The Right Way To Use Bonds - Ramin Nakisa Pensioncraft

Do you invest in bonds? You might not realise it but you probably do. If you have a workplace pension the default is to invest you in both stocks and bonds. But is this actually the right way to build long-term wealth? Ramin Nakisa from Pensioncraft and friend of the podcast, is a fan of bonds. That doesn’t mean he thinks they’re always the right choice but he believes they can be more useful than you might think.

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Disclaimer:
This is not financial advice. The reason it’s not financial advice is because it’s not tailored to you. We explain the principles of building wealth but if you want personalised advice, it’s worth speaking to a financial advisor. As with everything financial, please do your own research. We really encourage that because no one cares more about your money than you and if you learn the basics then it will change your life.

Chapters:
00:00-00:42 - Intro
00:42-04:39 - What is a bond?
04:39-09:51 - When to use bonds
09:51-13:49 - Bond yields
13:49-14:45 - Hostinger ad
14:45-21:50 - How to invest in bonds
21:50-25:40 - Bond funds
25:40-31:57 - Why the 60/40 rule is dead
31:57-38:05 - Pension funds & bonds
38:05-47:37 - How politics affects bonds
47:37-01:00:35 - The ultra-short bond market
01:00:35-01:05:32 - How to use a bond ladder in retirement

[MakingMoneyPodcast]

Here's the paper Ramin talks about:

[Banthah]

My favourite financial YouTubers together again. Love it!
I pressed Like before I even started watching. Then it’s just a case of waiting for the obligatory “yield curve” from Ramin. Which today was less than 8 minutes in the sweepstake 😊
And less than 10 minutes for the “inverted yield curve”. Impressive!

[zippyatrainbow]

I am 51 years old. Private pensions 100% equities but I also have 20 years in public sector pensions so I am willing to take risks.

[IAmebAdger]

People criticise the paper he mentions because it doesn't fully consider how human erratic behaviour combined with sequencing risk. I think one of the advantages of target dates and 60/40 is they help you sleep and not behave in bad ways.

[george]

US Treasury bills: 4 weeks to 1 year.
US Treasury notes: 2, 3, 5, 7, or 10 year.
US Treasury bonds: 10 or 20 year.

[imbarmstrong]

Take a shot when Ramin says "Yield Curve" two shots if "Yield Curve Inversion"? Always good to hear the soothing tones of wisdom from Ramin.

[UKGeezer]

I'm starting to see how bonds and money market funds can be really useful. Respect to Ramin.

[harry.spekeup]

36:05, "Whats the reason for someone in their 20's holding an 80/20 stock/bond portfolio ...not being 100% in equities?" FYI, It's basic portfolio theory 101. In contradiction to the 'Beyond the Status Quo' paper, conventional thought says the 80:20 portfolios represents he maximum geometric return per unit of risk. If you increase equity to 100% of the portfolio, geometric returns do increase slightly, but risk increases A LOT. So if risk (i.e. standard deviation) is factored in, it never makes mathematical sense to hold 100% stocks. Similarly, the 60/40 portfolio represents the maximum sharpe ratio portfolio. i.e. the asset mix that has the best risk-adjusted returns relative to any other mix of the same assets. The paper seems to strongly question these allocations and I'm not in the least bit qualified to comment on which is 'right'. The paper also questions another important aspect of asset allocation. It recommends non-US investors invest a minimum of 35% in their domestic market. Everything else I've ever read about diversification says that you should be globally diversified according to the size of your domestic market relative to the global market. For a UK investor this results in an allocation of only approx 4% to the UK. If you're trying to make evidence-based diversification decisions like me, the disparity between 4% and 35-50% is worryingly large.

[jimbojimbo]

Ben Felix dod a great video on this where even after retirement age, stocks do a better job of maintaining wealth in comparison to bonds in most cases over the past 100 years.

[pedazodetorpedo]

My workplace pension is currently about 60/40 and I'm now certain that I'm going to change it

[richardharnwell]

Loved this video. Content was great, as I’d expect from you guys. What really stood out to me though (as someone new to MMP but not Damien & Ramin content) were the production values. The lighting in particular was perfect - nice job.

[rezwhap]

37:34 Damien is so right here. In pre-YouTube times when investment research and advice was harder to come by, Nest’s early derisk would be welcome to prevent long-term underinvestment. Now, it’s much easier to keep reminding young people to just ride out the storms. 👍

[oph]

Do you think T is thinking of a premium bond? as they came via the post office

[karllewis]

This is an excellent video. A clear, comprehensive guide to bond investing in just over 20 minutes, plus exactly why Liz Truss was so disastrous as an added bonus. Everyone in the UK should watch it!

[gusleonard]

This was a brilliant video before watching this video I never really considered bonds, but for short term and holding cash they are really useful. Thanks for the video found it really useful.

[InRegardsToMetal]

I could watch 100 hours of Ramin on this podcast.

[Abdul_Rahman]

Great video. Definitely going to look into bonds as I approach retirement

[barryallen]

Brilliant video, loads to take away and think about. Thought I had a basic idea about bond funds but learnt I clearly didn't. Would like to know more about the paper on domestic/international equities vs equities/bonds. Thanks to all involved.

[PhillCurtis]

Ramins weekly podcast. I'm here for it 👍

[SzymonStas]

My only issue with “stock markets recover quickly” is that sometimes they really don’t. The most recent example is the NASDAQ in 2000. It took 13 years to recover to its 2000 high. The S&P500 takes about 5 years to return to its high before a crash. For most people, 5 years is ok, but 13 years might be pushing it.