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From today's Toronto Star:

At first thought, there is nothing quite as comforting as the safety of government bonds. You’re guaranteed to get your money back when they mature, the coupons are paid on a regular basis, the risk of default is miniscule and if you are in a pinch, you can always sell them for cash.

And yet, I really don’t like bonds and don’t own any. Why not? Here are six reasons and if any my arguments resonate, you should consider lightening up on your bond holdings as well.
 

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From today's Toronto Star:

At first thought, there is nothing quite as comforting as the safety of government bonds. You’re guaranteed to get your money back when they mature, the coupons are paid on a regular basis, the risk of default is miniscule and if you are in a pinch, you can always sell them for cash.

And yet, I really don’t like bonds and don’t own any. Why not? Here are six reasons and if any my arguments resonate, you should consider lightening up on your bond holdings as well.
Hard to disagree with the reasons why Prof. Milevsky prefers not to hold bonds. Here are my reasons for holding them:

1. I'm a stock -- and a very volatile stock at that -- not a bond. I work in the semiconductor industry that is closely tied to the vagaries of the global economy.

2. I do not have a DB plan.

3. I own short-term bonds -- a good hedge against inflation. Of course, in a deflationary period, bonds will outperform.

4. The most important role for bonds in a portfolio is to reduce volatility. Most people just can't handle the volatility of 100% in stocks.

5. Tax isn't an issue. I just hold bonds in a tax-sheltered account.
 

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I agree with many of these points. I do, however, feel for the retired or soon-to-be retired without large DB pensions. With bond yields where they are, they don't have very good options available to them.

Also, here:

"Inflation-linked bonds do offer protection but the measure of inflation is defined by the same government that has to make the payments. Who’s going to get the better deal? That conflict of interest worries me."

The same concern applies to DB pensions and indexed life annuities.
 

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Discussion Starter #6
p.s. Moshe likes to introduce himself at the "Stock or Bond?" seminars he gives this way:

Hi, my name is Bond -- Moshe Bond.
 

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With all due respect to Prof. Milevsky, there are valid reasons to hold bonds.
CC listed some of them very well.
I have heard many of such never buy this, never buy that, always do this, and other such extreme opinions.
Like our dearly MIA Leslie would buy only pref. shares and nothing else.
Some folks swear by bonds and will not touch anything else.

I personally like bonds for the stability and income it provides.
I have often looked into prefs. but never bought any because I'm taking equity-like risk for less-than-bond yields.
I also find that short term bonds and lower end of mid-term bonds provide adequate inflation protection, as long as you ladder them or rotate them upon maturity.
I would say though bond mutual funds aren't worth it.
ETFs are probably ok, as long as the fees are less than 25 bps.

Again respectfully, I'd say that Prof. Milevsky's #6 reason is really his #1 reason - he just won't admit it.
 

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I absolutely agree with HaroldCrump.
Its all about reason # 6.

The "Professor" Moshe does not need to buy bonds, because WE , the taxpayers are buying them for him....Through his government pension!
And it's a disgrace!

He will get a big defined pension, ( tied to inflation), because he works for us!
He is a government employee, so he can laugh and dance knowing he will collect for life...and we have to bite our toungues knowing we will have to pay him, and those like him forever!

This means rising taxes for us, and quite possibly , our children.

The rest of us have to save, into a defined contribution plan,,,,which means we have to live off of our OWN money.

Thats why he can be so cavalier about not buying bonds...if his portfolio drops by being 100% in global stocks right when he needs the money to eat...he need not worry as his next govenment pension check, ( which we are paying to him), is in the mail.
Then he squacks about the taxes "he" would have to pay on his bond income. ( Rest assured NOBODY hates taxes more than me).

The public services unions will destroy this country if we can't find politicians at all three levels of govt, who will finally say enough is enough and stand up to these thugs. ( The Toronto garbagemen's union comes to mind).

As for us regular folk....bonds and fixed income are a neccessary part of your asset allocation....to provide stability, and income...the percentages are up to each individuals risk tolerance etc.

Anthony
 

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^

I don't think professors make undue wages because they are public employees. The market for academics is pretty competitive, and you have to pay for talent. Private universities are often as or more generous than their public brethren.

Now, garbage collectors on the other hand...
 

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I think there's always a place for bonds in your portfolio although long term bonds are not looking very attractive right now, short term bonds are still relatively safe. Just adjust your allocation based on the market.

I made at least 10% on a lot of the bonds that I bought in 2009 because there was concern that companies would go bankrupt.

Like CC said, I am able to stabilize the volatility of my portfolio by having short term bonds using XSB.TO. It also pays interest monthly!
 

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ANDREWF..

As far as I'm concerned, EVERY public employee is overpaid.....and most of them are underworked too.

I think what bothers me the most is that their pay and benefits are way out of line with what people in the private sector get for similar duties.
The perks they get including those fat pensions can only be dreamed about by regular working people, especially the middle class.

Its Governments at ebery level that have constantly caved, and given in to these ludicrous union demands that have cause the problems we have today with these massive deficits.
The politicians would all rather settle , and not cause waves, and leave the problem to whomever is in power years down the road,,,,at which time, by
the way, they too will be collecting their own fat pensions.

The whole thing is a joke and a disgrace.
\Sorry for the rant,but Im sick and tired of the mess all these guys created.

Back to XSB..( short term bond etf)
I have been thinking of buying some,,,but as I look at individual bonds, the yields are so low that it makes no sense to buy them.
If thats the case whay would buying an ETF full of short term bonds make any more sense?
I have been grappling with this for a while now, as like everyone else I am looking for some yield.

By buying XSB you are buying todays short bonds,( at low yields), and paying up for yesterdays existing bonds, but at a premium due to the low rate environment of today.

What am I missing???
Any thoughts would be appreciated.
 

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I don't think you are missing something.
With bonds you have a couple of time-tested strategies: staying short and laddering.
When you stay short (like with XSB), you are essentially saying that mid and long term yields do not compensate you enough for the interest rate and other risks and, in some cases, the lack of liquidity.
With short term bonds, you (or the ETF on your behalf) will be cycling the bonds and thus always stay in step with the short term expected inflation.

With laddering, you are essentially saying you are not betting on any particular direction of interest rate movement.
You will be re-cycling your debt every 5 years (for example) and thus secure a higher yield at those points.
This will work as long as the yield curve loosely resembles an acute angle.
If the curve is flat, this strategy will be indifferent.

I agree with your comment about the imbalance between the public sector and private sector.
Tax revenues generated from the private sector pay for the fatcats.
Yet the benefits and compensation of the private sector is inferior to that of public sector, esp. security, vacations and pensions.
Long ago, the base salaries of public sector for similar job roles was quite a bit less than the private sector.
That inequality has been reduced with the excuse that public sector was not able to attract and retain the required talent and skills.
Now instead, we have the reverse inequality where the private sector workers are funding the decadent lifestyle of their public sector counterparts, yet I don't see any perceptible appreciation of the average talent/skills in the public sector.
 

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During the heart-wrenching drop in the equity markets in 2008, I was mightly glad that I had 40 percent of my portfolio in bonds!!!!!!!!!!!!!

Most of my friends with government pensions don't have to worry about how the stock market is performing as those indexed cheques just keep rolling in like clockwork. GIC's are good enough for their purposes.

There are those that have and those that have not. It is endlessly maddening that public service workers are the ones that receive the best pensions fully indexed and paid for by the taxpayers who are sinking deeper and deeper in the hole. How did that ever come about in the first place?

I say to keep the ones who are willing to give up their gold-plated, indexed pensions in return for those similar to what private sector workers receive and fire the rest.

(Note: I have deleted my earlier comment and apologize to any who I offended).
 

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1. What Keith said. We've had this discussion to death on this board.

2. University professors are not actually public servants.

3. Here's the latest data on university professor salaries from Statistics Canada. One could make the argument that, given the number of years of training required, university teaching staff are *underpaid* compared to other professions with similar training requirements:

http://www.statcan.gc.ca/pub/81-595-m/2009076/t/tbl002-eng.htm

If you look at all of the categories (tenured, assistant, etc.) across all universities, full-time teaching staff earn an average of about $80K to $122K.
 

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If you buy XSB, don't expect a return of more than 3%. Since they are short term bonds, there is much less volatility so I feel pretty safe. I'm happy with it for about 5% of my portfolio or as a place to hold it until I want to move it to somewhere else. Recently I've been asked to help with a second mortgage that pays 7% interest over 1 year so I'll probably switch over to that.


I agree with over payment of government employees as well which is why my long term plan is to get a government job. I have to join them if I can't beat them.
 

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To: MONEYGAL

1) University Professors, for all intents and purposes are indeed public servants.

2) Do you really think , on average , that they are worth 80-122K a year??

How much real work do you think they do for that renumeration?

Personally I do not,,,,,and the ones I have known are, almost to a point, left wing idealists and socialists, who wouldn't last 2 weeks in the real world.
That was absolutely my experiance as well, many years ago, when I went to university , and was actually "bullied" by my professors and some fellow studentsfor being a young capitalist, and letting my free market views known.

I dare say many middle class workers would love to earn even that "low end" $80 K a year you posted.......and have job security, ridiculously generous benefits, and a fully indexed pension to look forward to forever!


Of course until some courageous politician takes the bull by the horn, things will never change.
I myself came within a breath of running for city council here in Toronto, as Rob Ford candidate. Maybe nesxt time.

Back to XSB...

Harold, I do understand laddering..I own individual bonds set to mature at different intervals and years. Unfortunately for me,,,,several of these bonds have been redeemed early due to the low rates corps can now get, leaving me with cash that I cannot get the same yield with today.
This is known as interest rate risk and it happens,

My point is that if individual short bonds are not worth buying,,,,,,why then would an ETF that holds short term bonds be worth buying??

The ETF has the same problems as I . the reatil ivestor has,,,the only diff being that as a big buyer, they can buy the bonds cheaper than I can,which certainly is a benefit.

Certainly , though, I am staying away from any long term bonds at all.

Which leads to the prolem we are all having.....getting some reasonable yield on our cash and bond holdings without going too far out on the risk curve.

For that I have bought high yield bonds. I also have a few preferred shares ...but all are cumulative, and all have retraction dates, unlike the new batch of re-set prefs that are being pushed now, which I dont really like.

Any thoughts or suggestions?
 

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Moneygal...

What exactly did your smug remark prove?

I assumed this board was a place where ideas could be discussed with some mutual respect.

I studied Finance long enough , in the real world, to run successfull small businesses, and to live off my investments alone, without working for many , many years, while still being years away from collecting my CPP.

That being said, I am smart enough to know that I dont know everything, that theres always a different opinion to consider, and that I might learn a thing or two on this board.

Why are you on here , exactly?
 

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1. What Keith said. We've had this discussion to death on this board.

2. University professors are not actually public servants.

3. Here's the latest data on university professor salaries from Statistics Canada. One could make the argument that, given the number of years of training required, university teaching staff are *underpaid* compared to other professions with similar training requirements:

http://www.statcan.gc.ca/pub/81-595-m/2009076/t/tbl002-eng.htm

If you look at all of the categories (tenured, assistant, etc.) across all universities, full-time teaching staff earn an average of about $80K to $122K.
I am a full professor at one of the universities listed. I do a significant amount of teaching and research. While the StatsCan website lists numbers that seem quite generous, in fact, my university contributes less than $5000 per annum to my income. The reason: I am a physician. My clinical income is subsidizing the university, which could otherwise not afford to pay me for my time.
 
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