Interest Rates Probably Will Not Rise Any Time Soon

fmdog44

fmdog44

Well-known Member
Location
Houston, Texas
Read that last week. I have several CDs maturing this year and at the low rates I think I'll hold off rolling them over at much lower rates. I can equal or better most rates with a couple banks I have. Either way 2% stinks.
 

in the mean time bonds have been great . my long treasury bond fund TLT has produced 23% over the 1 year and and 7% ytd as well as averaged 9% the last 3 years .

my fidelity corporate bond fund is up 16% over the 1 year .

fidelity total bond up 10.20% over the one year .

fidelity floating rate bond fund up 6.80% over the one year .
short term bond funds also up over 5%

this is why cash instruments should be kept to a minimum ... usually over any given time frame bond funds of matching duration will perform better than the equivelent cd's ...

the problem is when rates rise people have no idea how to compare a bond fund return so they think the cd did better ... nope , rarely the case.

most amateur investors have no idea how to match fund duration's to their money needs .they buy a total bond fund because someone told them to do it with no regard for the funds almost 6 year duration .

if you were not going to buy a 5 year cd because you needed the money , don't buy a total bond fund with a duration of between 5-6 years ...

you ladder bond funds the way you would ladder cd's to match your needs .

those turned their backs on bond funds and went to cash instruments when rates spiked missed a very lucrative low risk return .

rates could go lower but the low hanging fruit was already picked if you missed the harvest by avoiding bond funds and opting for cash instruments instead .
 
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Most have no clue how bond funds work or even how to judge performance .

You need to look at the duration value of the fund ....so looking at a total bond fund it has a duration of years ....no matter what rates do , you will see the interest rate you bought in at if you hold that long , just as if you bought an individual bond and had to hold until maturity because rates went up.

So looking at the return on a total bond fund would have to be compared to a 5 year cd bought five years ago over the same period
 
mathjak107 said:
in the mean time bonds have been great . my long treasury bond fund TLT has produced 23% over the 1 year and and 7% ytd as well as averaged 9% the last 3 years .

my fidelity corporate bond fund is up 16% over the 1 year .

fidelity total bond up 10.20% over the one year .

fidelity floating rate bond fund up 6.80% over the one year .
short term bond funds also up over 5%

this is why cash instruments should be kept to a minimum ... usually over any given time frame bond funds of matching duration will perform better than the equivelent cd's ...

the problem is when rates rise people have no idea how to compare a bond fund return so they think the cd did better ... nope , rarely the case.

most amateur investors have no idea how to match fund duration's to their money needs .they buy a total bond fund because someone told them to do it with no regard for the funds almost 6 year duration .

if you were not going to buy a 5 year cd because you needed the money , don't buy a total bond fund with a duration of between 5-6 years ...

you ladder bond funds the way you would ladder cd's to match your needs .

those turned their backs on bond funds and went to cash instruments when rates spiked missed a very lucrative low risk return .

rates could go lower but the low hanging fruit was already picked if you missed the harvest by avoiding bond funds and opting for cash instruments instead .
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I have some shares of Fidelity Corporate Bond Fund (FCBFX). It shows that it is up 14.46% for 1 year.
 
I have a very mixed portfolio between bonds and equities. Fidelity is showing that my account with them is up 32.23% from last year at this same time. The market has outperformed anyone's expectations. Is it sustainable? We'll have to wait and see.

Today, CNBC is reporting that our trade deficit with China has cost the U.S. a loss of some 3.7 million jobs this century. And, although they believe that Trump is doing the right thing by going after China to put us both on an even playing field, the EPI believes that he hasn't done enough.
 
fmdog44 said:
Read that last week. I have several CDs maturing this year and at the low rates I think I'll hold off rolling them over at much lower rates. I can equal or better most rates with a couple banks I have. Either way 2% stinks.
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If you are in for the long term, like 5 years there are many high quality stocks that pay 4% or more with not only a good dividend but a chance of appreciation.

CD's were paying around 10% in the 1980's. That day is gone.
 
oldmontana said:
If you are in for the long term, like 5 years there are many high quality stocks that pay 4% or more with not only a good dividend but a chance of appreciation.

CD's were paying around 10% in the 1980's. That day is gone.
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I don’t want to go through this Again but a 4% dividend is not interest not even close ...it is merely a 4% return off the value of your share price ....it is still a stock that needs at least 4% appreciation in share price every year to equate to a 4% interest payment .

never ever confuse how a dividend works compared to how interest works..interest is on top of your balance when paid ,a dividend is subtracted off the balance when the stock goes ex div ...You must have at cleast the same amount in appreciation to see the payment as an actual roi...
 
mathjak107 said:
I don’t want to go through this Again but a 4% dividend is not interest not even close ...it is merely a 4% return off the value of your share price ....it is still a stock that needs at least 4% appreciation in share price every year to equate to a 4% interest payment .

never ever confuse how a dividend works compared to how interest works..interest is on top of your balance when paid ,a dividend is subtracted off the balance when the stock goes ex div ...You must have at cleast the same amount in appreciation to see the payment as an actual roi...
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",a dividend is subtracted off the balance when the stock goes ex div" That is true but a good dividend paying stock will go up (stock price) over time...that was my point and it is a fact!

"I don’t want to go through this Again" I hope so.
 
oldmontana said:
",a dividend is subtracted off the balance when the stock goes ex div" That is true but a good dividend paying stock will go up (stock price) over time...that was my point and it is a fact!

"I don’t want to go through this Again" I hope so.
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I would never advise people to buy a stock to replace a fixed income investment. And tell them it is paying 4% ..... you can pull the same 4% out of any portfolio ....you get the same subtraction if there is no growth that year...... it is like telling someone who wants a cd to buy stocks instead ...that is a poor analogy and poor advice for those who may not understand the difference.

There is no comparison between a 4% dividend being paid and 4% interest
 
mathjak107 said:
I would never advise people to buy a stock to replace a fixed income investment. And tell them it is paying 4% ..... you can pull the same 4% out of any portfolio ....you get the same subtraction if there is no growth that year.

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I see you for some reason did not understand my post.

Again...If you are in for the long term, like 5 years there are many high quality stocks that pay 4% or more with not only a good dividend but a chance of appreciation.

You act like if you have a $40 stock that pays a 5% div....50 cents 4 times a year that that stock in one year will be trading at $38. It does not work that way as a good high quality stock will increase its profits and the stock price will go up...that is basic economics 101. Good quality stocks pay out less than 50% of their profits in dividends.....utility stocks pay out, as a rule more than 50%.

I could give you many examples that make my point but I do not think with your mindset it would do any good.
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I understood it ..put telling people they can get a 4% dividend from a stock plus appreciation in a discussion about fixed income is not applicable and very dangerous to someone who now thinks the 4% dividend is the same as 4% interest so why not go buy stocks instead of the fixed income they wanted....very dangerous information ,especially here where many seem to have a very weak understanding of investing in the first place
 
According to what I have been reading over the last 2 years, interest rates will continue to stay very low. This is due to massive debt of this country. Everyone seems to be living in homes with 3 car garages, driving brand new cars, buying those "toys for boys" (ATVs, snowmobiles, personnel water craft) & going on those cruises & one week all inclusives in Mexico or Cuba. Well, most of the middle class is anyway. The present debt load is about $1.76 for every dollar earned. Another problem is that our government is terribly in debt & that debt is growing too. I feel sorry for 2 groups: 1. most senior get peanuts for their savings, 2. The young generation will inherit a huge debt that can never be paid off. The people here who are laughing out loud are the banks but then think about this. Who is at fault? The banks who borrow to lenders or the lenders who want everything NOW! Me thinks it's the latter. The problem is easy credit. I'm old enough to remember a time when there were no credit cards & people usually paid cash or didn't buy at all. Good luck explaining this concept to a millennial. Thanks to advertising, our society has become one of "I WANT IT ALL & I WANT IT NOW!"
 
Interest rates are impossible to predict ....while the fed controls short term rates , the worlds bond investors control bond rates .

Bonds are driven by fear , greed , and the perception of future inflation ...

none of that is predictable .....we have rates reversing course in a heartbeat
 
mathjak107 said:
I understood it ..put telling people they can get a 4% dividend from a stock plus appreciation in a discussion about fixed income is not applicable and very dangerous to someone who now thinks the 4% dividend is the same as 4% interest so why not go buy stocks instead of the fixed income they wanted....very dangerous information ,especially here where many seem to have a very weak understanding of investing in the first place
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Again...If you are in for the long term, like 5 years there are many high quality stocks that pay 4% or more with not only a good dividend but a chance of appreciation.

You can call that "...very dangerous information" I call it sound advise... the... 5 years... high quality stocks that pay 4% is NOT very dangerous information. Its sound and reasonable advise that has history to back it up.
 
There is a big difference between holding actual bonds and bond funds of various durations.

To me saying buy a bond fund or buy a dividend producing stock is just a starting point for an investigation or a discussion on how to invest for a reasonable return.

I remember years ago when many widows & orphans got burned by investing in long term bond funds during a quickly rising interest rate environment. The mutual funds were forced to sell bonds at a deep discount in order to handle redemptions and some funds were on the brink of collapse.

We all need to do our own research and decide what is best for our particular situation.
 
Well readers here hopefully understand if you want fixed income you don’t buy stocks and you never look at a dividend as a return by itself like interest Is ....that dividend return is zero unless the stock appreciates as much as is paid .....appreciation is not optional
 
Aunt Bea said:
There is a big difference between holding actual bonds and bond funds of various durations.

To me saying buy a bond fund or buy a dividend producing stock is just a starting point for an investigation or a discussion on how to invest for a reasonable return.

I remember years ago when many widows & orphans got burned by investing in long term bond funds during a quickly rising interest rate environment. The mutual funds were forced to sell bonds at a deep discount in order to handle redemptions and some funds were on the brink of collapse.

We all need to do our own research and decide what is best for our particular situation.
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Actually that is not true ....a bond fund has a duration value which is like the maturity date on a bond ...whether you buy a bond or a fund you must stay in it as long as that duration figure to see the rate you got the day you bought .

Just like a bond , if you sell before the duration value and rates went up you will lose money ...if you hold the fund for the duration you will see the rate the day you bought .

So as an example ,let’s take a intermediate term treasury bond fund with a duration of 5 years .

if you paid 10 bucks and it was hypothetically paying 5% , if rates went up 1% the fund would fall to 9.50 a share ..however the fund would be paying 6% instead of 5% ....the extra 1% over 5 years offsets the drop in share price and you get your original 5% .

it is just as if you bought a 5 year bond .

investment grade bond funds all have duration values in their information about the fund .

The problem is people do not understand what they are buying when the buy bond funds or how they work ....that is not a problem with bond funds , that is financial ignorance and people making investment decisions who shouldn’t be
 
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I doubt that interest rates on bank accounts and US bonds, etc., will rise about current paltry levels anytime in the foreseeable future. If interest rates were anywhere near what they were back in the 1980's, our entire Federal Budget would be going to paying interest on the National Debt. There have even been reports, in recent months, about some nations having Negative interest rates....basically people are probably being charged a fee to keep any money in the bank. With all this global fiscal irresponsibility in governments, the next recession is probably going to look like a repeat of the 1920's.
 
Don M. said:
I doubt that interest rates on bank accounts and US bonds, etc., will rise about current paltry levels anytime in the foreseeable future. If interest rates were anywhere near what they were back in the 1980's, our entire Federal Budget would be going to paying interest on the National Debt. There have even been reports, in recent months, about some nations having Negative interest rates....basically people are probably being charged a fee to keep any money in the bank. With all this global fiscal irresponsibility in governments, the next recession is probably going to look like a repeat of the 1920's.
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the problem is that the fed is not in control of bond rates , investors all over the world are and they dont care about our deficit .. if they feel inflation rising is a threat they demand more interest and bond rates go up .

personally i think we are under estimating inflation expectations . i think bond investors are going to get a surprise as inflation goes up .. the fed already said they would not try to hold inflation at less than 2% .....
 
fmdog44 said:
Never invest in something you do not understand. I don't understand bonds. I have never invested in bonds.
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bonds and bond funds have done bettter than cash instruments over just about all time frames .

the only thing you need to know is what the bond fund holds so you know how it reacts and to what , and the duration value of the fund so you can ladder them like a cd so you don't sell before its time .

it really is easy .
 

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