Interesting to see posts about bonds from 2-3 years ago. It’s likely that most of these bond holders had their safe/stable bond holdings get crushed by higher interest rates over the last few years. I know I certainly did.
My take on the foreign bond question is that it does not hurt to have some of your bond allocation in foreign fixed income. I like the call out on a Total International Bond fund/ETF that’s hedged. But save yourself the tax headache of having to pay foreign taxes and take a foreign tax credit by holding the fund/ETF in a non-taxable account.
Here’s my “filter”: We own stocks for “return ON our money” and bonds for “return OF our money”. If a foreign bond fund doesn’t make you feel comfortable, or your planned allocation to it won’t “move the needle”, then maybe Uncle Sam should be your holding.
Many investors hold bonds to provide ballast in their portfolios. I don’t believe foreign bonds are superior to domestic bonds in fulfilling this role. Foreign bond funds are often more expensive than domestic bond funds and developed market bonds have yielded less during the past several years. U.S. investors don’t need to own foreign developed market bonds. EM bonds may be an option for investors who can tolerate the added volatility and potential losses.
Markowitz influenced my attitudes about Fixed Income a lot. I like Treasuries, Tips, and Stable Value Funds. These are about as close to ‘risk free’ as an asset can be for a US investor. I compare SEC Yields, and decide where to invest. Right now, with a 2.6% yield, it seems to make sense to have all my fixed income in a Stable Value fund.
Note: not all Stable Value funds are created equal. It’s important that it be backed by top-rated insurers. Also, SV funds often have redemption limitations, so one should understand those and know they can live with them before committing large sums to the fund.
Probably not necessary, but for diversification purposes I think it is advisable. I think the currency risk argument that many use to argue against international bonds (or even international stocks) is often one-sided. Yes, you take on currency risk, but you lower the currency risk associated with a nearly 100% dollar-denominated portfolio.
If you consider cyberspace a foreign country, you might want to consider one of the Bitcoin denominated bonds. After all, Cathie Woods of ARK Investments fame, predicts bitcoin will be worth $500,000 USD. She also just invested $246 million in Coinbase stock.
The bitcoin bonds include:
FOMO (ISIN: LU2014382175) lasts 18 months and offers monthly growth of 0.55%, annual growth of 6.67%
HODL (ISIN: LU2014382902) lasts three years, with a monthly growth of 0.58% and an annual growth of 7%
LAMBO (ISIN: LU2014382258) has the longest term at five years, promising a monthly growth of 0.67% and an annual return on investment of 8%
I like Warren Buffett’s quote from January about bitcoin better. He called it: “Probably rat poison squared.”
I don’t think that’s necessary. With ex-US bonds yielding just 0.9% in aggregate right now (vs. 1.6% US), I’d just stick with US bonds and perhaps emerging market bonds. Then use ex-US equities for international diversification. The bond market outside of the US is more of a currency play while the US vs. ex-US stock market difference is driven by other factors such as sector and industry performances, growth vs. value, small cap vs. large cap.
I have about 17% of my bond allocation in foreign bonds, and all of that is in Vanguard Total International Bond. It’s currency-hedged, which keeps the price more stable, as opposed to Vanguard’s Total International Stock, which isn’t. I’ve always thought of Vanguard as pretty conservative but here’s what they say about foreign bonds:
“Adding some currency-hedged, foreign bonds could potentially increase your portfolio diversification. An allocation of about 20% to 50% of your bonds in a low-cost, currency-hedged, international bond fund is a reasonable approach to capture the diversification benefits.”
20% – 50% seems like a pretty hefty allocation to me!
I’m not a fan of owning foreign bonds for a little extra yield. I want dependability and stability in my fixed income exposure. I own foreign stocks for growth but no foreign fixed income.
I own Emerging Market Govt bond through Vanguard ETF (VWOB), but nothing else at this point. I suppose exposure to foreign bonds can help diversification. Some target-date retirement funds have them too. But the current yield on developed market bonds gives me a pause. I’ve moved most of my Bond portfolio to short-term US treasury and high-quality corporate bond fund. As interest rate goes high, I’d reconsider venturing more into foreign bonds.
Interesting to see posts about bonds from 2-3 years ago. It’s likely that most of these bond holders had their safe/stable bond holdings get crushed by higher interest rates over the last few years. I know I certainly did.
My take on the foreign bond question is that it does not hurt to have some of your bond allocation in foreign fixed income. I like the call out on a Total International Bond fund/ETF that’s hedged. But save yourself the tax headache of having to pay foreign taxes and take a foreign tax credit by holding the fund/ETF in a non-taxable account.
Here’s my “filter”:
We own stocks for “return ON our money” and bonds for “return OF our money”.
If a foreign bond fund doesn’t make you feel comfortable, or your planned allocation to it won’t “move the needle”, then maybe Uncle Sam should be your holding.
Many investors hold bonds to provide ballast in their portfolios.
I don’t believe foreign bonds are superior to domestic bonds in fulfilling this role.
Foreign bond funds are often more expensive than domestic bond funds
and developed market bonds have yielded less during the past several years.
U.S. investors don’t need to own foreign developed market bonds.
EM bonds may be an option for investors who can tolerate the added volatility
and potential losses.
Markowitz influenced my attitudes about Fixed Income a lot. I like Treasuries, Tips, and Stable Value Funds. These are about as close to ‘risk free’ as an asset can be for a US investor. I compare SEC Yields, and decide where to invest. Right now, with a 2.6% yield, it seems to make sense to have all my fixed income in a Stable Value fund.
Note: not all Stable Value funds are created equal. It’s important that it be backed by top-rated insurers. Also, SV funds often have redemption limitations, so one should understand those and know they can live with them before committing large sums to the fund.
If you own a foreign car you bought a depreciating currency hedged asset, certainly an A rated or better foreign bond is no worse.
I’ve done well with FEMDX Franklin Templeton emerging debts fund. I have about 10% of my bond exposure there.
Probably not necessary, but for diversification purposes I think it is advisable. I think the currency risk argument that many use to argue against international bonds (or even international stocks) is often one-sided. Yes, you take on currency risk, but you lower the currency risk associated with a nearly 100% dollar-denominated portfolio.
If you consider cyberspace a foreign country, you might want to consider one of the Bitcoin denominated bonds. After all, Cathie Woods of ARK Investments fame, predicts bitcoin will be worth $500,000 USD. She also just
invested $246 million in Coinbase stock.
The bitcoin bonds include:
I like Warren Buffett’s quote from January about bitcoin better. He called it:
“Probably rat poison squared.”
I don’t think that’s necessary. With ex-US bonds yielding just 0.9% in aggregate right now (vs. 1.6% US), I’d just stick with US bonds and perhaps emerging market bonds. Then use ex-US equities for international diversification. The bond market outside of the US is more of a currency play while the US vs. ex-US stock market difference is driven by other factors such as sector and industry performances, growth vs. value, small cap vs. large cap.
I have about 17% of my bond allocation in foreign bonds, and all of that is in Vanguard Total International Bond. It’s currency-hedged, which keeps the price more stable, as opposed to Vanguard’s Total International Stock, which isn’t. I’ve always thought of Vanguard as pretty conservative but here’s what they say about foreign bonds:
“Adding some currency-hedged, foreign bonds could potentially increase your portfolio diversification. An allocation of about 20% to 50% of your bonds in a low-cost, currency-hedged, international bond fund is a reasonable approach to capture the diversification benefits.”
20% – 50% seems like a pretty hefty allocation to me!
I’m not a fan of owning foreign bonds for a little extra yield. I want dependability and stability in my fixed income exposure. I own foreign stocks for growth but no foreign fixed income.
I own Emerging Market Govt bond through Vanguard ETF (VWOB), but nothing else at this point. I suppose exposure to foreign bonds can help diversification. Some target-date retirement funds have them too. But the current yield on developed market bonds gives me a pause. I’ve moved most of my Bond portfolio to short-term US treasury and high-quality corporate bond fund. As interest rate goes high, I’d reconsider venturing more into foreign bonds.