I want to start by saying despite the flaws this is a book worth owning; it’s packed full of information about bonds. Unfortunately, the premise of the book (an all bond portfolio) is simply not supported by the given data. You won’t get far without many of the flaws rearing their heads.

Flaw #1-Cherry picking Times

Within the first two chapters there’s a constant referral to the year 2009. This year is conveniently picked because it comes after the Great Recession, hence when stocks were down bad. It’s a case of picking the data to support your thesis rather than picking multiple data points to prove your thesis. Of course stocks are going to look bad if you pick one of the worst times in history.
In addition, statements like “From 2000 to 2009 yields a flat market” doesn’t prove much, other than it can happen. Once again, it’s easy to cherry pick times and dates to prove almost anything. To prove this thesis of an all bond portfolio then they should have spent more time on a variety of time periods where bonds outperform stocks.
Statements like “1900 to 2000 stocks and bonds returned about the same” doesn’t mean much either. People don’t tend to invest for a 100 years. An interval of say 30 years is a more useful interval for those preparing for retirement. Regardless, I wasn’t able to verify the truth of this statement as no source with data was given.

Flaw #2-Doesn’t understand Withdrawal rates

Withdrawal rate error, specifically found on page 22. In the example given, has Bob withdrawing 10% the first year of retirement and then over 10% the second year. It’s over 10% because you are now using less than a million dollars to arrive at the percentage. Someone needs to inform the authors that people don’t take out over 20% of their retirement in the first two years. More like 8%.

There have been lots of studies on proper withdrawal rates, taking out 10% every year makes no sense. Not to mention that doesn’t show how bonds are going to allow someone to continue withdrawing 10% every year into retirement, never mind the effects of inflation.
He does have a point in that what if the market is down bad and you need to withdraw? That truly is the risk of equities. This is why dividend investing can be a great tactic. This is why a diversified portfolio is recommended. If stocks are down, the bonds can cushion the blow and vice versa.

Flaw #3-Risk of Bad Timing with stocks

Another argument they have against Stocks is the risk of bad timing. They are correct that many investors have poor timing and this does effect returns. On the other hand, most investors are dollar cost averaging these days. They are buying low, in the middle and high. Sure, they may not be getting the max results but they are usually still yielding more than a bond over many years. Dividend/income investing is also a tactic that reduces the risk of market downturns. The dividend investor is not worried about whether the market is down, the income comes regardless. The risk of bad timing can’t be eliminated but it’s greatly reduced with dollar cost averaging or buying in lump sums throughout the year.

Flaw #4-They constantly state they aren’t chasing returns

They constantly make the statement that they aren’t chasing returns but chasing guaranteed, given returns. However, they spend pages trying to prove bonds have just as much or greater return as stocks. Therefore, it’s obvious that returns do matter with investments. Returns are even more important when inflation is brought into the mix. If your bond is only returning 2% and inflation is higher, you are losing purchasing and money power.

Flaw #5-Bond Funds are risky

They are correct in stating that there’s no guaranteed principal on a bond fund, that the prices move up and down. At the same time, bond funds or ETF’s can have a better than average return with very little risk and lots of liquidity. For example one of my bond funds is up over 14% in 8 months, the others are up over 5%. This is a return with very little risk that far outperforms any Treasury bond I could have got. Furthermore, the risk is largely interest rates; this is something that the investor has plenty of time to act on in order to get out of if need be. Bond funds are not particularly volatile.

Positives

I do like the book despite it’s flaws and highly recommend it. There’s so much you can learn from it. I personally think bonds deserve a place in everyone’s portfolio. My bond funds have had a fantastic return this past six months, beating the S&P even. I do believe people make a lot of assumptions about market performance based too much on recent history (incredible bull run). So, I think reading books about bonds and understanding them helps the investor stay balanced. One statement that’s made in the book I agree with-“The longer equities are held the more risk there is for a major correction.” People need to be aware of this, I think it’s a mistake many investors make when they see a one year return of 15%, thinking every year will be like that. I do believe equities hold more risk than many investors believe.