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« A Co-Signing Horror Story | Main | Reader Profile: YM »

September 03, 2012


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I don't blame you one bit! Enjoy your day off!

I'll be headed up to my parents house for some BBQ pork later today! Yummmmmmmmy!

Thanks FMF! Enjoy your day off.

And whatever you do, do it heartily, as to the Lord and not to men, knowing that from the Lord you will receive the reward of the inheritance; for you serve the Lord Christ. Colossians 3:23-24

While you're enjoying Labor Day, here's something to ponder about investing for the long term.
Bonds versus Stocks

VUSTX (Vanguard Long Term Treasury Bond Fund)
Last 24 years - Annual Return = 9.25%
Last 12 years - Annual Return = 8.67%
Worst possible drawdown = -17.37%

VFINX (Vanguard S&P500 Stock Fund)
Last 24 years - Annual Return = 9.58%
Last 12 years - Annual Return = 1.15%
Worst possible drawdown = -55.26%

Enjoy your Labor Day. I'm not blogging either. Just checking a few things and then will spend the rest of the day with families. :)

Just so you know, it's Labour Day in Canada too. Enjoy!

@Old Limey,

To be fair, the last 24 years have been part of global easing of credit coupled with continued downward pressure on interest rates. As we all know, bonds go up when rates go down which are now pushing the zero lower bound (at least on fed funds)

It seems unlikely that the next 24 years could produce returns like this for bonds given rates cannot go much lower. If rates were to rise over the next 24 years in anything similar to the fashion in which they declined in the previous 24, I suspect the results will look quite unfavorable for bonds.

I say this as a current holder of bonds.

The reasons why bonds are perfect for me but may not be for you are as follows.

I buy bonds for their income. I bought 15 bonds this morning as a matter of fact, when the secondary market opened. My cost was $15,000. These "A" rated California bonds mature in 8/1/2028 and pay 5.95% in interest that is free of federal and state taxes. Thus I will receive $892.50/year for the next 16 years. Then on 8/1/2028 when I receive my last interest payment I will also get my $15,000 back.

Over the next 16 years the $14,280 that I receive will get reinvested into more bonds along with the 3,340 muni bonds that I already have. I am not the slightest bit interested in making capital gains. I just want to receive lots of interest without risking my principal.

I do the same thing in our IRAs except there I use taxable bonds instead of muni bonds. If I add up our current income from all sources it's now getting very close to $400K/year and growing pretty much risk free each year. Unlike rental properties I don't have to deal with renters and damage to my properties.

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