Bonds vs bond funds vs bond ETFs | General financial discussion | Discussion forum

The differences between the average actively managed mutual bond fund and a bond ETF is primarily the difference in MER. An active manager can rarely add alpha (value) and thus the management fee and the trailer fee piled into the mutual fund virtually guarantees its underperformance.

I had never heard of "negative" interest rates until a few years ago, it's now actually happening in some cases, and it seems to be (albeit very slowly) a concept that's gaining traction. Seems to be a natural outcome of a world awash in daily increasing amounts of government debt many people can see can never be paid back. If you believe more of that is coming (and seems to me voters in Europe and America seem to show no indication of abandoning their preference for money printing over austerity in their voting decisions) and that thus bonds actually paying interest, any interest, will continue to be very attractive and thus will experience capital gains (potentially large ones), then I guess that might be a reason you would select them over GICs. Otherwise, I agree, GICs are the way to go for the average saver.

Yes,I can see circumstances where the liquidity of an actual bond or bond fund would be important. On the other hand, if you needed that money urgently, you would have no control over the timing, and you risk a reduced rate of return or no return or even a loss of capital for which there is no compensation from CRA (as there would be with stocks, which also carry loss risk).
I suppose it is for this reason that some FIs offer cashable GICs. With these, there is usually a penalty for cashing early or they are offered at a lower rate to begin with, but there is no risk of loss of capital (yet!). Wouldn't one be better off with these?
I can see where the higher rate on GICs would be in lieu of liquidity.
I guess it comes down to GICs are safer, and bonds are riskier but may potentially have slightly higher returns.

A couple of notes on debt. It seems to me that governments have been running on debt for a very long time, and that this is in fact the way they expect to operate. I remember reading a few years back when Britain was having some sort of debt issue, and it was revealed that Britain still had sovereign debt on the books from the 1700s. I believe it was to fund some overseas exploration or trading venture but can't remember for sure, but It sounded rather quaint in the 21st century. They have been refinancing it ever since, under all stripes of governments. That was when the penny dropped, for me, and I realized that governments have no intention of ever paying it off, yet they can continue to function.
At that point, I began to suspect it was all a kind of monopoly money. If you never have to pay it off, then it isn't real; it's only something on the books. It's only us poor suckers on the low end of the system who really have to pay back our debts! For nation states, it may be more of a question of diplomacy, of who has power over whom. If somebody owes you a lot of money, then you have a kind of power over them, and perhaps that's worth more to you than the actual repayment. It seems to me that this is what the US is afraid of right now. The IMF also has a huge amount of power in this set-up, because it can call the shots in highly indebted countries.

These are just my own speculative thoughts. The world of international finance and so on are well beyond me, and probably well beyond most of us. We are not invited into the back rooms where the deals are hammered out. However, they are the ideas that have come to me as I have tried to understand why debt is allowed to be a permanent feature of government with which one party gets to make accusatory statements towards the other, when in fact they all do it.

I didn't know capital losses were recognized by CRA for bonds as well as for stocks, so thanks for that information. I've never bought any.

No, I'm certainly not saying that stocks and bonds always result in losses. I'm talking about risk.

It's true that federal and provincial Cdn bonds are extremely low risk. However, the bond market also includes lots of corporate bonds. In addition, bond funds, which were the focus of most of the article in question, can certainly decrease in value. So, overall, I think my initial statement stands. In any event, government bonds pay very little and, personally, I have trouble seeing why anyone would buy them, given that you may need to hold them for a very long time at a very low rate of interest in order to get anything out of them. Perhaps I'm missing something, or perhaps it is institutional investors who buy them.

Loonie, history (going back forever) is replete with bondholders losing their money when governments or monarchs couldn't pay their debts, the Greek bondholders who took a number of "haircuts" being a recent, widely-reported example. The difference this time is for the first time in human history there is a global "first world" with hundreds of millions if not billions of people, a huge "middle" class, who have significant investments (and pensions and other social security-type benefits - which only came into existence in the last century - often our primary investment!) socked in the world's bond markets in one way or another (bond markets dwarf stock markets). Until the last century it was normal for 99% of the people to have virtually no savings, lived week to week, so defaults on bonds affected only the rich, the 99% were poor both before and after the crashes. Today, when so much of the world's institutions have debt that won't be paid back, the holders of that debt will lose out, and that, for the first time ever, is now a lot of us humans.