If I'd laddered them, they wouldn't have those bonds.

Yes they would.  They would just have had less.  You are right that laddering bonds/cd does reduce the current yield.  Doh! that is pretty obvious.  Averaging the yield between a 3 yr 3%, 7 yr 5% and 15 yr 6% and 30 yr 7% (as was available in the time frame you mentioned) would definitely give you a lower income.  However, the prinicpal protection factor may outweight the loss of current income.  ESPECIALLY in a rising interest rate environment, which seems to be the case. 

Another issue to consider is the future callablilty (is that even a word  ) of the issues.  In a lowering interest rate scenario as did happen those high coupon issues would be more likely to be called and in a rising interest rate environment our current coupons are less likely to be called.  Therefore sticking your client with a substandard return for a very very long time.  The point is that you NEED to dicsuss all of these issues with your client's and not just sell the current yield/coupon.

By the way, high yielding doesn't mean high risk. It just means high yieding relative to other like paper. Kinda like one bank offering a higher CD rate than another bank.

Yes and no.  A much higher yield than similar issues is an indication that there is something going on with the company or even with the Bank that is issuing.   As a former banker I recall that we would issue CDs that were higher than normal when our loan to deposit ratio was out of wack and the bank needed more deposits to be in compliance with the Federal regulators, or if the Bank planned a major expansion of branches or if there was something going on with the stock.   Rates out of proportion with other issuers is a red flag. 

Mike gave you some good advice on bonds vs having equities as an inflation hedge.  One of the hardest things to do is to educate clients as to the value of taking an appropriate amount of equity risk.  By appropriate that means considering their age, income, needs, risk tolerance etc.  I have a client who absolutely refused to do anything other than a bond a couple of years ago because he had lost money in the market by being in high risk mutual funds and stocks .  (Probably didn't listen to his broker even then.)  Now his account is down in value and he is holding a bond that is at 80% value to face.  Everytime he bitches about it, I have to remind him that he went counter to my suggestions and remind him that I had him sign a form stating so for his file.  CYA is really important in this business.

The client's that listened to me in 2001 and split tickets into laddered bonds and stocks(funds usually) are happy campers.  We forego some current income, gained nicely in the funds, and now have some bonds coming due to invest at the bottom of the ladder (still short term) at higher rates.

BL,

I'm trying to figure out how anyone could have lost 20% on any long term bond bought over the past couple years?

The long term bonds issued over the past few years are all trading at premiums, not discounts and certainly not 20% discounts.

I don't ask anyone to agree with me, but don't make things up to try to get over on me. Can we have at least that level of respect on this forum?

[quote=tjc45]

BL,

I'm trying to figure out how anyone could have lost 20% on any long term bond bought over the past couple years?

The long term bonds issued over the past few years are all trading at premiums, not discounts and certainly not 20% discounts.

I don't ask anyone to agree with me, but don't make things up to try to get over on me. Can we have at least that level of respect on this forum?

[/quote]

Ummmm...your comment that I highlighted above sort of sums it all up....in terms of the flaw in your thinking, and the Achilles heel of most investors and frankly many of us who advise them.  The past couple of years?  Yeah, I suppose if that's what you consider 'history' or "a long term perspective" you're right.

If, however, that's how you expect your long term bonds to continue to perform-given that long term rates are at multi-decade lows-you just MIGHT be in for an unpleasant suprise in the not too distant future.

[/quote]

Ummmm...your comment that I highlighted above sort of sums it all up....in terms of the flaw in your thinking, and the Achilles heel of most investors and frankly many of us who advise them.  The past couple of years?  Yeah, I suppose if that's what you consider 'history' or "a long term perspective" you're right.

If, however, that's how you expect your long term bonds to continue to perform-given that long term rates are at multi-decade lows-you just MIGHT be in for an unpleasant suprise in the not too distant future.

[/quote]

I am amazed at how much you guys read into posts. There is a serious reading comprehension problem here. BL is making up 20% losses to prove my thinking is off base, I call him on it and now you say my thinking is flawed by attributing something to me that I didn't say. You guys all go to the same school or do you all just work for the same bank? No wonder the thinking here is so myopic.

Rather than any other of the reading challenged among you coming back to prove I'm wrong by using lies, false facts or by twisting my words, how about doing it with math? Show me were your clients have come out ahead of LT investors by using laddering. Real life examples only, not BS examples twisted to your liking. Post the numbers, date of purchase, price, coupon etc. Keep it to the past 20 years and show me that at any time during that period, going short/intermediate ladder beat going long term.

Yes, I agree that had rates gone up in the past 20 years(mike, I'm talking trends) your clients might have benefited from laddering. They didn't.

Yes, I agree that IF rates go up clients that ladder might come out ahead by doing so. Who knows?

Ok, genius, who says rates are going up? I know, not you.  You don't bet your clients well being on interest rate bets. Right? Sounds good, except it's bullsh*t. By laddering that's exactly what you've done. Rather than the client MAYBE losing money IF rates go up, you've locked in the loss upfront, with lost income.

Speaking of reading challenged... I said "a" bond.  Not long term bond, by which I assume you mean a 30 yr bond, although in today's environment I think 15 yrs is too long to buy an individual bond.  I also didn't say what kind of bond. It was a corporate bond not a muni.  In addition the company has had a re evaluation of debt rating.  (Another danger in bonds, long term or otherwise.)   Munis are usually much safer in that regard (than corporates) since they are mostly insured and have the taxing ability of the issuer behind them.

But basically what I am "trying" to convey to you is that buying a portfolio of nothing but long term bonds because they pay better now, is a very shortsighted and dangerous stratgey....but, hey, if that's what you want to do for/to your clients,  have at it.

[quote=babbling looney]

Speaking of reading challenged... I said "a" bond.  Not long term bond, by which I assume you mean a 30 yr bond, although in today's environment I think 15 yrs is too long to buy an individual bond.  I also didn't say what kind of bond. It was a corporate bond not a muni.  In addition the company has had a re evaluation of debt rating.  (Another danger in bonds, long term or otherwise.)   Munis are usually much safer in that regard (than corporates) since they are mostly insured and have the taxing ability of the issuer behind them.

But basically what I am "trying" to convey to you is that buying a portfolio of nothing but long term bonds because they pay better now, is a very shortsighted and dangerous stratgey....but, hey, if that's what you want to do for/to your clients,  have at it.

[/quote]

You're right, I did assume you meant your client had lost money in long term bonds. Just curious, what does buying a corporate that's been downgraded have to do with what we're talking about? 

I never said that all I do is buy only long term bonds. Again, reading comprehension counts. Let me know when you've got a real life example of laddering that HAS worked in the client's favor.

tjc45:  Well I am glad you know where your place in life is.  Keep clipping those coupons.   I'm at about 1.8 million gross actually though not 1.5. 

With the time you all have spent on this thread you could have increased your gross this year by at least $10,000.   It's a beautiful day in Geeen Hills.  I'm out to the pasture now to have a looks-see.

PS: On the bonds, why don't you try a simple barbell approach during times like these.  It works for me.

[quote=tjc45] Again, reading comprehension counts. Let me know when you've got a real life example of laddering that HAS worked in the client's favor. [/quote]

Do I need to remind you again of the people who bought long "Carter" CDs at 22%? All their cash came back to them when rates had dropped to 4%. Had they laddered when they bought those original CDs, they would have been buying new bonds as rates declined and would have picked up some 20%, 16%, 10% and 8% on the way down and would have ended up owning few, if any, 4%ers. It would have cost them income as rates dropped, but it would have provided far more income as rates turned again.

[quote=SonnyClips]Greenhills you spent a fair amount of time getting slapped around on the "Rates" thread by Butler. Is that why you decided to lash out on this thread? [/quote]

Shouldn't you be posting S&P sheets or updating the Value Line file, or whatever it is newbies do these days while trying to pass their exams? The last thing you need to be doing is interrupting when adults are speaking. Go fetch some real broker some coffee or brush up on your cold calling scripts. <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

[quote=Greenhills]

tjc45:  Well I am glad you know where your place in life is.  Keep clipping those coupons.   I'm at about 1.8 million gross actually though not 1.5. 

With the time you all have spent on this thread you could have increased your gross this year by at least $10,000.   It's a beautiful day in Geeen Hills.  I'm out to the pasture now to have a looks-see.

PS: On the bonds, why don't you try a simple barbell approach during times like these.  It works for me.

[/quote]

GH, here's an interesting story. About 15 years ago , 7 years in to my career I was the leading new account opener at my firm, which was and still is one of biggest wirehouses. Production wise, I was producing in the high six figures, and was a member of every club and council the firm offered. I was usually in the office by 7:30am and usually didn't leave until 9:30pm. The business was built around cold calling with Tax Free bonds, contacting at least 100 people a day, opening 25 to 35 new accounts every month. Some months I'd open 50. My all time high, not counting 401K biz, is 97 new accounts in one month. You get the picture. I was the typical driven broker of that era.

I have four kids. 3 from my current marriage and one from a previous marriage , where I'm the custodial parent.  One night in 1990, shortly after walking through the door the phone rang. It was the Palm Beach County Sheriffs department. My oldest daughter was in West Palm visiting her mother on visitation. My heart sank and I got chills as I waited for what could only be bad news. The voice asked if I was the father of Jessica. I told him I was and he told me Jesse was in very critical condition at Kennedy Memorial Hospital. She'd been beaten and raped. He said I needed to get to Florida as fast as possible, as she wasn't expected to survive. In a fog I did so.

Jesse survived. It took 8 months to get her out of the hospital. Today, as a mentally disabled adult, she lives with my wife and I. They never caught the rapist.

When this happened I looked at Jesse in a coma and realized that I didn't know who she was. I'd been too busy making money, winning trips, and getting myself on Presidents Council. What became crystal clear in that defining moment was that I was wasting my life. I had my priorities backwards. I had three more kids at home, little kids, who I didn't know. Usually, I saw them only on weekends. Other than that they were asleep when I left in the morning and when I got home at night.

For me the chase for the holy grail of production was over. My production more than halved in the year after Jesse's attack. For the first year, my employer was understanding, but then they started to apply pressure. Nevermind, that I was still a top quintile producer. They wanted my soul and I wasn't going to give it to them. I moved to a regional firm, a super regional, where I made it clear that they weren't my first priority. Here I'm a big fish in a small pond so no problems. I bought a motorhome so we could camp and travel. We still do both. I bought a boat so we could fish, wake board, and terrorize the bay. I joined the PTA, became a room father and I coached little league for six years. Nothing in the bigs compares, not even walk off home runs to win a series game. Our home is wall to wall with pictures of our family, and all the adventures we've had together. Picturial confirmation of a life well spent.

So Greenhills, while you are busy thumping your chest exalting that I know my place in life, you are oh so right. I've found my place, and my life, with my family. I wouldn't change that for all the production in the world.

PS: As a large producer you have considerable knowledge. How about using some of that to add to the conversation?

[quote=mikebutler222]

[quote=tjc45] Again, reading comprehension counts. Let me know when you've got a real life example of laddering that HAS worked in the client's favor. [/quote]

Do I need to remind you again of the people who bought long "Carter" CDs at 22%? All their cash came back to them when rates had dropped to 4%. Had they laddered when they bought those original CDs, they would have been buying new bonds as rates declined and would have picked up some 20%, 16%, 10% and 8% on the way down and would have ended up owning few, if any, 4%ers. It would have cost them income as rates dropped, but it would have provided far more income as rates turned again.

[/quote]

Mike, Carter was before my time. By the time I got into the biz rates had already topped and were dropping. Sorry, but I just don't remember anything nearly as low as 4% in that era. Even so, with the benefit of 20/20 hindsight wouldn't we have to run a spread sheet to see who came out ahead?

I remember cold calling people who had 7% tax frees and were unhappy. Bet those people would be thrilled to have those bonds today. Bottem line, those who held those bonds didn't lose a dime of principal. And knowing whether laddering would have helped would have to be worked out on a case by case basis.

Question: Why is the yield curve so flat? I understand the short end with all the fed moves, but why no follow through on the long end? What's up with that?

[quote=tjc45]

[/quote]

Mike, Carter was before my time.

[/quote]

He was before mine too, but I handled many people whose 15 year CDs @ 22% were maturing. But enough about that...

[quote=tjc45]

By the time I got into the biz rates had already topped and were dropping.

[/quote]

And they dropped to 50 year lows. Even though I don't make bets on rates, it's a pretty safe bet that era's over.

[quote=tjc45]

Question: Why is the yield curve so flat? I understand the short end with all the fed moves, but why no follow through on the long end? What's up with that?

[/quote]

Two things; it's saying there's little reason to discount long bonds because there's little real inflation fear and there's very little demand for long bonds at these rates.

[quote=tjc45] I bought a boat so we could fish, wake board, and terrorize the bay. I joined the PTA, became a room father and I coached little league for six years. Nothing in the bigs compares, not even walk off home runs to win a series game. Our home is wall to wall with pictures of our family, and all the adventures we've had together. Picturial confirmation of a life well spent.[/quote]

[quote=Greenhills]

 I'm at about 1.8 million gross actually though not 1.5. 

[/quote]

I bet you own an NFL with a future Hall of Fame running back on it. Or is that your fantasy league too? 

[quote=tjc45][quote=Greenhills]

tjc45:  Well I am glad you know where your place in life is.  Keep clipping those coupons.   I'm at about 1.8 million gross actually though not 1.5. 

With the time you all have spent on this thread you could have increased your gross this year by at least $10,000.   It's a beautiful day in Geeen Hills.  I'm out to the pasture now to have a looks-see.

PS: On the bonds, why don't you try a simple barbell approach during times like these.  It works for me.

[/quote] When this happened I looked at Jesse in a coma and realized that I didn't know who she was. I'd been too busy making money, winning trips, and getting myself on Presidents Council. What became crystal clear in that defining moment was that I was wasting my life. I had my priorities backwards. I had three more kids at home, little kids, who I didn't know. Usually, I saw them only on weekends. Other than that they were asleep when I left in the morning and when I got home at night.

For me the chase for the holy grail of production was over. My production more than halved in the year after Jesse's attack. For the first year, my employer was understanding, but then they started to apply pressure. Nevermind, that I was still a top quintile producer. They wanted my soul and I wasn't going to give it to them. I moved to a regional firm, a super regional, where I made it clear that they weren't my first priority. Here I'm a big fish in a small pond so no problems. I bought a motorhome so we could camp and travel. We still do both. I bought a boat so we could fish, wake board, and terrorize the bay. I joined the PTA, became a room father and I coached little league for six years. Nothing in the bigs compares, not even walk off home runs to win a series game. Our home is wall to wall with pictures of our family, and all the adventures we've had together. Picturial confirmation of a life well spent.

So Greenhills, while you are busy thumping your chest exalting that I know my place in life, you are oh so right. I've found my place, and my life, with my family. I wouldn't change that for all the production in the world.

PS: As a large producer you have considerable knowledge. How about using some of that to add to the conversation?[/quote]

That's one of the most beautiful posts I've ever read, and it sums up my philosophy very neatly.  Others could certainly take a page from it.  It's interesting to see some folks commenting about wasting time posting, as they themselves are posting worthless, time-wasting crap.

I think you've just provided proof that you don't have to be an arrogant prick to be a successful producer in this business.  Thank you.

So sorry it took a tragedy to make a difference.  I suppose the beauty of this business is that you can make it anything you want.   Money, and the grasping aquisition of it isn't the be all end all of life.  Although, the complete lack of it can be. :-)

I am like Indyone.  Small town producer and "I" for one will never be a million dollar producer, but you know what?  That is just fine.  I don't need that stress. I already had it.  I love my life, my career and make more than enough income to be very comfortable.  If I decide to take off Friday and spend some quality time with my husband on the lake, I consider it time well spent and don't stress out on how many calls or commissions I missed.   

Maybe being independent has something to do with not having the need to be comparing "ego" size with every other broker and being able to relax and enjoy life.  Maybe that is why we are independents in the first place.

tjc:  Read the posts.  I never said a thing about my gross or assets nor did I mention you.  You brought up your numbers.  I guess trying to impress me.  That's when I brought up my numbers.  Now you have a problem with that. 

Get a life.  I have one.  I work around 40 hours a week.  Two days a week from a little converted guest house I have out back.  Part of the year, I spend in Florida working from there.  My famly is my priorty.

My original post stands.  With all the time spend babbling on here you all...and now me could be earning more.  Now I am going to retire from this place for awhile before I get sucked into the looser pool.

We spend our days as we need to.  Farmers spend 15 hours out
working during the summer, and they make a few hundred thousand dollars
in summertime.  Fill your day as you see fit, making sure you are
fullfilling what is important fr you.  Family, God, Business,
Wife, Husband, whatever…It is different for everyone.  3.0 Mil
in production or 300K…it doesn’t matter.

[quote=Greenhills]With all the time spend babbling on here you all...and now me could be earning more.  Now I am going to retire from this place for awhile before I get sucked into the looser pool.[/quote]

Goodbye and good riddance.

 We argue, we fight, we point fingers, we name call and we get hung up on the most idiotic of points, you know, just like family. In the end we come together, just like family. Thank you all for your thoughts and words.