Two best performing stocks in our portfolio today are $CXO and $PE with a sharp rise in $OIL prices.
Do you NEED BONDS in your PORTFOLIO? 🏦
In the past, it was common to have a portfolio with both bonds and stocks. Benjamin Graham recommends buying both in his book The Intelligent Investor. But now, investors are less interested in bonds.
What actually is a bond? A bond is a loan with a maturity. Most bond have a coupon rate which is the interest on that loan.
Usually, the bond market is twice as big as the stock market but in recent years, the stock market has been growing without much growth in the bond market. The US stock market has a total market capitalization of $34 Trillion while the bond market has a market cap of $40 Trillion. The reason for this are low interest rates. With low interest rates, the coupon rates on the bonds are low and consequently, the yields are low. There is no incentive to invest in bonds. Investors prefer stocks. In Germany, government bonds have negative yields. Who wants to buy such bonds? You want to be paid an interest by the German government and not pay them the interest. There is currently $16 trillion of bonds with negative yields worldwide.
There is a rule that says that you need to have "your age%" of your portfolio in bonds. I'm 24, therefore, I need 24% of my portfolio in bonds. That's not exactly the case. I have some short-term bonds through the ETFs $HSV $BSV $MINT but these are short term bonds and only act as a replacement for cash. Every bond with a maturity of less than 3 months is considered cash equivalents. When we say that Warren Buffett has $122 billions in cash, it is mainly through short term bonds. It is better to have short-term bonds and be paid a small interest than just holding cash. What really interest us are long-term bonds? Do you need them?
As far as the rule above is concerned, if you are an entrepreneurial investor, it doesn't apply to you. This is something that defensive investors should consider. I believe that you need to have some long-term bonds in your portfolio. Now it is easier than ever to buy bonds. You can buy long-term treasury bonds, for example, through the iShares 20+ Year Treasury Bond ETF $TLT . Over the last months, this bond ETF has been outperforming the stock market. Over the trailing twelve months the S&P 500 $SPX500 lost around 1% while the TLT ETF gained 21%. There is a negative correlation between the stock market and long-term bonds. It is time to consider buying some bonds since there is a bear market coming. Sooner or later, it will come. Another way to buy bonds is to look at them individually. You can buy bonds from your own country or city. But you need to do a good research first. You can also buy corporate bonds. Tesla $TSLA issued over $5 billion worth of bonds last year. You can buy these bonds(they are not easy to buy unless you have a lot of money) or from any other company. But always do your homework. You can also have exposure to the bond market by investing in a company like Travelers $TRV . They currently have $67 billion of their assets in bonds, mostly corporate and municipal bonds, 97.7% of which are investment graded.
I believe that any investor should have some exposure to the bond market but the amount really depends on you. How much risks you are willing to take? How much reward do you want? How much time can you devote to this analysis?
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