The ALL Bond Portfolio

[SmallPotatoes]

A short while ago I ran across a book proposing one utilize bonds as the sole investment vehicle in one's portfolio.  Granted this was targeted at older, perhaps retirement age folks, but I have since wondered how well such a portfolio might just fare.  The book did identify a variety of bonds, e.g. junk, treasury, municipal, as means to a rounded portfolio, but again just bonds.

Curiously, I have often wondered if this strategy has any real value to it.  I suppose it is akin to the all equity portfolio or the all precious metals portfolio, so alas I have realized the answer to my question.

Anyone care to chime in on an all bond VP?

[smurff]

The authors of "Your Money or Your Life"  (a well-regarded personal finance book from the 1990s) advocated putting all invested assets in treasury bonds.

[AdamA]

Anyone care to chime in on an all bond VP?

Junk bonds, and even corporate bonds can behave like stocks during bad markets, but have less yield during good times, so this is basically the same risk as a stock/bond mix, but the reward is lower. 

I think you'd be better off 50/50 stock index/bond index.

[SmallPotatoes]

Thanks guys.  Just a fun idea.  I think I'll probably look into the EDV/GDXJ VP though since it's probably more exciting.

[LifestyleFreedom]

The seriously wealthy have ways of investing that have traditionally been considered low risk.  Here is an article from MSN Money Central with the relevant sections of that article quoted (notice that bonds are highly prominent):

Is Suze Orman out of touch?
http://articles.moneycentral.msn.com/In ... Touch.aspx

Stock investments as mad money
Orman estimated her liquid net worth at about $25 million, with an additional $7 million worth of houses. With just $1 million of that in stocks, it means that just 4% of her liquid net worth is in the stock market.

What does Orman do with the rest of her money? Solomon asked, and was told: "Save it and build it in municipal bonds. I buy zero-coupon municipal bonds, and all the bonds I buy are triple-A-rated and insured so that even if the city goes under, I get my money. I take a little lower interest rate to make sure my bonds are 100% safe and sound. "

As for playing the stock market, Orman said "I have a million dollars in the stock market, because if I lose a million dollars, I don't personally care."

Strategy via Groucho Marx
In fact, Orman's portfolio is reminiscent of a story about Groucho Marx, the famous comedian who purportedly once toured the New York Stock Exchange and held court with the floor traders after the closing bell.

Knowing that Groucho was wealthy, one trader yelled out, "Hey Groucho, where do you invest your money?"

"I keep my money in Treasury bonds," is what the leader of the Marx brothers reportedly replied.

"They don't make you much money," a trader shouted back.

"They do," Groucho said drolly, "if you have enough of them."

I've gone to many wealth building events over the years to learn how one can get rich (take your pick: real estate, tax lien certificates, <insert your favorite it's-probably-a-scam idea here>).  One day I asked my financial adviser what his wealthy clients did after they earned their money (his really wealthy clients either owned their own businesses or were early employees of start-ups that made it big with an IPO).

His response was to put the first several million of money in tax-free municipal bonds and live on the stream of interest payments.  Money in excess of the first several million could then be invested in a variety of other ways (e.g., public equity, private equity, hedge funds, whatever).  Many of these techniques take advantage of obscure portions of the tax code that favor the inter-generational transfer of wealth at minimum taxes (the rich hire highly-paid advisers to help them implement legal tax avoidance strategies).

[SmallPotatoes]

Thanks for the interesting references.  Still not sure if an all bond VP is the best way to go.

I'm looking at Vanguards PM index--as the minimum dropped from $10,000 to $3,000--combined with EDV in a 50/50 split. Free trades at Vanguard, so it might not be a bad VP gamble.  And I do mean gamble.

I'm all in the PP using Vanguards SP500 Admiral shares, holding my own 30-year treasuries, cash in the bank, and most of my gold in hand. So, I figure it might be fun to try a VP with 2% just for kicks.