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Re: Is reaching for yield stupid


@ElLobo wrote:

"Apparently my assumption in my above post was wrong: That people here knew that risk and reward go together, lol.

Pretty simple concept, and it isn't news."

It all depends upon what you mean by 'risk' and what you mean by 'reward'!

High yield junk bonds are 'riskier' than absolutely safe 30 day T-bills, hence pay a higher coupon.  But if the high yield corporate bond doesn't default, your 'reward' is much more interest earned over its lifetime.  If it does default, your reward is the coupon interest you received until it defaulted, but you also lost all your principle.

Another measure of 'risk' is the standard deviation of the total return of some asset, which depends, obviously, on share prices/fund NAV behavior and diveys/distributions.

My ONLY point is that a simple statement, that risk and reward go together, sometimes means proportionally, other times inversely proportional.  For high yield bonds, it's both!  8-))


If you think that over-complicating, over-explaining a simple, concise, age-old "Investing 1.0" concept helps you understand it, then carry on.

 

 

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Valued Contributor

Re: Is reaching for yield stupid


@sandman100 wrote:

@Bentley wrote:

@ElLobo wrote:

I also hold PCI as, roughly 20% of my portfolio.  It is a CEF, not an ETN.  It is not trading in penny stock territory, like a lot of the mlp based CEFs.  It has enough BOND interest to cover it's distribution, and then some.  I consider it a safe 11% yielding bond fund, not high yield, like VWEHX, which, as an OEF, is not leveraged, or any of the high yield corporate CEFs.

FWIW.


 

 A few years back I replaced VWEAX with PIMIX which has outperformed PCI and VWEAX over the last 3mo, 6mo, 1yr, 3yr, 5yr and 10yr periods.


Not according to this thread. The morningstart chart would lead you to believe that PIMIX beats PCI but the performance numbers tell a different story. 

 https://community.morningstar.com/t5/Closed-End-Funds/PCI-vs-PIMIX-total-return-on-Morningstar/m-p/6...

Anyway I sold off some PIMIX and JMUTX yesterday and replaced 50% of it with UTG and PKO today. Reaching for more yield, how ironic. 

I suppose my reasoning was the same as many, if I have enough dividends to meet my needs I don't have to sell my stock funds in a crash and I don't need to keep a few years expenses in cash.

In hindsight now, the latter method (keeping cash instead of risky high yielders) may have been a better way to go.


Problem is that investors cannot buy/sell CEFs at NAV. So, looking at actual returns that investors see in their accounts, here is the picture:

                    1 Wk       1 yr          3 yr           5 yr

 PIMIX         -4%       -1.82%     +2.51%     +3.98%

PCI           -27.65%   -13.81%   +5.22%      +8.95%

So, yes, PCI is still ahead for 3 yr and 5 yr, if you can tolerate volatility for 1 wk or 1 yr.

BTW, after a long time, I bought PCI yesterday and today at 18.xx.

YBB
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Re: Is reaching for yield stupid

"1 Wk 1 yr 3 yr 5 yr

PIMIX -4% -1.82% +2.51% +3.98%

PCI -27.65% -13.81% +5.22% +8.95%

So, yes, PCI is still ahead for 3 yr and 5 yr, if you can tolerate volatility for 1 wk or 1 yr.

BTW, after a long time, I bought PCI yesterday and today at 18.xx."

Interestingly enough, whenever you withdraw the monthly fund income, rather than reinvesting it, the CAGR of all three are almost identical, at a bit less than minus -1%.  Here is the PV link.  Looks as if, since PCI came out in early 2013, the choice between VWEAX and PIMIX, in terms of income, is not too significant, although PIMIX wins out.  It also wins out going back to whenever PIMIX itself came out.

PCI, however, wins out, in terms of income, since it came out, over both.

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Re: Is reaching for yield stupid


@RJD1300 wrote:

@sandman100 wrote:

According to Warren Buffet it is stupid to reach for yield.

  https://www.youtube.com/watch?v=4DgfBIxsPIk

Maybe he's right.

In an attempt to get some extra yield, at the beginning of 2019,  I invested 5% of my port in 2 preferred stocks (NYMTN and TGP-B)  which were recommended by a poster 'L... X..'.

Suffice it to say those 2 stocks are down 36% and 30% respectively.  

I also invested about 8% of my port in a Pimco CEF (PCI) which is down 24%, about the same as the rest of the stock market, which I can live with. 

I've got about 20% of my port in a mix of multi-sector and non-traditional bond funds (mostly PIMIX and SEMPX) which is also reaching for yield. They are all down but significantly less than the rest of the stock market, at least. 

I won't be selling any of it, at least I'll still have the yields.. I hope.

 

 

 


Vanguard Small Cap Blend fund, VB, is down 35% from 52 week high, with a yield of 1.56%

Was it reaching for yield that brought it down?


I think what Buffet means is it's better to keep fi money in a steady low yielding mm fund and wait for the opportunity to buy stocks at a lower price, rather than having it in, for example,  a bond cef,  which gives a high yield, but drops precipitously in a correction/crash, wiping out the yield.

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Re: Is reaching for yield stupid

"I think what Buffet means is it's better to keep fi money in a steady low yielding mm fund and wait for the opportunity to buy stocks at a lower price, rather than having it in, for example, a bond cef, which gives a high yield, but drops precipitously in a correction/crash, wiping out the yield."

It's a matter of choice.  If you buy bonds for income, withdrawing and spending that income, low, or no, yielding anything is a waste of capital.  Ditto for stocks.  If you do so, than bond and stock price action has little effect on your portfolio cash flow.

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