vania-janet/multiturn-rag-retrieval-data huggingface dataset:
"All bonds carry a risk of default, which means that it's possible that you can lose your principal investment in addition to potentially not getting the interest payments that you expect. Bonds (in the US anyway) are graded, so you can manage this risk somewhat by taking higher quality bonds, i.e. in companies or governments that are considered more creditworthy. Regular bank savings (again specific to the US) are insured by FDIC, so even if your bank goes bust, the US Government is backing them up to some limit. That makes such accounts less risky. There's generally no insurance on a bond, even if it is issued by a government entity. If you do your homework on the bond rating system and choose bonds in a rating band where you're comfortable, this could be a good option for you. You'll find, however, that the bond market also ""knows"" that the interest rates are generally low, so be ware that higher interest issues are usually coming from less creditworthy (and therefore more risky) issuers. EDIT Here's some additional information based on the follow-up question in the comment. When you buy a bond you are actually making a loan to the issuer. They will pay you interest over the lifetime of the bond and then return your principal at the end of the term. (Verify this payment schedule - This is typical, but you should be sure that whatever you're buying works like this.) This is not an investment in the value of the issuer itself like you would be making if you bought stock. With stock you are taking an ownership share in the company. This might entitle you to dividends if the company pays them, but otherwise your investment value on a stock will be tied to the performance of the company. With the bond, the company might be in decline but the bond still a good investment so long as the company doesn't decline so much that they cannot pay their debts. Also, bonds can be issued by governments, but governments do not sell stock. (An ""ownership share of the government"" would not make sense.) This may be the so-called sovereign debt if issued by a sovereign government or it may be local (we call it municipal here in the US) debt issued by a subordinate level of government.
Distributions of interest from bonds are taxable as income by the Federal, state and municipal (if applicable) government. End of year fund distributions are subject to capital gains taxes as well. You can minimize taxation by: Note that the only bonds that are guaranteed safe are US Government obligations, as the US government has unlimited taxation powers and the ability to print money. Municipal obligations are generally safe, but there is a risk that municipal governments will default. You can also avoid taxation by not realizing gains. If you buy individual stocks or tax-efficient mutual funds, you will have minimal tax liability until you sell. Also, just wanted to point out that bonds do not equal safety and money markets do not pay sufficient interest to offset inflation, you need a diversified portfolio. Five year treasury notes are only paying 1.3% now, and bond prices drop when interest rates go up. Given the level of Federal spending and the wind-down of the war, its likely that rates will rise.
For most people, you don't want individual bonds. Unless you are investing very significant amounts of money, you are best off with bond funds (or ETFs). Here in Canada, I chose TDB909, a mutual fund which seeks to roughly track the DEX Universe Bond index. See the Canadian Couch Potato's recommended funds. Now, you live in the U.S. so would most likely want to look at a similar bond fund tracking U.S. bonds. You won't care much about Canadian bonds. In fact, you probably don't want to consider foreign bonds at all, due to currency risk. Most recommendations say you want to stick to your home country for your bond investments. Some people suggest investing in junk bonds, as these are likely to pay a higher rate of return, though with an increased risk of default. You could also do fancy stuff with bond maturities, too. But in general, if you are just looking at an 80/20 split, if you are just looking for fairly simple investments, you really shouldn't. Go for a bond fund that just mirrors a big, low-risk bond index in your home country. I mean, that's the implication when someone recommends a 60/40 split or an 80/20 split. Should you go with a bond mutual fund or with a bond ETF? That's a separate question, and the answer will likely be the same as for stock mutual funds vs stock ETFs, so I'll mostly ignore the question and just say stick with mutual funds unless you are investing at least $50,000 in bonds.
Without providing direct investment advice, I can tell you that bond most assuredly are not recession-proof.  All investments have risk, and each recession will impact asset-classes slightly differently. Before getting started, BONDS are LOANS.  You are loaning money.  Don't ever think of them as anything but that. Bonds/Loans have two chief risks: default risk and inflation risk.   Default risk is the most obvious risk. This is when the person to whom you are loaning, does not pay back.  In a recession, this can easily happen if the debtor is a company, and the company goes bankrupt in the recessionary environment. Inflation risk is a more subtle risk, and occurs when the (fixed) interest rate on your loan yields less than the inflation rate.  This causes the 'real' value of your investment to depreciate over time.   The second risk is most pronounced when the bonds that you own are government bonds, and the recession causes the government to be unable to pay back its debts.  In these circumstances, the government may print more money to pay back its creditors, generating inflation.
"For real. AAA treasury bonds are used a safe investment vehicle for the reason of ""its the US government, its safe"", which is pretty similar to the ""dude, who doesnt pay their mortgage?!"" line of thinking.      You got people dumping money into these derivatives and suddenly someone goes ""oh yeah you just bought a bunch of bad debt that should be rated 'junk'. Oops."""
"Stay away from leveraged or synthetic ETFs. This answer talks about why leveraged ETFs are dangerous. There are numerous articles to be found by searching for ""leveraged etf"". My answer to this question links to one of the more accessible explanations I've read."
"The fact that some asset (in this case corporate bonds) has positive correlation with some other asset (equity) doesn't mean buying both isn't a good idea.  Unless they are perfectly correlated, the best risk/reward portfolio will include both assets as they will sometimes move in opposite directions and cancel out each other's risk.  So yes, you should buy corporate bonds.  Short-term government bonds are essentially the risk-free asset.  You will want to include that as well if you are very risk averse, otherwise you may not.  Long-term government bonds may be default free but they are not risk free.  They will make money if interest rates fall and lose if interest rates rise.  Because of that risk, they also pay you a premium, albeit a small one, and should be in your portfolio. So yes, a passive portfolio (actually, any reasonable portfolio) should strive to reduce risk by diversifying into all assets that it reasonably can.  If you believe the capital asset pricing model, the weights on portfolio assets should correspond to market weights (more money in bonds than stocks).  Otherwise you will need to choose your weights.  Unfortunately we are not able to estimate the true expected returns of risky assets, so no one can really agree on what the true optimal weights should be.  That's why there are so many rules of thumb and so much disagreement on the subject.  But there is little or no disagreement on the fact that the optimal portfolio does include risky bonds including long-term treasuries. To answer your follow-up question about an ""anchor,"" if by that you mean a risk-free asset then the answer is not really.  Any risk-free asset is paying approximately zero right now.  Some assets with very little risk will earn a very little bit more than short term treasuries, but overall there's nowhere to hide--the time value of money is extremely low at short horizons.  You want expected returns, you must take risk."
"If by ""putting money in the bank"" you mean regular savings or checking, then the bond locks a rate for a period of time, whereas your savings/checking rate can vary over that period.  That variation might go for you or against you.  Depending on your situation, you might prefer to take a determined rate to the variations.  In addition, some bond types provide tax benefits (e.g. treasuries and municipal bonds) that change the effective return - You cannot just compare the interest rates. Finally, the bonds have ""resale"" value on the secondary market like stock - Depending on your outlook and strategy, you might by the bond for its value as a security rather than for the interest specifically just like you'd could buy a dividend-paying stock for its value as a security rather than for the dividend.  In other words, you might think that bond values are going up, so you buy bonds with the intent of making a capital gain rather than counting on the interest returned. (The bond market does depend on the interest rate, so these are not independent factors.) I see the other answer that mentions the potential for your bank busting and you losing money beyond the FDIC insurance limit.  The question doesn't specify U.S. Government bonds though, so I don't think that answer is generally good.  It would be good in the case that you had a lot of money (especially an institution or foreign government) and you were specifically interested in U.S. Treasury bonds.  Not so much if you invest in corporate bonds where you have no government insurance / assurance of any sort.  Municipal bounds are also not backed by the U.S. (federal) government, but they may have some backing at the state level, depending on the state."
You can look at TIPS (which have some inflation protection built in). Generally short term bonds are better than long if you expect rates to rise soon. Other ways that you can protect yourself are to choose higher yield corporate bonds instead of government bonds, or to use foreign bonds. There are plenty of bond funds like Templeton Global or ETFs that offer such features. Find one that will work for you.
The Vanguard Short-Term Bond Index mutual fund (VBIRX) might fit your need. Apart from 2008, it has only had one single quarter of negative returns, and has always had positive annual returns. If you're looking for an ETF, you might consider iShares Barclays 1-3 Year Credit Bond (CSJ).
"Yes. Bonds perform very well in a recession. In fact the safer the bond, the better it would do in a recession. Think of markets having four seasons: High growth and low inflation - ""growing economy"" High growth and high inflation - ""overheating economy"" Low growth and high inflation - ""stagflation"" Low growth and low inflation - ""recession"" Bonds are the best investment in a recession. qplum's flagship strategy had a very high allocation to bonds in the financial crisis. That's why in backtest it shows much better returns."
I just found this old post. I worked in this field 4 years ago. The information is old. I assume the players are mostly the same.  AIR in Boston and EQE in Oakland do the computer modeling for cat bonds and reinsurance. Hedge funds will often hire guys who have worked with the software.  Swiss Re is the investment bank for cat bonds.   The hedge funds that do cat bonds exclusively are pretty boutiquey. The exception is DE Shaw.  Reinsurance is a pretty good entry into cat bonds.  just some thoughts. get back to me if you have more questions.
A bond fund like VBMFX or similar I think are a good choice. Bonds are far less volatile and less risky than stocks. With your 1-2 year time frame, I say definitely stay away from stocks.
"If you are afraid of your government defaulting, then you also have reason to fear that your country's so-called ""AAA"" corporate bonds might not be a safe investment.  When governments default, they often do things like: In these scenarios, it is not predictable whether government bonds will suffer more or less than any particular corporate bonds. You might want to diversify into precious metals, foreign currencies, and/or foreign securities.  For the most security, you might want to choose investment vehicles that your government would have a hard time confiscating.  Of course, you will face currency fluctuation risks if you do so."
You're mixing up two different concepts: low-risk and recession-proof. I'll assume I don't need to explain risk: there is always risk, regardless what form you keep your assets in. With bonds, the interest rate is supposed to reflect the risk. If a company offers bonds with too low an interest rate for the risk level, few people will buy them. While if a company offers bonds with too high an interest rate for the level of risk, they are gypping themselves. So a bond is a slightly more transparent investment from a risk assessment perspective, but that doesn't mean the risk is necessarily low: if you buy a bond with a 20% effective annual yield, that means there is quite a high risk that the underlying company will fold (unless inflation is in the double-digit range as well, in which case a 20% yield is not that much). Whereas with a stock, no parameter directly tells you anything about the risk. Recession-proof is not the same thing as low-risk. Recession-proof refers to investing in (or holding debt for) industries that perform better in a recession. http://www.investopedia.com/articles/stocks/08/industries-thrive-on-recession.asp.
Gold is a risky and volatile investment. If you want an investment that's inflation-proof, you should buy index-linked government bonds in the currency that you plan to be spending the money in, assuming that government controls its own currency and has a good credit rating.
"Junk Bonds (aka High Yield bonds) are typically those bonds from issues with credit ratings below BBB-. Not all such companies are big risks. They are just less financially sound than other, higher rated, companies. If you are not comfortable doing the analysis yourself, you should consider investing in a mutual fund, ETF, or unit trust that invests in high yield bonds. You get access to ""better quality"" issues because a huge amount of the debt markets goes to the institutional channels, not to the retail markets. High yield (junk) bonds can make up a part of your portfolio, and are a good source of regular income. As always, you should diversify and not have everything you own in one asset class. There are no real rules of thumb for asset allocation -- it all depends on your risk tolerance, goals, time horizon, and needs. If you don't trust yourself to make wise decisions, consult with a professional whom you trust."
Bonds by themselves aren't recession proof.  No investment is, and when a major crash (c.f. 2008) occurs, all investments will be to some extent at risk. However, bonds add a level of diversification to your investment portfolio that can make it much more stable even during downturns. Bonds do not move identically to the stock market, and so many times investing in bonds will be more profitable when the stock market is slumping.  Investing some of your investment funds in bonds is safer, because that diversification allows you to have some earnings from that portion of your investment when the market is going down. It also allows you to do something called rebalancing.  This is when you have target allocation proportions for your portfolio; say 60% stock 40% bond.  Then, periodically look at your actual portfolio proportions.  Say the market is way up - then your actual proportions might be 70% stock 30% bond.  You sell 10 percentage points of stocks, and buy 10 percentage points of bonds. This over time will be a successful strategy, because it tends to buy low and sell high. In addition to the value of diversification, some bonds will tend to be more stable (but earn less), in particular blue chip corporate bonds and government bonds from stable countries.  If you're willing to only earn a few percent annually on a portion of your portfolio, that part will likely not fall much during downturns - and in fact may grow as money flees to safer investments - which in turn is good for you. If you're particularly worried about your portfolio's value in the short term, such as if you're looking at retiring soon, a decent proportion should be in this kind of safer bond to ensure it doesn't lose too much value.   But of course this will slow your earnings, so if you're still far from retirement, you're better off leaving things in growth stocks and accepting the risk; odds are no matter who's in charge, there will be another crash or two of some size before you retire if you're in your 30s now. But when it's not crashing, the market earns you a pretty good return, and so it's worth the risk.
It shouldn't be too difficult to find such bond funds that can return a few percentage points above risk-free interest, if you can live with the price volatility. Over time and as you get closer to actually needing the money, shift the holdings to lower-risk holdings to secure the capital amount. Yes, short-term government bonds tend to have dismal returns, particularly currently. (It's pretty much either that, or the country is just about bankrupt already, which means that the risk of default is quite high which is reflected in the interest premiums demanded by investors.) But the risk in most countries' short-term government bonds is also very much limited. And generally, when you are looking at using the money for a specific purpose within a defined (and relatively short) time frame, you want to reduce risk, even if that comes with the price tag of a slightly lower return. And, as always, never put all your eggs in one basket. A combination of government bonds from various countries may be appropriate, just as you should diversify between different stocks in a well-balanced portfolio. Make sure to check the limits on how much money is insured in a single account, for a single individual, in a single institution and for a household - you don't want to chase high interest bank accounts only to be burned by something like that if the institution goes bankrupt. Generally, the sooner you expect to need the money, the less risk you should take, even if that means a lower return on capital. And the risk progression (ignoring currency effects, which affects all of these equally) is roughly short-term government bonds, long-term government bonds or regular corporate bonds, high-yield corporate bonds, stock market large cap, stock market mid and low cap. Yes, there are exceptions, but that's a resonable rule of thumb."
tl,dr: I-bonds do not fit well into most personal finance plans. First the questions (succinct reference): I like your thought process weighing your liquidity and risk versus your return.  This is very important.  However, I think you might be sidetracked a bit by I-Bonds.  I-Bonds are not generally good for personal investment as they are not marketable when necessary, have redemption penalties and hold lower overall yields in general.  Finally, they are significantly harder to trade as you can buy and hold a TIPS ETF and get exposure to all maturities and get the current competitive rate all in one purchase. Inflation protection is in general an interesting problem.  While inflation-protected bonds sound like they are great for inflation protection (after all it is in the name), they may not be the best instruments for long/medium term protection.  It is really important to remember that inflation protected bonds have significantly lower returns and one form of inflation protection is to just have more money in the future.  TIPS really protect against large inflation changes as normal bonds have the future expected inflation already baked in their higher rates. Also, when you own a stock you own part of a company and inflation will increase the value of the company relative to the inflated currency.  Foreign stocks can give even more protection if you think inflation in your local currency is going to be higher then the foreign currency.  Stocks in the past have had significantly higher return overall than inflation protected bonds but have higher risk as well. As a medium term, low-risk portfolio, it is worth looking into some combination of TIPS, normal bonds and a small to medium allocation of local/foreign stocks all done through low-fee mutual funds or index ETFs.
"Its because of the economic uncertainty in the world. They are the ""risk-free"" investment as it is an almost guaranteed return if you exclude inflation and US gov't defaulting. A lot of people are afraid to invest elsewhere given the current economic climate.  The yield on bonds is also low due to government intervention. Quantitative easing 1 and 2 and operation twist has forced yield this low, as that is what the government wants."
It would be preferable to purchase a bond with a negative yield if the negative yield was the smallest compared to similar financial securities. The purchase or sale of a security is rarely a mutually exclusive event.  An individual may have personal reasons or a desire to contribute to the activity the bond is financing.  To an entity, the negative yield bond may be part of a cost averaging plan, diversification strategy, a single leg of a multi-leg transaction, or possibly to aid certainty as a hedge in a pairs trade.  And of course there may be other unique situations specific to the entity. Said another way, is the Queen of Spades a good card?  It depends on the game being played and what is in your hand.
Bond laddering is usually a good idea, but with interest rates so low, a properly laddered portfolio is going to have a higher duration that you should be willing to accept right now.        CD laddering seems like a silly idea.  Just keep whatever amount you're going to need in a Money Market account and invest the rest according to your risk tolerance.
"Bonds still definitely have a place in many passive portfolios.  While it is true that interest rates have been unusually low, yields on reasonable passive bond exposures are still around 2-4%.  This is significantly better than both recent past inflation and expected inflation both of which are near zero.   This is reasonable if not great return, but Bonds continue to have other nice properties like relatively low risk and diversification of stock portfolios (the ""offset[ing] losses"" you mention in the OP).  So to say that bonds are ""no longer a good idea"" is certainly not correct.  One could say bonds may no longer be a good idea for some people that have a particularly high risk tolerance and very high return requirements. However, to some extent, that has always been true. It is worth remembering also that there is some compelling evidence that global growth is starting to broadly slow down and many people believe that future stock returns and, in general, returns on all investments will be lower.  This is much much harder to estimate than bond returns though.  Depending on who you believe, bond returns may actually look relatively better than the have in the past. Edit in response to comment:  Corporate bond correlation with stocks is positive but generally not very strong (except for high-yield junk bonds) so while they don't offset stock volatility (negative correlation) they do help diversify a stock portfolio.  Government bonds have essentially zero correlation so they don't really offset volatility as much as just not add any.  Negative correlation assets are generally called insurance and you tend to have to pay for them.  So there is no free lunch here.  Assets that reduce risk cost money, assets that add little risk give less return and assets that are more risky tend to give more return in the long run but you can feel the pain.  The mix that is right for you depends on a lot of things, but for many people that mix involves some corporate and government bonds."