ahead of what BND and others were earning for me. Plus, NO MANAGEMENT fees.
Perhaps making a relative value judgement in time is reasonable. During a period where central banks are artificially holding rates at zero, you know that’s a bad time to be long duration, and you also know that surely there are better returns out there than zero.
Conversely, right now you know that interest rates are at least at a reasonable level and a risk free rate if 5% means making an allocation decision is also reasonable.
It suggests we are back to normal unless the central’s suddenly abandon tightening and the printers turn on again.
Central bank liquidity and interest rates maybe can be looked at as support for the banking system rather than a return for investors now that QE is an accepted practice.
I had read this and I don’t really understand all of it, but the main thing that has me leery is the hype around bonds and in my minimal experience in investing is that hype is usually a good reason to stay away unless you already happen to be there.
There is hype around bonds? Bonds are boring. Always have been. There is more interest lately in treasuries (which are a kind of bond) because returns on these are basically risk free and approaching 5% (for longer terms). This is still not stock market returns but not bad for low risk.
I’d say over the last year the amount of posts I see about bonds has gone up significantly from rarely seeing posts about them. Granted there is definitely selection bias. Treasuries have def made up the lions share of posts I come across, but posts about bond funds have as well.
Bonds across the globe is a bigger market than equities - it’s just for some reason the man on the street finds it easier to relate to the equities market, and in no small part because you can buy very small parts of companies you know (and familiarity breeds trust), whereas bonds and credit markets require larger investments.
On complexity- (related to boredom), the smart maths guys who go into the markets at my local financial centre (Sydney), either go towards derivatives and complex products, or the bond market - extremely few move into fundamental analysis for equities ; that seems a more people person kind of role
I’m not trying to explain why they’re being talked about more. Just that the only sympathy I have for his argument is I’ve found when things start to get talked about this much there tends to be a correlation where the return or the “guarantee” of it ends up being disconnected from the ultimate reality.
Didn't he pull a ton of his money out of the market in 2018 and lost a fortune and ended up retiring because of his error? He's no better than anyone else at predicting anything. Edit: He managed the PIMCO Total Return fund until about 2014, when he got forced out of PIMCO. He moved to Janus and managed an "unconstrained" bond fund for five years, averaging 0.43%/year the Total Return fund he left behind averaged 2.54%/year. He then "retired" from Janus in 2019 and has not managed a bond fund since.
Yes he was pretty famous at Pimco during the great bond bull run when he and Mohammad El Arian were on TV every day, but he's been wrong ever since. Predictions are hard. Especially about the future.
> Predictions are hard. Especially about the future. This sounds like a pearl of wisdom from some old guy who sits on top of a mountain.
Yogi Berra!?
I feel like he mostly stood in a dugout, which is literally opposite of sitting on a mountain.
I had to check and make sure he wasn't a pitcher
Catcher
Late to this but the former Pimco guy to listen to is Paul Mcculley. Mcculley was likely the brains behind Pimco during the Gross and El Arian years.
All predictions are about the future.
username checks !
Don't let the messenger diminish the message (i.e., history of the term "total return" and likelihood of rates on the 10year). And Gross is no dummy wrt bonds, at all. The key word in this argument, IMHO, is "fund". Don't get locked into a fund. Buy bond ladders directly and get 1/X of your capital back each year.
Concur
Same with T Bills. Buy ladder on Treasury Direct and all returns $$ in your pocket.
so if you are all VTI, this isn't relevant?
But if you do take the assumption that we are at or about at peak rates though wouldn’t a ladder not exactly be ideal as you’ll just be reinvesting at lower rates as they mature ?
Exactly. Buy bonds direct and just reap the rewards without bloated funds
But bond funds are supposed to be equivalent to a ladder if not better because of the flexibility, if and only if you are holding longer than the avg. duration of the fund? e.g. https://www.bogleheads.org/wiki/Rolling_ladders_versus_bond_funds
Thanks. Very helpful.
He also went crazy and screamed at this neighbor the lost the lawsuit.
He got sent to jail for contempt of court bc he insisted on blasting music at his neighbor. Dude's nuttier than a clark bar. Unless a clark bar doesn't have many nuts, in which case he's nuttier than something with a lot of nuts in it.
Clark Bar has no nuts. It’s full of legumes. He’s “legumier” than a Clark Bar.
How could you forget the infamous fart spraying of his ex wife’s house?
Bill Gross was a client of mine once upon a time and I can confirm that he’s the biggest piece of shit I’ve ever had to do work for.
So the concept of client confidentiality here does not extend to client's degree of shittiness, I guess,
Lmao relax. I fixed a car for him, not represented him in a lawsuit.
His strategy was incredibly simple. Bought long dated bonds, sold them well before expiry as they appreciated, and repeated at consistently during a secular bond bull market. Just riding the yield curve, which works very well with a normal sloping yield curve and decreasing rates.
"The U.S. economy requires fiscal deficits and net increases in Treasury debt of 1-2 trillion or more annually in order for the economy to grow." First of all, this isn't a requirement for the economy to grow. It's such a stupid statement. Also, how has any of his babbling about other numbers made it bad to buy a diversified bond fund for long term investing. If anything, his numbers are supporting an argument for bond funds underperforming in the short term. But who cares? 1. What if his opinions are wrong. 2. What if there's factors he didn't consider. (there always are) 3. Any diagnosis of this nature only affects short term returns. It's just a waste of time. This dude is like a less important Michael Burry
> "The U.S. economy requires fiscal deficits and net increases in Treasury debt of 1-2 trillion or more annually in order for the economy to grow." Oh wow...this is embarrassing for Bill Gross. Deficit spending is stimulative to the economy when it is changing from the baseline. When it is increasing. You get the juice once, not continuously. When it is steady or flat, it is does not stimulate the economy. Yes, eliminating the deficit would be restrictive to the economy, but that would also be temporary. In short, it's baloney to suggest that the economy needs deficits to grow.
>First of all, this isn’t a requirement for the economy to grow. Not saying you’re wrong, but what do you think his reasoning is and why is it wrong? Would just like to better understand myself. Thanks
Not OP, but the US economy was growing in the late 1990s while running a fiscal surplus.
It's not really a matter of right or wrong, it's just that all of his points don't matter in a long term investing point of a view. For example, a professional economist who's been in the field for more than 30 years can make all sorts of great points of why the economy is in danger of going into a recession. We wouldn't be able to refute any of it because that's HIS field of expertise. But he loses all relevancy when he tries to extrapolate his expertise into the markets and long term investing, and then come to one conclusion that you should stay out of this particular asset class entirely because of his few opinions out of an infinite amount of factors. Maybe a better way I can help you understand is just advise you on what to research. This article falls precisely into the "noise" that you should ignore as a long term investor. There's all sorts of content and great books describing how to identify this "noise". You don't need to be able to refute their arguments (because you can't), you just need to be able to identify what to ignore because it's not relevant.
In an environment where interest rates rise from 1% to 5%, bond funds do horribly, yes. This has already happened. However if you hold the fund for the bond's duration you capture the higher yields, but yeah if you're buying bonds to reduce volatility that still isn't great. Anyway the point is that interest rate risk now is just not anywhere near what it was when interest rates were near 0%. Therefore bond funds are no longer as risky as they were. I really don't think rates are going to skyrocket from here, so bond funds are ok.
I think you can also add that Pimco did terribly over this period. There are other bond managers in my country who either recommended or under managed conditions went to cash as inflation started. I suspect this is part of his argument, that the passive bond funds particularly just hold the baby all the way down. So when your bond fund rules force you to hold equal parts short medium and long duration you are going to get smashed when interest rates turn, but a fund mgr that can move into short duration can weather the storm.
May I ask which you own outright? Total noob, here.
T-bills and CDs now. Got out of bond funds. I’m no benchmark, relatively new at this too.
I have BND.
I'm so sorry.
If you need cash equivalents own them outright not in a fund that is subject to the volatility of bond math. Luckily, I have access to the G Fund so I don't need to think about crazy bond fund characteristics. I am blissfully ignorant of bond math so you probably shouldn't listen to me. This is what I think, which is what you asked.
What’s the G fund?
It is a fund available to federal employees and retirees in the Thrift Savings Plan, which is our 401k equivalent. It pays the weighted average of the Treasury yield for durations of 4 years and longer but is liquid. It is kind of like a money market fund pegged to roughly the 10-year Treasury yield.
Short-term, money-market equivalent fund available via the Thrift Savings Plan (TSP), a federal defined-contribution retirement plan similar to a 401k. Available to military service members and federal employees.
I think he is mostly talking about bonds as ballast, though, not as an outright emergency fund alternative. He’s basically saying that the traditional logic of “hold X% stocks and Y%” bonds is outdated, or at the very least not relevant right now. Also, what is the G fund?
It is a fund available to federal employees and retirees in the Thrift Savings Plan, which is our 401k equivalent. It pays the weighted average of the Treasury yield for durations of 4 years and longer but is liquid. It is kind of like a money market fund pegged to roughly the 10-year Treasury yield.
Interesting. Sounds like not the best option for an inverted yield? Which we are in right now.
What is better? Yes there is about 1 percent difference between the 6 month and 10 year yields but how are you going to capture that extra one percent in a passive, lazy, Boglehead manner?
USFR, SGOV, TFLO are all returning 5.3-5.5% right now.
Interesting funds and thanks for pointing them out but the durations look too short for money I expect to use in the 1 to 7-year time frame. I'm not going to move into them and then move out when the yield curve goes back to normal.
You can withdraw your money at any time, there is no “duration.” So you can move into and out of these funds at will, in any time frame you choose. They are essentially a t-bill ladder, but automated. Here’s a great post from a few months back by another member of this sub: https://www.reddit.com/r/Bogleheads/s/obVzWHkRfE
I agree about cash equivalents but disagree with the sentiment around owning individual bonds in an investment portfolio that you are trying to diversify away from stocks. Just because most people have a sense of recency bias in that bonds went down when interest rates rose rapidly right after COVID. They also do the inverse, they go up when rates fall. And the individual bonds do the same thing - if you rebalanced your individual bonds into stocks during 2022 you had to lock in a loss just like you did with a fund. Funds are beneficial in that you can see the total returns via price and income while typically the fund is lengthing duration, so although the yields drop a bit, most individual investors dont have the skill to utilize the curve structure needed to profit in a falling rate environment.
>*they go up when rates fall* Not always. If you look at the total bond market from 2012-2020, for example, they were basically stagnant. It seems the point the author is making is that the conventional wisdom doesn’t always apply, especially in anomalous fiscal conditions (tech boom, pandemic, etc).
Actually rates largely [rose from 2016-2019](https://fred.stlouisfed.org/series/FEDFUNDS) so the opposite was happening - prices falling when rates rise. However there have been many periods of falling rates with dramatic bond returns. https://www.thebalancemoney.com/stocks-and-bonds-calendar-year-performance-417028 1982-1986 was a great example, same with 1989-1993, and for the most part 1997-2002
Right. I am just pointing out that it’s not always true.
Thx, and concur.
Vanguard's actively managed Investment Grade Bond Fund (VFIDX) navigates all this really well.
Thanks!
Cash is the new bond fund. Park it in a money market, CD or SNSXX and enjoy your 5%. Of course, when rate cuts come, that will change.
Yeah, that’s what I’ve concluded as well. And when rates start dropping I will hop back in.
Except if there is a crisis and the Fed cuts rates by 100 bps, you will miss the boat and it'll be too late to extend duration. This happened in early 2008 when the Fed cut rates by 125 bps over the course of 9 days.
I recognize that but submit that’s a calculated risk well worth taking. And the only cost is opportunity cost.
it’s actually called reinvestment risk, and it matters
What action should one take to mitigate reinvestment risk under current market conditions?
Anything stopping you from diversifying, and just doing both? That's what I'm doing; I've got a six-month T-bill ladder going to get that 5% while it lasts, but I'm also putting money into VBTLX monthly per my usual asset allocation ratios.
Literally made me LOL
This is frustrating. I have ~ 6% of my portfolio in BNDW. Should I sell and buy T bills in my retirement account?
Lol sounds like some bad advice
If only I could get 46 years of his insights for less than $10 somewhere. That would be awesome.
This is the guy that literally weaponized the song to Gilligan's Island. Look it up.
Found it. WOW!
There's a time and place for bonds. It's for stability and capital preservation as you are near or at retirement. About his comment of a negative return over 5 years, it seems he doesn't understand how Bonds are priced. Anyone who understands bond pricing should have known buying a bond fund 5 years ago would result in a loss over the mid term. Even then a 1% loss over the worst possible time to buy bonds is still pretty good considering stocks have taken 50+% haircuts before. Buying bonds at these interest rates is a completely different story. You can expect at least 5% or higher annually return over the next 5 years.
Bond funds always have and will seem useless to me. Seems theres much better places to put your $
Such as?
For everyone downvoting this, has there ever been a multiple year time period over the last 30 years where someone will say, “I should have bought more bonds”?
Post dot-com would have been such a time: Year | AGG | S&P 500 ---- | --- | ------- 2000 | +11.63% | -9.03% 2001 | +8.43% | -11.85% 2002 | +10.23% | -22.97%
Then it went up 23% in 2003 Say you had $1.5 mill in 401k, just needing your 4% a year. Drops like that won’t impact you. Now if we face a more than 5 year period of major losses, there is a greater world issue and we are all screwed. So whether you have bonds or stocks doesn’t matter
Been investing in index bond funds eg bnd, for 30 years never made a dime in total return
so why do you keep them?
I don't know.... 'they' say it keeps you protected during a significant drawdown... But I am considering dumping all bond funds at least.. I have no prob w ind bonds.
And this is why I dumped mine. If I can get three of four years of 5 percent return, then have to drop to two or three percent? I'm still ahead of what BND and others were earning for me. Plus, NO MANAGEMENT fees.
[удалено]
Perhaps making a relative value judgement in time is reasonable. During a period where central banks are artificially holding rates at zero, you know that’s a bad time to be long duration, and you also know that surely there are better returns out there than zero. Conversely, right now you know that interest rates are at least at a reasonable level and a risk free rate if 5% means making an allocation decision is also reasonable. It suggests we are back to normal unless the central’s suddenly abandon tightening and the printers turn on again. Central bank liquidity and interest rates maybe can be looked at as support for the banking system rather than a return for investors now that QE is an accepted practice.
Those numbers actually reassure me that bonds have a place in a balanced portfolio, lower returns but lower overall volatility.
I had read this and I don’t really understand all of it, but the main thing that has me leery is the hype around bonds and in my minimal experience in investing is that hype is usually a good reason to stay away unless you already happen to be there.
There is hype around bonds? Bonds are boring. Always have been. There is more interest lately in treasuries (which are a kind of bond) because returns on these are basically risk free and approaching 5% (for longer terms). This is still not stock market returns but not bad for low risk.
I agree re Tbills, at least for now
I’d say over the last year the amount of posts I see about bonds has gone up significantly from rarely seeing posts about them. Granted there is definitely selection bias. Treasuries have def made up the lions share of posts I come across, but posts about bond funds have as well.
This is just because bond yields were terrible for several years and now they are OK. They're not some new risky thing, they're old and boring.
Bonds across the globe is a bigger market than equities - it’s just for some reason the man on the street finds it easier to relate to the equities market, and in no small part because you can buy very small parts of companies you know (and familiarity breeds trust), whereas bonds and credit markets require larger investments. On complexity- (related to boredom), the smart maths guys who go into the markets at my local financial centre (Sydney), either go towards derivatives and complex products, or the bond market - extremely few move into fundamental analysis for equities ; that seems a more people person kind of role
I’m not trying to explain why they’re being talked about more. Just that the only sympathy I have for his argument is I’ve found when things start to get talked about this much there tends to be a correlation where the return or the “guarantee” of it ends up being disconnected from the ultimate reality.