Bonds: The Unbeaten Path to Secure Investment Growth (Bloomberg)
by Hildy Richelson, Stan Richelson
List Price:
Our Price: $14.29
You Save: $10.66 (43%)
Availability: Usually ships in 1-2 business days
Buy Used: from $1.94 (click here)
Category: Book
See more book details and other editions
Book Summary Information
Author: Hildy Richelson, Stan RichelsonForeword: John Brynjolfsson
Edition: Hardcover
Audio: English (Unknown); English (Original Language); English (Published)
Published: 2007-08-15
ISBN: 1576602435
Number of pages: 352
Publisher: Bloomberg Press
Book Reviews of Bonds: The Unbeaten Path to Secure Investment Growth (Bloomberg)
Book Review: Not convinced on 100% bond portfolio
Summary: 3 Stars
A little background on myself. I have read over 200 books on investing. When I started investing back in 1979, I went 100% stocks. Back in 1979, the financial press was full of stories about retired people with bonds that were decimated by the high inflation of the late 1970's. Bonds were probably the worst investment back in that high inflationary environment. I stayed 100% stocks for 20 years, and then switched to 10% bonds in 1999. In late 2007, I switched to a 60:40 portfolio. I evaluated my need to take risk against my willingness to take risk...and settled on the time honored 60:40 portfolio of pension funds.
The authors of this book try to make the case for a 0:100 or all bond portfolio. They assert the 10% return of stocks is really 6-7% because of taxes, expenses, and bad timing.
Taxes reduce stock returns because of excessive trading by active mutual fund managers.
Expenses reduce stocks returns because of transaction costs and annual fees. Their assertion is 2% on large cap, 4% on small cap and foreign stock funds, and 10% on micro-cap and emerging markets.
Bad timing reduces the return of stocks because investors chase the winners and they buy high and sell low. The Dalbar studies have shown for years that most investors do not really get the market return of stocks. The authors cite the fact that the S&P 500 returned 12.8% from 1983-2003..while the average investor only got 6.3%. The author cites a Dalbar study where the market returned 12% and investors really got 4%.
The authors claim that a 100% bond portfolio solves all the issues that lower the return of stocks. They assert bonds are low cost if you buy them at their initial offering. They assert low fees if you hold the bonds to maturity. There is also no risk of bad timing if you hold the bonds until maturity. They also assert a laddered bond portfolio protects against rising interest rates (which I assume they also mean rising inflation). Tax free municipal bonds can also reduce taxes.
The authors also assert that future returns will not be 10% because this historic return is based upon higher dividend payout than we have today. Dividend yields used to be 5%, but in recent years have been about 1.8%. A recent Business Week article said about 40% of the total return of stocks from 1926-2008 was from dividends.
The authors asset that the longer you hold stocks, the higher the risk. Asset bubbles take a while to build, but eventually a Bear market arrives and wipes out the gains. But Bear markets are a part of investing.......we have had about 13 of them since WWII....or 1 Bear market ever 5 years on average.
I really thought the authors made a lame argument when they said that retirees can run out of money in retirement if they withdraw 10% per year and they have a Bear market early in retirement. The authors must not be aware of Bengen and the Trinity studies. Bengen demonstrated back in 1994 that 4% is about the maximum safe withdrawal rate in retirement......not 10%.
In my opinion, the authors could have made the case that from 2000 until 2008....investors should have tilted their portfolios more towards bonds than stocks. Because of the build-up of prices (PE ratio) in the 80s and 90s, history tells us future returns will be lower. The 1980's and 1990's were the glory years of stock returns.....with the S&P 500 with dividends reinvested returning compound growth rates of 18%.
After 2000, John Bogle and William Bernstein both predicted single digit returns about 6-7% nominal for stocks. Bernstein argued that if stocks return 6-7%, then investors should tilt more towards bonds because the extra risk of stocks is not going to compensate you with higher returns. John Bogle has been consistently advocating that investors should hold their age in bonds (age 70 equals 70% bonds). Neither Bernstein nor Bogle ever advocated 100% bonds.
With the S&P 500 now at 873, the dividend yield is up to 2.86%. The PE ratio is down from 23.6 in Nov 2007 to 16.5 in Nov 2008 (trailing PE). Stocks are now relatively cheap and I predict both Bernstein and Bogle will raise their predicted future returns of stocks.
In my mind, the authors failed to address the biggest issue with bonds......their failure to deal with inflation. A laddered bond portfolio doesn't really deal with an unexpected increase in inflation. Only a small fraction of the portfolio comes due each year and can be reinvested at a higher interest rate. The balance of the portfolio loses value with unexpected inflation.
Both Bengen's 1994 seminal study and the Trinity study showed that retirees can withdraw a maximum of an inflation adjusted 4% from their portfolio each year using 50% to 60% stock portfolios. I have run Monte Carlo simulations and have duplicated their results. What you find when you run Monte Carlo is that low stock portfolios (or high bond portfolios) don't deal with inflation.....and high stock portfolios are too volatile and you risk the chance of outliving your money. There is a sweet spot in the middle (maybe 40:60 to 70:30) which does the best.
As a fan of index funds, I could argue that using low cost index stock funds and staying the course should outperform an all bond portfolio. Vanguard has rock bottom expense ratios on the order of 0.18% on their S&P 500 fund. Taxes are extremely low on stock index funds because there is relatively low turnover compared to actively managed funds. A 60:40 portfolio comprised of 40% total US stock market, 20% total foreign stock market, 20% total US bond fund, and 20% TIPS is a very robust portfolio.
The author's recommendation of a 100% bond portfolio only makes sense if you are an investor who chases the winners and you achieve low stock returns per the Dalbar study. I guess in this situation you might be as well off using an all bond portfolio.
I would suggest you learn more about index fund investing by reading some of the books below. I'm sticking with my 60:40 portfolio. I don't think a 100% bond portfolio is the way to go because I know how to stay the course through the Bear markets that occur about every 5 years........and I don't think a 100% bond portfolio deals well with inflation.
In this age of full disclosure, it can be noted that I am the author and publisher of the book INDEX MUTUAL FUNDS: HOW TO SIMPLIFY YOUR LIFE AND BEAT THE PROS. This book is an introduction to the concept of index funds is and is sold on Amazon. I am also a contributing author to the book THE BOGLEHEADS GUIDE TO RETIREMENT PLANNING available from Amazon with an estimated release date of October 2009. I have also written 21 short stories on investing which are also available on Amazon.
If you want practical ideas on long term passive investing, read some of the books below:
The Richest Man in Babylon
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
The Millionaire Next Door
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life
The Bogleheads' Guide to Investing
Summary of Bonds: The Unbeaten Path to Secure Investment Growth (Bloomberg)
In "Bonds: The Unbeaten Path to Secure Investment Growth", two veteran investors expose the myth of stocks' superior investment returns and propose an all-bond portfolio as a sure-footed strategy that can ensure results. The book, an expanded and updated version of "The Money-Making Guide to Bonds", is designed to educate novice and sophisticated investors alike and serve as a tool for financial advisers as well. It explains why bonds can be the right choice and how to use them to achieve financial goals. It presents a broad spectrum of bond-investment options, describes how to purchase bonds at the best price, and, most important, shows how to make money with bonds.The wealthiest investors and financial advisers use the bond strategies outlined in this book to maximize the the return on their portfolios while providing security of principal. The strategies can help you determine how to use bonds in your portfolio and take control of your financial destiny. You'll be playing it smart while playing it safe.
Earn 15 hours of credit toward your CFP Board requirement.
Investing Books
Book Subjects
- Arts & Photography
- Biographies & Memoirs
- Business & Investing
- Children's Books
- Comics & Graphic Novels
- Computers & Internet
- Cooking, Food & Wine
- Entertainment
- Gay & Lesbian
- Health, Mind & Body
- History
- Home & Garden
- Horror
- Law
- Literature & Fiction
- Mystery & Thrillers
- Nonfiction
- Outdoors & Nature
- Parenting & Families
- Professional & Technical
- Reference
- Religion & Spirituality
- Romance
- Science
- Science Fiction & Fantasy
- Sports
- Teens
- Travel
Most talked about in Investing Books
Fixed Income Securities: Tools for Today's Markets, Second Editionby Bruce Tuckman
Wiley; Published: 2002-08-16; Hardcover; Book
Best price: $98.69
The Warren Buffett Way: Investment Strategies of the World's Greatest Investorby Robert G. Hagstrom
Wiley; Published: 1994-10; Hardcover; Book
Best price: $0.85
Price in other shops:
Foreclosure Investing For Dummiesby Ralph R. Roberts, Joe Kraynak
For Dummies; Published: 2007-05-29; Paperback; Book
Best price: $6.06
Price in other shops:
Uncommon Grounds : The History of Coffee and How It Transformed Our Worldby Mark Pendergrast
Basic Books; Published: 1999-06-01; Hardcover; Book
Best price: $26.75
Price in other shops:
Charles Schwab's Guide to Financial Independence: Simple Solutions for Busy Peopleby Charles Schwab
Crown; Published: 1997-12-24; Hardcover; Book
Best price: $0.01
Price in other shops:
Introduction to Derivatives and Risk Management (with Stock-Trak Coupon)by Don M. Chance, Roberts Brooks
South-Western College Pub; Published: 2009-08-11; Hardcover; Book
Best price: $185.10
Price in other shops:
Common Sense Economics: What Everyone Should Know About Wealth and Prosperityby James D. Gwartney, Richard L. Stroup, Dwight R. Lee, Tawni Hunt Ferrarini
St. Martin's Press; Published: 2005-02-01; Hardcover; Book
Best price: $4.83
Price in other shops:
Fundamentals of Futures and Options Markets (4th Edition)by John C. Hull
Prentice Hall; Published: 2001-06-29; Hardcover; Book
Best price: $14.06
Price in other shops:
An Introduction to High-Frequency Financeby Michel M.; Gençay, Ramazan; Muller, Ulrich A.; Olsen, Richard B.; Pic Dacorogna
Academic Press; Published: 2001; Hardcover; Book
Best price: $80.43
24 Essential Lessons for Investment Success: Learn the Most Important Investment Techniques from the Founder of Investor's Business Dailyby William J. O'Neil
McGraw-Hill; Published: 1999-12-13; Paperback; Book
Best price: $1.74
Price in other shops:
Similar Books and other products
Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions)by Benjamin Graham, David Dodd
McGraw-Hill; Published: 2008-09-04; Hardcover; Book
Best price: $34.99
Price in other shops:
Dynamic Asset Allocation: Modern Portfolio Theory Updated for the Smart Investor (Bloomberg Financial)by James Picerno
Bloomberg Press; Published: 2010-02-17; Hardcover; Book
Best price: $14.25
Price in other shops:
Lebenthal On Munis: Straight Talk About Tax-Free Municipal Bonds for the Troubled Investor Deciding "Yes...or No!"by Jim Lebenthal
Morgan James Publishing; Published: 2009-10-01; Paperback; Book
Best price: $5.99
Price in other shops:
Naked Guide to Bonds: What You Need to Know--Stripped Down to the Bare Essentialsby Michael V. Brandes
Wiley; Published: 2003-09-19; Hardcover; Book
Best price: $1.10
Price in other shops:
The Only Guide to a Winning Bond Strategy You'll Ever Need: The Way Smart Money Preserves Wealth Todayby Larry E. Swedroe, Joseph H. Hempen
Truman Talley Books; Published: 2006-03-07; Hardcover; Book
Best price: $12.90
Price in other shops:
The Strategic Bond Investor: Strategies and Tools to Unlock the Power of the Bond Marketby Anthony Crescenzi, Mohamed El-Erian
McGraw-Hill; Published: 2010-06-21; Hardcover; Book
Best price: $22.21
Price in other shops:
Bonds Now!: Making Money in the New Fixed Income Landscapeby Marilyn Cohen, Christopher R. Malburg, Steve Forbes
Wiley; Published: 2009-12-09; Hardcover; Book
Best price: $11.00
Price in other shops:
Bond Investing For Dummiesby Russell Wild
For Dummies; Published: 2007-10-01; Paperback; Book
Best price: $12.48
Price in other shops:
The Complete Guide to Investing in Bonds and Bond Funds: How to Earn High Rates of Returns - Safelyby Martha Maeda
Atlantic Publishing Company (FL); Published: 2009-01; Paperback; Book
Best price: $14.81
Price in other shops:
The Bond Book, Third Edition: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and Moreby Annette Thau
McGraw-Hill; Published: 2010-10-27; Hardcover; Book
Best price: $18.67
Price in other shops: