Replace bond funds with dividend ETFs?

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  • #93645 Reply

      I was listening to a lot of discussion lately about replacing bond funds with a dividend yielding equity fund. What is everyone’s thoughts about it? I have been investing in growth funds for the past few years and it has paid well. I am considering changing my future investment to more ‘conservative’ funds. I was trying decide between BND vs VTV vs SCHD. With later 2 are dividend yielding ETFs. Bond funds doesn’t seems to have negative correlation with stocks (at least in 2022) so is it still worth investing in Bond funds?

      #93646 Reply

        Historically over the long term value has been a bit less volatile with a bit higher returns than growth. So I think prioritizing it over growth funds is reasonable. If you look at something like small cap value you get a bit more volatility but significantly higher long term returns, historically.

        I see no reason to add dividend funds. In general they are equally if not more volatile than a total market fund with lower return.

        And no, there is no magic benefit of only pulling out dividends vs selling shares.

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        #93647 Reply

          I am moving away from bond funds and gradually divesting the last small percentage of them slowly into dividend funds. I won’t be buying bond funds again and I am near retirement.

          I should mention that my bond funds have still not recovered from the their crash a couple years ago.

          With the future projected higher inflation environment bonds imo have become a riskier hedge.

          I would prefer to ride the equity waves but do think you need a bigger nest egg to do that safely and some safe Cars and cash.

          #93648 Reply

            I would be concerned picking one of the worst times for bonds as the time to evaluate to abandon them. That has often been a very bad idea. But….if you do this evaluation and you honestly, not via the smarmy sales pitches of those to wait like vultures to bad mouth last years worst performing asset class, decide that you should not own bonds or should own less bonds for other reasons….this is reasonable thinking. And you hit on a big reason in your post. If you own bonds for their “security” aka negative correlation, you need to understand this has mostly existed in normal and good markets, meaning 90% of the time. But bonds have shown repeatedly for decades to quickly correlate near stocks in the abnormal and terrible markets that happen infrequently but enough that any long term investor will experience a handful of them. So the question may become, why do I hold bonds if during good market they do their job (yet often underperform stock indexes) but when I need their security the most during abnormal markets they fail me? That can be a constructive thought line for many people. But does it lead to dividend stocks? Ehh maybe but probably not, unless you are being sold that it does by those last year loser asset class vultures. I expect for most people, it will lead to a change in the type of bones they own shifting towards short term treasuries like less than 2 year duration treasury funds and etf.

            #93649 Reply

              I am not using 2022 patterns to make any long-term changes. What happened recently will be a part of longer-term analysis covering differing time periods not all ending today. I use long term treasuries, not BND though.

              I did use BND once, but switched to long term treasuries. Neither when added in will match the return of 100% stocks over the long term, whether they are dividend or value stocks or whatever stocks. I am retired and also use gold funds and some other investments to balance stocks. The fact that long term treasuries did not cushion drops this last cycle does not put me off them. Just before 2022, they were on a tear, which to some extent accounts for the depth of the drop.

              #93650 Reply

                First, comparing a Dividend investing approach to bonds is an Apples to Broccoli comparison.

                They have vastly different risk profiles and risk adjusted expected returns.

                The proposal made NO sense when real interest rates were low (2019) and even LESS sense now that the real rates are much higher.

                Personally, I would step back and start with WHAT the money needs to do for you, WHEN, and what is your RISK CAPACITY for these funds.

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