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Old 11-26-2015, 10:05 AM   #41
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I think some of us still are waiting/preparing for the "inevitable return" of the 70s and 80s since it was in our formative years. But after researching this, historically speaking those were considerable outlying years on the time continuum of our country.
People often regard the oil price shock as the primary cause of inflation during that period. But it was also a time when a lot of baby boomers entered the accumulation period of their lives and drove up demand for a lot of goods and services.

I remember demographers in the 1990s pointing to 2005 as a likely point for a stock market crash because boomers were ending their accumulation phase. Sure enough, it happened (a little late, but nearly on time). It's interesting to consider how the shadow boomers (millennials) will drive demand in the economy, and whether they'll have a similar impact on the economy as a whole.
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Old 11-26-2015, 11:05 AM   #42
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....I remember demographers in the 1990s pointing to 2005 as a likely point for a stock market crash because boomers were ending their accumulation phase. Sure enough, it happened (a little late, but nearly on time). ...
I recall seeing that graphic of the stock market compared to births lagged by a certain number of years and thought it was interesting but not compelling.

Are you referring to the decline during 2008-2009? If so, that was due to entirely different reasons. If it was for the reasons you suggest in your post then the recovery rally would not have occurred.
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Old 11-26-2015, 11:07 AM   #43
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bonds have to be watched now .
yeah , they ain't stocks if they fall which they already have but they are a weight if stocks returns are weak .

a 1 year cd has surpassed most total bond funds this year by almost double. ,

the last 3 years have not been much better for bond funds .

there may be a very near time ,cash and equity's may be better performing .

in my opinion things going forward will have to be more dynamic as far as allocations go . a bond allocation may need a lot more diversification and higher yield since a total bond fund is missing way to many aspects of the bond market and is very very heavy in treasury's and gov't bonds
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Old 11-26-2015, 11:24 AM   #44
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I recall seeing that graphic of the stock market compared to births lagged by a certain number of years and thought it was interesting but not compelling.

Are you referring to the decline during 2008-2009? If so, that was due to entirely different reasons. If it was for the reasons you suggest in your post then the recovery rally would not have occurred.
A lot of things can contribute to a perfect storm. I'm not saying generational demographics were the trigger to the 2008 crisis, but ... say the demand for mcmansions goes into decline as a certain generation ages out of them. Money available for mortgages builds, making riskier mortgages more attractive to yield-hungry investors.

I don't want to hijack this thread too much, so I'll leave it there.
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Old 11-26-2015, 11:31 AM   #45
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Similar situation for us, although we're still in the process of settling on an AA to put into place by retirement next year. Unfortunately, my wife's 401(k) only has DODIX and Vanguard GNMA (VFIJX) as available bond funds, and that account is 48% of our tax deferred total. Since we're currently 53% bonds and 47% cash (no equities), this is a double whammy.

I still see a lot of articles where DODIX is one of the recommended fixed income funds to hold. But I wonder how much of that is based on past performances of the fund.
I think it is still highly regarded, and it will probably continue to be a great bond fund. I just notice they've decided to take more risk. I am just managing the credit quality of my bond allocation, and boosting it a bit, at the expense of sacrificing a little yield. I'll still be keeping 80% of my current position in DODIX.
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Old 11-26-2015, 11:44 AM   #46
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I just met with a Financial Adviser this week. According to him, there has never been a 15 year period where bonds have out performed stocks. I have not had a chance to verify this statement, but it makes sense. If you have a long time to live, and do not need the money right away, less bonds is better - if you can take the volatility.

Going forward, interest rates are headed up, maybe only one time, maybe more. Current bond prices will go down. Funds and ETFs will switch to higher yielding bonds, but it will impact performance.

You do not buy bonds for appreciation, you buy them for stability and income.
I don't think things will work out as cut and dried as you spell out. The December rate rise is highly anticipated, and should be mostly factored in to current bond prices. Short term rates raised a small amount may not cause long rates to go up at all - that depends on the longer term outlook. If the economy falters or looks weak next year, any high quality bond fund NAV loss this Dec will be quickly reversed. Lower quality bond funds may get hit due to credit fears.
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Old 11-26-2015, 12:08 PM   #47
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I noticed this slight downward creep in DODIX credit quality. M* has finally updated their average credit quality statistic to reflect this - BBB. It used to be A.

Gundlach has been warning loudly about credit quality coming to bit investors holding high yield bonds in 2015. Of course, DODIX has limited exposure to high yield issues, but it's still around 10%.

DODIX is my main core bond holding. I'm planning to move about 20% of it to a higher credit quality bond fund - probably FSITX, which has a much higher average credit quality of AA.
Credit quality seems to be much in the financial news in recent months. As usual the bond market fully reflects this news. This Fed chart shows the credit quality spread: https://research.stlouisfed.org/fred2/series/BAA10Y



I am guessing that the under performance of DODIX in the last year or so was due to credit spreads widening. I too have DODIX as my largest intermediate term bond fund.

I'm also planning on spreading the risks around by holding more equal parts of DODIX, VFIDX, and BOND. But I might hold off for awhile because much of the credit spread widening has already taken place. Will it get worse? I don't know but I really don't think it probably that a big credit spread move such as 2008 will occur for the near future.

I also plan on going to intermediate Treasuries should the yield curve flatten too much.
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Old 11-26-2015, 02:51 PM   #48
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Credit quality seems to be much in the financial news in recent months. As usual the bond market fully reflects this news. This Fed chart shows the credit quality spread: https://research.stlouisfed.org/fred2/series/BAA10Y



I am guessing that the under performance of DODIX in the last year or so was due to credit spreads widening. I too have DODIX as my largest intermediate term bond fund.

I'm also planning on spreading the risks around by holding more equal parts of DODIX, VFIDX, and BOND. But I might hold off for awhile because much of the credit spread widening has already taken place. Will it get worse? I don't know but I really don't think it probably that a big credit spread move such as 2008 will occur for the near future.

I also plan on going to intermediate Treasuries should the yield curve flatten too much.
I think the performance of DODIX was quite good the last couple of years. They held up very well in 2013 compared to their peers - that's when the "Taper Tantrum" occurred mid year with a sharp, temporary rise in interest rates. They did very well overall in 2014 when many intermediate bond funds recovered as interest rates dropped again. This year they seem to be running a little weaker, and I think it may very well be due to taking on a bit more credit risk which from what I have read was a change they made this year.

One of the posters over on Morningstar made this observation about DODIX this year:
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I have to add some warnings about Dodge and Cox (DODIX). All Ms. Dziubinski has to say is correct, if you are using your rear view window to drive by.

In January, 2015 DODIX changed from being a Core type fund to a Core "Plus". The fund struck from the prospectus the requirement that 65% of its bonds be rated A or above. It added permission for itself to buy up to 20% of BB or B. M* dropped the portfolio's average credit rating from A to BBB.

By Sept. 30, 2015 (03 QTR 15), DODIX had lost money for the trailing: 1 day, 1 week, 4 weeks, 12 weeks, 6 months, and 1 year. It's Percentile Ranking in Category flailed around between 80th and 90th. They are bright boys and girls. I'm sure they have a good excuse or two.

This fund should have been re-rated as Neutral or Bronze until they proved they had learned how to be a "Plus" fund. But not on our dime. We moved to Fidelity Total Bond, where they already know how to do this sort of thing.
I don't require my entire bond allocation to be high-quality/safe, but I like a good chunk of it to be, as I am looking more for portfolio stabilization and bonds behaving well during credit crises and equity crashes. I avoid funds such as high yield bond funds, that tend to be highly correlated to equities.

BTW - yes, that credit spread graph is a classic one, and a pretty good predictor of recessions. It's back in the danger zone, although it has backed away a couple of times since 2009. There is a lot of oil related debt that has to be dealt with still - probably the main reason for the rise in 2015.
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Old 11-26-2015, 09:25 PM   #49
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I don't think things will work out as cut and dried as you spell out. The December rate rise is highly anticipated, and should be mostly factored in to current bond prices. Short term rates raised a small amount may not cause long rates to go up at all - that depends on the longer term outlook. If the economy falters or looks weak next year, any high quality bond fund NAV loss this Dec will be quickly reversed. Lower quality bond funds may get hit due to credit fears.

We may invest differently, but our thoughts are the same. I own no bonds and treat all my preferred stocks as my bonds. Two years ago, the non utility preferreds took a bit of a dive when the first sniff of a rate hike was coming (taper tantrum). It hasn't happened this time yet. Market this time thinks raising short term rates is a "win-win" situation for preferreds. They know short term rates cant be raised much, and if it does it will just further protect the long end anyways.
I don't feel too worried anyways as most of mine are "yield trapped" (meaning past call, so they cant rise in value for fear of a call).They were issued around 6.5% when 10 year was 4% plus. They have little room to move downward since they are already still near 6.5% and have solid investment grade ratings.


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