Do you needs bonds?

[Zaxon]

So what's the most easily traded generic bond fund?

My thoughts on bonds are this. Because bonds are a risk asset - your capital can go down when bond prices drop, then the rate of return needs to significantly exceed the return of a high interest savings account, which is capital guaranteed.

The current yields on government bonds, as of today, are below



So 1.68% is the maximum yield you'd get if you bought into an Australian Government bond today. The highest HISA rate I found is (and many banks offer rates around this level):



At the moment, bond funds are getting good returns, but that's because bond prices increase as interest rates decrease. So in the shorter term, bond funds should do well. But as soon as interest rates go back up, bond ETFs will plummet.

On the evidence I'm seeing at the moment, over the long term, use HISAs instead of government bonds. And if you want a higher yield, go into corporate bonds.

 

[Junior]

My thoughts on bonds are this. Because bonds are a risk asset - your capital can go down when bond prices drop, then the rate of return needs to significantly exceed the return of a high interest savings account, which is capital guaranteed.

The current yields on government bonds, as of today, are below

View attachment 96110

So 1.68% is the maximum yield you'd get if you bought into an Australian Government bond today. The highest HISA rate I found is (and many banks offer rates around this level):

View attachment 96111

At the moment, bond funds are getting good returns, but that's because bond prices increase as interest rates decrease. So in the shorter term, bond funds should do well. But as soon as interest rates go back up, bond ETFs will plummet.

On the evidence I'm seeing at the moment, over the long term, use HISAs instead of government bonds. And if you want a higher yield, go into corporate bonds.

Strongly agree with this.

 

[Junior]

smurf, 2 musing points, u can still do the $25K super thing if not retired by telling the tax man (at 15%),

Can use your $25k each year up to age 65 (in some cases 66yo), regardless of work situation.

After you turn 65 you must meet the "work test", each year that you wish to make tax deductible contributions into super. Can keep doing this until age 75.

 

[Smurf1976]

Wow! This is "upside down land", but it's a fascinating approach. So you're effectively pretending you're retired, living off your savings, and secretly working as well. And you've placed financial independence as the absolutely #1 priority above all else. Nice.

So the withdrawal come from the cash inside your investment pool. The 4% creates the "budget". But the cash is really mostly from your wage?

I simply reconcile the accounts fortnightly.

The "physical" cash comes about from dividends, working etc since it would be silly to be moving money back and forth for the sake of it but "on paper" 100% of income goes into the investment pool and there's a fortnightly withdrawal based on the current value.

The withdrawal amount is then split into three streams and there's an online "high interest" account associated with each for the purpose of storing cash. The three streams being "bills", "depreciation" and "everything else".

Bills = anything for which the underlying expense is incurred on an ongoing basis but where payment is required in infrequent "lumps". Utilities, rates, insurance, car rego, routine car servicing, vet costs, etc.

Depreciation = fund for the replacement of any durable item which wears out. Furniture, appliances, car etc. Clothes and any other personal items are not in this category.

Everything else = food, clothing, petrol, entertainment, travel etc.

The "three streams" approach I've been using constantly since 1 January 2008 and the "living off investments" approach since 1 January 2018. That they're 10 years apart is purely coincidental although choosing 1 January in both cases was a matter of rounding to what seemed a logical start date for simplicity of accounting.

It all sounds a bit complex but there's no serious software involved, just a basic spreadsheet and a note book, and it takes about half an hour once a fortnight to administer.

 

[aus_trader]

I am looking into putting a small % into local or mixed bonds. I think like Gold, Bonds can also be a small part of a portfolio that can withstand the good and bad times of the economy. They provide steady income without the big swings in price.

The US bonds could be the exception IMHO so I won't touch them. Things may look OK now in these, but one day when the ballooning US multi-trillion dollar US Govt debt hits a critical mass, could they turn to 'junk bond' status ?

 

[qldfrog]

This is a most interesting thread especially as better half and I stopped working on the 1rst of july
And at 52,using my official super is not for tomorrow
I like @Saxon 4pc principle
All my spreadsheet work was based on a xxk per year plus inflation methodology with a big risk in case of crash
I see a big advantage in using a % method indeed
I have never used budgeting per se, frugal livestyle was always enough, but with no clear income stream anymore, i probab should now, to avoid bad surprise at eofy when doing the figures or tightening the belt unnecessarily
I have to say it is a weird feeling to stop all work in a household at 52
But the ASF was integral part in us achieving this, 25y after landing in Australia for the first time in Adelaide with a visa and a backpack
Thanks Australia for giving me the opportunity

 

[Value Collector]

I am not sure what age you have to be, but I have heard that some super funds allow people to start drawing a pension while still working, and deposit 100% of their wage into their super, so it’s like what smurf is doing,

Let me see if I can dig up some details to see if it’s still possible.

 

[Value Collector]

Check out this link.

Scroll down to where the heading talks about saving tax.

https://www.moneysmart.gov.au/super...nt/income-from-super/transition-to-retirement

 

[Zaxon]

"living off investments" approach since 1 January 2018.
It all sounds a bit complex but there's no serious software involved, just a basic spreadsheet and a note book, and it takes about half an hour once a fortnight to administer.

I'm all for "playing retirement": a good test before the real thing. I'm thinking there is one difference. Currently, you have new money coming into your investments (wage) to top them up, whereas once you retire, this won't be the case. Hypothetically, if your wages stopped tomorrow, how do you think you would go?

And in your current system, what plans do you have for when the market crashes? Do you have a cash buffer - a portion of the 4% put aside, or do you just fall back on wages at that point?

 

[Zaxon]

I am looking into putting a small % into local or mixed bonds. I think like Gold, Bonds can also be a small part of a portfolio that can withstand the good and bad times of the economy. They provide steady income without the big swings in price.

So this is gold/bonds as an ongoing investment strategy to smooth your returns, as opposed to parking shorter term money in them?

The US bonds could be the exception IMHO so I won't touch them. Things may look OK now in these, but one day when the ballooning US multi-trillion dollar US Govt debt hits a critical mass, could they turn to 'junk bond' status ?

I would think that US Government bonds would always be secure. The 'beauty' of government bonds in that the government can always print more money to pay the coupon, and they have control of incoming taxes.

 

[Zaxon]

This is a most interesting thread especially as better half and I stopped working on the 1rst of july
And at 52,using my official super is not for tomorrow

Hey, congrats! You're where most of us would like to be. And yup, 8 more years until you can access your super.

I like @Saxon 4pc principle
All my spreadsheet work was based on a xxk per year plus inflation methodology with a big risk in case of crash
I see a big advantage in using a % method indeed

It's a good system, and it gives you a stable and predictable income. What's your investments breakdown look like, as to the percentage of shares/ETFs/bonds/cash etc?

I have never used budgeting per se, frugal livestyle was always enough, but with no clear income stream anymore, i probab should now, to avoid bad surprise at eofy when doing the figures or tightening the belt unnecessarily

We do the same thing: try and be frugal, but don't budget per say. I think both methods can work. But if a person doesn't have the mindset for frugality, then a budget is a must.

I have to say it is a weird feeling to stop all work in a household at 52
But the ASF was integral part in us achieving this, 25y after landing in Australia for the first time in Adelaide with a visa and a backpack
Thanks Australia for giving me the opportunity

Excellent. A success story! And where are you from originally?

 

[Zaxon]

I am not sure what age you have to be, but I have heard that some super funds allow people to start drawing a pension while still working

A TTR (Transition to Super) is quite useful. I can image two groups of people using that. Foremostly, blue collar workers who have worn out their bodies, and physically need to cut back. And secondly, other folks who could work full-time, but want to reduce the stress of full-time hours. Depending on your industry, I suspect a lot of people wouldn't be given that choice. It would be a rare employer who would allow a full-time employee to scale back their hours at will. But if you were in a part time job or had casual hours anyway, then it's doable.

 

[qldfrog]

@Saxon give me a couple of days and i will publish a % per type of assets on the 01/07 right now i
am doing a bit of reconciliation and milestone printouts etc
I obviously have a gross idea but want to do a double check review and finer split
I come from France originally but the eastern part near the German Swiss border..aka the industrious..not the striking 30h per week type...

 

[aus_trader]

So this is gold/bonds as an ongoing investment strategy to smooth your returns, as opposed to parking shorter term money in them?

I would think that US Government bonds would always be secure. The 'beauty' of government bonds in that the government can always print more money to pay the coupon, and they have control of incoming taxes.

Yes, definitely long term. I am not going to be trying to move in and out of (trade) bonds.

But will stick with either "AAA" rated or very close to it such as Australian or other well managed nations for Govt bonds. US bonds are OFF the table. Even the investments greats like Warren Buffet's buddy Charlie Munger has talked about the new paradigm that they are in and how all the asset prices have been artificially lifted by excessive money printing that has taken place. He is very happy that the money printing "experiment" has given Berkshire Hathaway amazing returns especially in the last 10 years from the asset price increases but as a 95 year old he also has concerns how it could all play out in some future date.

Good point you made about Corporate bonds as well Zaxon. As long as offered by well run companies, they'll also be ON the table. They offer better yields than Govt. bonds.

Haven't considered this boring asset class in the past.

Thank you for starting this thread, I do need some 007' in my mix.

The Name Is Bond, James Bond

 

[qldfrog]

In response to @Zaxon
Outside ppor which we will soon put on sale to move out of brisbane area and expect a bit of a cash surplus in the switch
Assets are
22pc mandatory super in a bond cash conservative setup,
physical gold 4pc,
18pc residential RE,.
12pc industrial RE,

5pc usd cash,,
6pc cash AUD
The rest in shares:
Some in USD in wall street: bit gold us bonds and technology roughly 7pc
Remaining on asx with a system trial as per my thread here, and the rest in ultra conservative bboz, pmgold, qpon,bonds
a few plays..which usually fails like SEA or RTF etc

In summary 30pc real estate, 30pc cash and gold, 30pc ultra conservative with usd exposure
At the time, it is a wealth preservation setup
If the economy keeps booming, RE inc PPOR will keep going up compensating for the losses/missed opportunities of the portfolio.
If we crash, i make a killing with my conservative approach and have the cash to take new opportunities compensating for the RE fall
Time will tell

 

[Zaxon]

22pc mandatory super in a bond cash conservative setup,
physical gold 4pc,18pc residential RE,.12pc industrial RE,
5pc usd cash,,6pc cash AUD
The rest in shares:

You certainly have spread your investments to all corners of the investment realm. Well done.

 

[qldfrog]

Spreading means also no stellar returns, but retired at 52.no loss during GFC, good use of TD at 7pc when available ..in my time ..
And a lot of lessons..hopefully..learnt

 

[qldfrog]

And just a bit of early warning banks will soon lot of release a lot of hybrids which are going to be much more risky than current ones.interesting paper in afr
Not strictly bonds but nabha, etc style

 

[aus_trader]

Remaining on asx with a system trial as per my thread here, and the rest in ultra conservative bboz, pmgold, qpon,bonds

Not sure if bboz is conservative, it's actually internally leveraged so it will rise/drop faster than asx in % terms. The others are quite conservative and good wealth preservation instruments IMO.

Good mix overall, to weather whatever the markets can throw at you.

 

[qldfrog]

I still have awful issues with posting from my mobile so my apologies for posts with repeats, correction jumping all over the place etc..still no real clue why...only on ASF