BACK IN THE 1980s, Michael Milken earned notoriety as “the junk bond king.” With his swagger—and his toupee—Milken was an outsized personality in a normally staid industry. But that was four decades ago. It may have been the last time that bonds were truly interesting.
On most days, bonds are about as dull a topic in finance as you can find. But here’s the challenge for investors: While bonds might be boring, they’re important—and they can be tricky.
I’M NOT A MARKET addict. How can I be so sure? Because, on many occasions, I’ve been able to stop myself from trading excessively. Still, in July, the stars aligned to make me susceptible to another relapse.
A reluctant traveler at best, I was persuaded to accompany my wife Alberta to a 14-day writers’ conference in Upstate New York. I’m a confirmed introvert, so I groove on alone time. But 10 hours every day—while Alberta attended the conference—proved to be a challenge.
EVERY DAY, I READ about the Federal Reserve’s thinking on interest rates—increase, hold, decrease—and the possible impact on the economy. But what about the impact on savers?
As someone who has most of his non-stock monies invested in taxable certificates of deposit, high-yield savings accounts and money market funds, I have a different criterion for the right interest rate: It’s the rate that would give me and other risk-averse savers a modest real return of perhaps 1% a year,
MY FATHER RAISED ME to think that, if I set my mind to it, I could do just about anything. He said that concentrated focus and drive would allow me to reach my dreams, and that there was rarely a time when I should settle for average.
Maybe it’s no great surprise, then, that I hate being average. I’m above average in smarts, the kind that gets you a side order of noogies as a second grader.
MY FATHER WAS president of J.S. Collins and Son, a local hardware and lumber chain in southern New Jersey. Occasionally, he’d take me to the flagship location in Moorestown after hours. While he was back in his office doing important business, I wandered around the empty store and general office areas. At 10 years old, it was easy to get bored.
One day, I got the idea to pull out an empty drawer from one of the office desks.
I WAS HAVING DINNER in Santa Fe, New Mexico, with a new friend, Joseph. He told me of his frustration with his financial advisor. The two might meet for an hour, but afterward Joseph still didn’t know what to do.
“Explain it to me like I’m five,” he said to me. So I did.
Joseph has a PhD from an Ivy League university, so he doesn’t need a kindergarten story. Yet I understand his frustration.
I HAVE FOND MEMORIES of walking the Atlantic City boardwalk with my father, enjoying the ocean breeze and discussing life’s secrets. As I grew older, he used these walks to impart financial wisdom; nothing clears the head like the sound of rolling waves breaking over the sand. My father endeavored to fill my brain with notions about setting long-term goals and how best to achieve them.
“Let your money work for you,” he’d advise.
EXPERTS HAVE LATELY been recommending that investors shift some money from short-term bonds—which offer the highest yield these days—to longer-term issues, whose prices are more sensitive to interest rates.
Had I followed this advice—and I almost did—I’d have quickly lost money in what’s supposed to be the safe part of my portfolio. Bonds did indeed rally from their October 2022 lows, but have pulled back since early May. Vanguard Intermediate-Term Treasury ETF (symbol: VGIT) was down 4.2% from its May 4 peak through last Friday,
SOMEONE ASKED ME this week if he should own pork bellies in his portfolio. While he was kidding, this does get at a real question: Should you own commodities like cattle futures, gold, oil, lumber, soybeans and more?
Those who favor investing in commodities typically cite two benefits. First, commodities are seen as a bulwark against inflation. This is obviously a timely concern. Second, because commodities don’t move in lockstep with stocks or bonds,
THERE ARE CERTAIN things I did right during my financial journey, notably saving like crazy, tilting heavily toward stocks and favoring index funds. But if only all my doing had stopped there.
Looking back over almost four decades of investing, what I see is far too much tinkering. At various times, I’ve owned funds devoted to precious metals, global real estate, commodities, emerging market bonds and more. I know this tinkering devoured precious time—and I strongly suspect it hurt my investment results.
WE GET EXCITED WHEN our investments go up in price and disappointed when they fall. This is the logical “holder’s view” of a change in our immediate wealth. Some may feel the urge to buy more of the winners and sell any losers.
But there’s also an alternative way to view changing market prices: the “investor’s view.”
Consider that an investment’s price rise often indicates you’re taking a pay cut. Yes, you now have more money invested in that position,
IF YOU’RE LIKE ME, you’re always tempted to do something with your portfolio.
How should I invest if inflation stays high? What if interest rates come down? Am I well-positioned for that? Do bonds offer a better risk-reward than stocks right now and, if so, should I adjust my long-held stock-bond mix?
There’s been recent research and commentary, including two pieces from HumbleDollar’s Adam Grossman that you can find here and here,
EVEN AFTER BEAR markets in 2020 and 2022, investors’ appetite for stocks remains as robust as ever. But what if stocks had not just a rough year or two, but a dismal stretch that lasted more than a decade? Below is an excerpt from the second edition of my book The Four Pillars of Investing, which was published earlier this month.
In August 1979, BusinessWeek ran a cover story with the headline “The Death of Equities,” and few had trouble believing it.
MY FATHER, WHO DIED in 2007, collected coins in a haphazard fashion through the 1970s, ’80s and ’90s. I believe he did this in the hope they’d appreciate significantly in value. In other words, he did it as an investment, not as a coin collector pursuing a hobby.
I’ve now been assigned the family task of “seeing what we can get” for Dad’s coins. As an investor in the stock market, I’m curious: Did my father’s efforts pay off—or would he have been better off putting the money into stocks?
INVESTORS ARE OFTEN told that it’s impossible to consistently time the market. To do so successfully requires you to make two correct decisions: when to get out of stocks—and when to get back in.
In 2022, J.P. Morgan published a study showing that a lump sum invested in the S&P 500 over the 20 years through 2020 would have earned an annualized return of 5.2% if you’d missed the 10 best days, versus 9.4% if you’d stayed invested throughout the period.
