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Book: Bonds: The Unbeaten Path to Secure Investment Growth :: Book
Date: Friday, 21 November, 2008 :: 01:20
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Bonds: The Unbeaten Path to Secure Investment Growth
List Price: USD $24.95
from USD $14.95
Product Group: book
Manufacturer: Bloomberg Press
Studio: Bloomberg Press
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Editorial Review: Product Description
In "Bonds: The Unbeaten Path to Secure Investment Growth", two veteran investors expose the myth of stocks' superior investment returns and propose an all-bond portfolio as a sure-footed strategy that can ensure results. The book, an expanded and updated version of "The Money-Making Guide to Bonds", is designed to educate novice and sophisticated investors alike and serve as a tool for financial advisers as well. It explains why bonds can be the right choice and how to use them to achieve financial goals. It presents a broad spectrum of bond-investment options, describes how to purchase bonds at the best price, and, most important, shows how to make money with bonds.
The wealthiest investors and financial advisers use the bond strategies outlined in this book to maximize the the return on their portfolios while providing security of principal. The strategies can help you determine how to use bonds in your portfolio and take control of your financial destiny. You'll be playing it smart while playing it safe.
Earn 15 hours of credit toward your CFP Board requirement.
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Reviews:
Average Customer Review: 
Summary: Not convinced on 100% bond portfolio
Date: 2008-11-18 - 
Comment: A little background on myself. I have read over 200 books on investing. When I started investing back in 1979, I went 100% stocks. Back in 1979, the financial press was full of stories about retired people with bonds that were decimated by the high inflation of the late 1970's. Bonds were probably the worst investment back in that high inflationary environment. I stayed 100% stocks for 20 years, and then switched to 10% bonds in 1999. In late 2007, I switched to a 60:40 portfolio. I evaluated my need to take risk against my willingness to take risk...and settled on the time honored 60:40 portfolio of pension funds.
The authors of this book try to make the case for a 0:100 or all bond portfolio. They assert the 10% return of stocks is really 6-7% because of taxes, expenses, and bad timing.
Taxes reduce stock returns because of excessive trading by active mutual fund managers.
Expenses reduce stocks returns because of transaction costs and annual fees. Their assertion is 2% on large cap, 4% on small cap and foreign stock funds, and 10% on micro-cap and emerging markets.
Bad timing reduces the return of stocks because investors chase the winners and they buy high and sell low. The Dalbar studies have shown for years that most investors do not really get the market return of stocks. The authors cite the fact that the S&P 500 returned 12.8% from 1983-2003..while the average investor only got 6.3%. The author cites a Dalbar study where the market returned 12% and investors really got 4%.
The authors claim that a 100% bond portfolio solves all the issues that lower the return of stocks. They assert bonds are low cost if you buy them at their initial offering. They assert low fees if you hold the bonds to maturity. There is also no risk of bad timing if you hold the bonds until maturity. They also assert a laddered bond portfolio protects against rising interest rates (which I assume they also mean rising inflation). Tax free municipal bonds can also reduce taxes.
The authors also assert that future returns will not be 10% because this historic return is based upon higher dividend payout than we have today. Dividend yields used to be 5%, but in recent years have been about 1.8%. A recent Business Week article said about 40% of the total return of stocks from 1926-2008 was from dividends.
The authors asset that the longer you hold stocks, the higher the risk. Asset bubbles take a while to build, but eventually a Bear market arrives and wipes out the gains. But Bear markets are a part of investing.......we have had about 13 of them since WWII....or 1 Bear market ever 5 years on average.
I really thought the authors made a lame argument when they said that retirees can run out of money in retirement if they withdraw 10% per year and they have a Bear market early in retirement. The authors must not be aware of Bengen and the Trinity studies. Bengen demonstrated back in 1994 that 4% is about the maximum safe withdrawal rate in retirement......not 10%.
In my opinion, the authors could have made the case that from 2000 until 2008....investors should have tilted their portfolios more towards bonds than stocks. Because of the build-up of prices (PE ratio) in the 80s and 90s, history tells us future returns will be lower. The 1980's and 1990's were the glory years of stock returns.....with the S&P 500 with dividends reinvested returning compound growth rates of 18%.
After 2000, John Bogle and William Bernstein both predicted single digit returns about 6-7% nominal for stocks. Bernstein argued that if stocks return 6-7%, then investors should tilt more towards bonds because the extra risk of stocks is not going to compensate you with higher returns. John Bogle has been consistently advocating that investors should hold their age in bonds (age 70 equals 70% bonds). Neither Bernstein nor Bogle ever advocated 100% bonds.
With the S&P 500 now at 873, the dividend yield is up to 2.86%. The PE ratio is down from 23.6 in Nov 2007 to 16.5 in Nov 2008 (trailing PE). Stocks are now relatively cheap and I predict both Bernstein and Bogle will raise their predicted future returns of stocks.
In my mind, the authors failed to address the biggest issue with bonds......their failure to deal with inflation. A laddered bond portfolio doesn't really deal with an unexpected increase in inflation. Only a small fraction of the portfolio comes due each year and can be reinvested at a higher interest rate. The balance of the portfolio loses value with unexpected inflation.
Both Bengen's 1994 seminal study and the Trinity study showed that retirees can withdraw a maximum of an inflation adjusted 4% from their portfolio each year using 50% to 60% stock portfolios. I have run Monte Carlo simulations and have duplicated their results. What you find when you run Monte Carlo is that low stock portfolios (or high bond portfolios) don't deal with inflation.....and high stock portfolios are too volatile and you risk the chance of outliving your money. There is a sweet spot in the middle (maybe 40:60 to 70:30) which does the best.
As a fan of index funds, I could argue that using low cost index stock funds and staying the course should outperform an all bond portfolio. Vanguard has rock bottom expense ratios on the order of 0.18% on their S&P 500 fund. Taxes are extremely low on stock index funds because there is relatively low turnover compared to actively managed funds. A 60:40 portfolio comprised of 40% total US stock market, 20% total foreign stock market, 20% total US bond fund, and 20% TIPS is a very robust portfolio.
The author's recommendation of a 100% bond portfolio only makes sense if you are an investor who chases the winners and you achieve low stock returns per the Dalbar study. I guess in this situation you might be as well off using an all bond portfolio.
I would suggest you learn more about index fund investing by reading some of the books below. I'm sticking with my 60:40 portfolio. I don't think a 100% bond portfolio is the way to go because I know how to stay the course through the Bear markets that occur about every 5 years........and I don't think a 100% bond portfolio deals well with inflation.
Index Mutual Funds: How to Simplify Your Financial Life and Beat the Pro's
The Richest Man in Babylon
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
The Millionaire Next Door
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life
The Bogleheads' Guide to Investing
1 of 3 people found the following review helpful:
Summary: Bondzzzzzzzzzzzz
Date: 2008-09-20 - 
Comment: I read 300 pages before being told to buy plain vanilla bonds. The book is a yawner that makes a boring subject even more sleep inducing.
2 of 2 people found the following review helpful:
Summary: An invaluable book for any careful investor
Date: 2008-08-07 - 
Comment:
This is the best book on investing anywhere. For the past two years I have searched long and hard for a book that would give practical advice to a conservative investor--that is, one who does not want to lose money but rather wants to earn a predictable return on investments. Having read dozens of books on investing, including many of the most highly touted, I have concluded that Bonds: The Unbeaten Path to Secure Investment Growth is the best thing out there. Most of my savings and investments are in an employer plan, and thus are in funds of one sort or another, leaving little opportunity to invest directly in the type of bonds that the Richelsons discuss here. However, what has been invaluable to me is (1) their philosophy of investing and, having digested that, (2) their recommendations for the type of funds in which to invest, recommendations that can be found on page 315. That one page of recommendations, when supplemented by the Richelson's carefully laid out philosopy, is worth many times the price of the book. Since studying and applying the Richelsons' approach, I have had a year of strong returns and a year of sleeping well. To the critics of the book, I would respectfully recommend that you re-read it and then answer the question, over the past year have I had positive returns on my investments and have I slept well? If the answer is "no" to either of those questions, read this book again.
1 of 1 people found the following review helpful:
Summary: Bonds: A secure investment strategy
Date: 2008-07-28 -
Comment: In Hildy and Stan Richelson's opening chapter they break old financial premises and myths we had come to accept without question in "Bonds, The Unbeaten Path to Secure Investment Growth". They refute the dogma that we had to diversify and that the best returns are in the stock market, and they do it clearly and brilliantly.
Bonds were as remote to me as Sanskrit. Yet after reading their book, the veils were lifted. I caught their vision. They simplified the bond market. The book is inspiring and motivating. I learned bond calculations and was directed to many informative and revealing websites, all of which were essential to round out my bond comprehension. There is consciousness and a generosity of spirit in their writing.
Through their clear thinking they challenged me to relook at previous beliefs, and surprisingly turned around my whole way of seeing. It's quite masterful. There is no smoke and mirrors here, but real fact turned into a new vision.
They offer well thought out, safe and secure, investment solutions. In this extreme buyer beware climate I feel they are on my side, the side of the individual investor.
Thank you Hildy and Stan for your wisdom.
J. J. Tanner, Arizona
3 of 4 people found the following review helpful:
Summary: Nothing new here, except no thought of inflation.
Date: 2008-04-14 -
Comment: There are no new ideas in this book. It is being hyped to death on the Bloomberg website, billed as some alternative investment strategy. But although it does a decent job of superfically covering the various types of basic bond investments, its only surprising feature is that the authors ignore the effects of inflation. They do not even discuss real rates of return (adjusted for inflation), and many of their recommendations will not even keep up with inflation. That is not only a major oversight; it is a disservice to readers who look to this book for good advice. It's OK advice about various bond investments, but it is woefully inadequate advice for overall investment strategy. I like bonds (within a broader portfolio), but I feel I simply wasted my time in reading this book.
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