More on this book
Community
Kindle Notes & Highlights
by
J.L. Collins
Started reading
March 13, 2022
Bogle says, performance comes and goes but expenses are always there, year after year.
Letting an index work its magic over the years isn’t very exciting. It is only very profitable.
Bonds are in our portfolio to provide a deflation hedge. Deflation is one of the two big macro risks to your money. Inflation is the other and we hedge against that with our stocks.
deflation occurs when the price of goods spirals downward and inflation occurs when they soar.
Bonds pay interest, providing us with an income flow.
Sometimes the interest is tax free, for example: Municipal Bond interest is exempt from federal income tax and the income tax of the state in which the bonds are issued. U.S. Treasury Bonds are exempt from state and local taxes.
In the simplest terms: When you buy stock you are buying a part ownership in a company. When you buy bonds you are loaning money to a company or government agency.
If you are going to hold bonds, holding them in an index fund is the way to go. Very few individual investors opt to buy individual bonds, with U.S. treasuries being the main exception, along with bank CDs which act like bonds.
The two key elements of bonds are the interest rate and the term.
As a buyer of bonds, the more risk you are willing to accept the higher the interest you’ll receive.
Interest rate risk
This risk only comes into play if you decide to sell your bond before the maturity date at the end of its term.
When interest rates rise, bond prices fall. When interest rates fall, bond prices rise. In either case, if you hold a bond to the end of its term you will, barring default, get exactly what you paid for it.
when we get an Inverted Yield Curve and short-term rates are higher than long-term rates, investors are anticipating low inflation or even deflation.
All of these risks are nicely mitigated simply by owning a broad-based bond index fund. That’s why VBTLX is our choice.
There are precisely a gazillion different types of bonds. Basically they come from national governments, state and local governments, government agencies and companies.
If you look at all asset classes from bonds to real estate to gold to farmland to art to racehorses to whatever, stocks provide the best performance over time.
~75% Stocks: VTSAX (Vanguard Total Stock Market Index Fund). Still our core holding for all the reasons we’ve discussed. ~20% Bonds: VBTLX (Vanguard Total Bond Market Index Fund). Bonds provide some income, tend to smooth out the rough ride of stocks and are a deflation hedge. ~5% Cash: We hold ours in our local bank.
require a minimum investment of $10,000.
