Anyone bailing out of bond funds?

[roger r]

I am pretty much a buy and hold guy and haven't made any major adjustments to my portfolio other than some informal balancing for a few years. I noticed my Fidelity intermediate bond fund's asset value YTD has already declined more than any hopes of interest income for the year and am think on bailing out of anything longer than short term. I am looking for opinions?

I am aware of the two basic arguments for buying and holding bond funds. First, that if you hold long enough the increasing returns will eventually outweigh losses in NAV. And that it is futile to try to predict interest rates and time the market. Well...on another day I would tend to agree. But with interest rates at rock bottom and nowhere to go but up, and with what appears to be a boom in housing sales, improved consumer confidence, and a general economic recovery, is not the interest rate writing on the wall? Even the talking heads are warning about the risks of getting into bond funds right now. Why stand idly by?

Then I guess the question then becomes where to go? I was thinking just shifting into short term funds, but there is always CDs or money markets, where returns are dismal but the principal is protected.

 

[clifp]

I've been bailing out of bond funds since 2009. I completed the last of the selling in May, just have a couple of small individual positions and some inflation protected bonds (ISM/OSM for you board vets) which I intend to hold to maturity.. I even reduced the bonds in my 87 year old moms portfolio by moving her Vanguard GNMA into Welesley and Wellington. In the hope that pros at those funds could do a better job than I in navigating the trick situation ahead.

With the caveat, that my crystal ball is far from perfect. I'd say two things. We've had a pretty significant move in the bond market over the last few months. Some smart guys like Bill Gross (who may be just talking his book) think the market over reacted. So in short term you may not have a lot to worry about.

In the long-term, I believe that Warren Buffett's characterization of bonds offering return free risk is still accurate. Although the risk is a tad less than it was last year.

 

[Midpack]

Some people have/are, some people haven't/aren't. I can easily provide you a link that will make a convincing argument to stay the (bond) course, and just as easily provide a link making a convincing argument to dump bond funds. Or Google, and you can see them yourself. The former is the long term view, the latter shorter term - though many neglect to share that critical assumption. I shortened duration on my bond fund holdings (to reduce the NAV hit when/how it comes, though with lower yields), but I've not reduced my allocation. I am not making a recommendation for others.

If you're looking for a consensus, best of luck...

 

[daylatedollarshort]

We got out of almost all of the intermediate and long term US bond funds months ago. When interest rates are this low, we felt there isn't much room for gains and a whole lot of potential for downside risk.

 

[roger r]

I am actually a little over-weight in Wellington in addition to a hand full of intermediate term funds, which has it's own issues with bond exposure.

Not necessarily looking for a consensus, just some additional lines of reasoning that seem to fit into my way of thinking.

Thanks for the thoughts!

 

[Katsmeow]

Our portfolio remains at 55% equities and 45% fixed income which is mostly bond funds. However about 10% of the portfolio is basically in cash (mostly money market and is money held for easy withdrawal) and I've increased VFSUX (short-term investment grade) and decreased total bond (about 11% of portfolio now). Rest of fixed income is in Wellesley and VWEHX High-Yield corporate (that is only about 5% of the portfolio). I'm not all that happy about any of the bond funds but don't see any compelling alternatives. I may move some more out of total bond into VFSUX.

 

[REWahoo]

Some people have/are, some people haven't/aren't. I can easily provide you a link that will make a convincing argument to stay the (bond) course, and just as easily provide a link making a convincing argument to dump bond funds. Or Google, and you can see them yourself. The former is the long term view, the latter shorter term...

+1

Based on lessons learned from my past failed attempts to out-guess the market (AKA market timing), I'm taking the long term view and making no changes to my AA, which is heavily weighted towards Wellesley and Wellington.

 

[John Galt III]

After watching my long term corp bond fund drop day after day for a few weeks, I finally bailed out of it while I was still ahead of the game (had slightly more than I invested when I bailed, so did not have to take a loss). I've been checking it still, and it's still generally on a downward trend, so I'm glad I'm out. I moved the money into my stable value fund, which is getting 3.1 percent lately. I have some $$ in Wellesley which is partly bonds, but I haven't touched it, since it isn't dropping very much compared to that LTCB I bailed out of.

 

[GrayHare]

I've been DCAing out of bond funds for a couple years now. Most of the $ went into stocks, some into individual corporate bonds.

 

[IBWino]

Not bailing, but stopped buying in 2010 and have been stock piling cash instead to maintain our asset allocation between equities/fixed. I'll put the cash to work if/when either stocks or bonds become cheap(er).

 

[Lsbcal]

See my new thread on Bernstein's barbell idea. I'd be very interested in people's view of this idea to somewhat bail from bond funds.

 

[pb4uski]

I've been taking a middle position and selling my intermediate term bond fund and replacing it with 2019 and 2020 Guggenheim Corporate Bulletshares as somewhat of a 6-7 year CD substitute. Some people aren't so keen on the idea and I'll admit it is somewhat of an experiment but I think it will work out. Time will tell.

Also see http://www.early-retirement.org/forums/f28/bond-ladder-etfs-66901.html

 

[HFWR]

My %bonds hasn't changed, but I'm all BSV (Vanguard ST bond fund). Sold TIP a while ago, and more recently closed out of HYG and LQD. Miss the income, but took the nice cap gains and ratcheted down the risk. Probably just shifted the risk, as I upped my REIT from 10 to 15%.

Not averse to [-]DMT[/-] changing my strategy as conditions warrant.

 

[ER Eddie]

Investing a little more in stocks, but still have 40% bonds.

 

[veremchuka]

I am but it is not bailing as much as I want to rebalance from what was 30/70, is now 40/60 to what I'd prefer 50/50.

I have held intermediate term bond funds at Vanguard, got out of GNMA 1.5 years ago, put half into Intermediate Term Investment Grade and half into TIPS. The TIPS have been a disaster losing $6000, it would take years to earn that back staying in this fund and with no inflation on the horizon they way they measure it why stay and lose more. I already exchanged some of that into the Total International Stock Market Index on a day it was really down, too bad I didn't do the same that day for the Total Stock Market Index but I will.

I'm tempted to move the ITIG fund into the Short Term Investment Grade Fund, lower duration may be better for the time being.

The 10 year treasury note had a crazy run and while my crystal ball is cloudy it wouldn't surprise me to see it back to 2.2% by September helping the nav's of my bond funds and that'd be a good time to do more exchanges unless the market does a 8-10% pullback then I'm heading for equities then. We'll see.

 

[Lsbcal]

...
I'm tempted to move the ITIG fund into the Short Term Investment Grade Fund, lower duration may be better for the time being.

The problem is that short term may have smaller duration but short rates could go up more then long rates partially canceling out that duration benefit. I think that's why Bernstein proposes the barbell strategy I mention in another thread started today.

The 10 year treasury note had a crazy run and while my crystal ball is cloudy it wouldn't surprise me to see it back to 2.2% by September helping the nav's of my bond funds and that'd be a good time to do more exchanges unless the market does a 8-10% pullback then I'm heading for equities then. We'll see.

Bill Gross is saying he thinks that decline might happen.

 

[keegs]

Given our ages (56 and 58) we're probably underweight bonds and with retirement < 10 years off began to move our AA more into bonds (bond and ballanced funds). I've since stopped that move and plan to keep the AA where it is.

I started putting new money into cash. Until the bond market settles down, I'm going to try to buy equities on the market lows. Have no idea whether this is worthwhile but I'm doing it anyway.

 

[enjoyinglife102]

I often wonder how the financial services industry rakes in billions when the overwhelming evidence is that one's greatest chance for success is to buy and hold index funds periodically rebalancing to take advantage of say bond funds dropping in price or stock funds tanking. Not much money in that for the middleman but this thread is just one more example of how those billions are made. Bill Gross projects the 10 year to be 2.2 soon? Bill Gross dumped treasuries a while back missing out of an enormous rally and his fund badly underperformed. The "king of bonds" with all his trading and expertise versus Vanguard Intermediate Index Admiral:
Harbor Bond:
5yr: 6.97 10yr: 6.16

Vanguard
5yr: 7.20 10yr: 6.18

And you think your trading can outperform this because?

 

[marko]

Like the OP, I'm a buy and holder.
I'm 40% bond funds and holding. Over the years I'd buy a little more each year but I'm holding right now.
My view: interest rates will increase within a few years and bonds will return to some normalcy.
If it's about long term, I didn't bail from stocks in 2008 (and glad I didn't!) so I'm not going to bail from bond funds now. I could be wrong...YMMV

 

[scrabbler1]

Bond funds are supplying me with the monthly income to pay my bills in ER so I won't be bailing out of them. What matters more to me is the dividends per share they are generating, and that has been dropping gradually in the last few years. The number of shares I own in these funds has risen so that has partly offset the DPS drop.

I would most welcome a reversal of the trend in the last few years so my monthly income would rise again and I can use any excess to buy cheaper shares. But even if that doesn't happen, I will just fine either way.

 

[obgyn65]

Where exactly do you see a general economic recovery ? Anyway, my answer to your question is no. I am staying the course.

However, I may continue to buy deferred annuities with surplus money until I stop working.

But with interest rates at rock bottom and nowhere to go but up, and with what appears to be a boom in housing sales, improved consumer confidence, and a general economic recovery, is not the interest rate writing on the wall? Even the talking heads are warning about the risks of getting into bond funds right now. Why stand idly by?

Then I guess the question then becomes where to go? I was thinking just shifting into short term funds, but there is always CDs or money markets, where returns are dismal but the principal is protected.

 

[Which Roger]

I will be bailing into bonds (and international stocks) when I do my annual rebalancing this weekend, since performance of both has been lagging US stocks in the past year.

 

[eytonxav]

I have been reducing the bond component of my fixed income over the past few months and increased cash. Just the hint of Fed easing purchases was enough to shake the market dramatically. Maybe it will be different when the stimulus is actually withdrawn, but it could also get much worse. The old adage of buy when securities are cheap and sell when they are high may apply depending on whether you adhere to a strict buy and hold philosophy or not. Bonds are still not cheap, even after this latest increase in rates, but on the other hand if the "you know what hits the fan", its still important to have some bonds in your portfolio for balast. That said, unfortunately there is no right or wrong answer on which approach to take, so just do what helps you to sleep better at night.

 

[smjsl]

I may continue to buy deferred annuities with surplus money until I stop working.

obgyn65, do you mind sharing what deferred annuities you are buying. I've been staying away due to general perception of too-high-fees, but taxes hurt a lot :-(

Sorry if this was discussed in another thread.

 

[RockyMtn]

didn't bail...just lowered the duration of my bond funds.