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Old 06-20-2011, 05:02 PM   #1
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bond funds

We all know interest rates will go up at some time and bonds will lose money at some point. I'm just thinking that my middle approach with 40% in DODIX , 40% in VBTLX and 20% in a stable value fund is OK. Combined all are yielding 4% with a .25 expense ratio. My other half of my portfolio is a total stock and total international fund.
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Old 06-20-2011, 05:26 PM   #2
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It's pretty hard to predict when interest rates will rise. They were supposed to rise in 2007, then 2008, then 2009, then 2010, and now 2011 or 2012. Meanwhile VBTLX just keeps going up most of the time.

I can't think of any approach that is absolutely secure in the present environment. So, we do the best we can.

I am keeping my VBTLX and the dividends are nice to have. I also have some TSP "G-Fund", a government bond fund which is guaranteed not to lose value.
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Old 06-20-2011, 05:49 PM   #3
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Originally Posted by ripper1 View Post
We all know interest rates will go up at some time and bonds will lose money at some point. I'm just thinking that my middle approach with 40% in DODIX , 40% in VBTLX and 20% in a stable value fund is OK. Combined all are yielding 4% with a .25 expense ratio. My other half of my portfolio is a total stock and total international fund.
Well, the (bomd) funds you hold have relatively short average maturities. So based on that your downside shouldn't be all that bad.

And if interest rates go up because the economy is growing, then your stock part of the portfolio should do very well.

If however, interest rates go up because nobody wants all of our debt and inflation starts raging then you'll see some losses in both asset classes.

- From where I stand your asset allocation seems reasonable.
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Old 06-20-2011, 06:43 PM   #4
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Bonds don't lose money when rates go up, they lose market value. They still have the same redemption value.

An active fund like DODIX should be able to navigate rising rates without too much difficulty. Not sure about the other two. Some active managers can do relatively well even with rising rates, such as Loomis Sayles, PIMCO. GIM at a discount is a fine alternative.
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Old 06-20-2011, 06:48 PM   #5
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Lost market value or forgone interest...

That's just another name for the same old cat. Either way the result is pretty much the same.
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Old 06-20-2011, 07:26 PM   #6
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Well, the (bomd) funds you hold have relatively short average maturities. So based on that your downside shouldn't be all that bad.

And if interest rates go up because the economy is growing, then your stock part of the portfolio should do very well.

If however, interest rates go up because nobody wants all of our debt and inflation starts raging then you'll see some losses in both asset classes.

- From where I stand your asset allocation seems reasonable.

The Vanguard average maturity is 23 years and the Dodge Cox is 7 year. Those both seem rather long to me. Depending on what your stable value fund is paying I'd inclined to move more into that. Of course I've been sure interest rates/inflation rates would rise for the last 2+ years. so what do I know.
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Old 06-20-2011, 07:42 PM   #7
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The Vanguard average maturity is 23 years and the Dodge Cox is 7 year. Those both seem rather long to me. Depending on what your stable value fund is paying I'd inclined to move more into that. Of course I've been sure interest rates/inflation rates would rise for the last 2+ years. so what do I know.
Something is amiss here.

per the Yahoo website, the Vanguard bond fund (VBTLX) average maturity is 7.2 years.

VBTLX Holdings | VANGUARD TOTAL BOND MARKET INDE Stock - Yahoo! Finance
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Old 06-20-2011, 08:01 PM   #8
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You may also be interested in this thread about bond funds. A chart shows how interest rates recently went up and the predicted decimation in bond fund values did not happen.

My conclusion: Much ado about nothing.
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Old 06-20-2011, 08:08 PM   #9
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Something is amiss here.

per the Yahoo website, the Vanguard bond fund (VBTLX) average maturity is 7.2 years.

VBTLX Holdings | VANGUARD TOTAL BOND MARKET INDE Stock - Yahoo! Finance

Me bad I transposed two letters and looked at VBLTX which is the long term bond fund.
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Old 06-20-2011, 10:00 PM   #10
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I've had my finger on the bond fund trigger for a long time now and have just never been inspired enough to get out. I will probably hang on for a while longer. Though I'm probably over-due for a rebalancing of my equities into fixed incomes and can't quite face up to shifting over to any bond funds.

As boring as they may seem, I've never regretted my stable value fund or the various I-bonds I've collected over the years.
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Old 06-20-2011, 10:11 PM   #11
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You may also be interested in this thread about bond funds. A chart shows how interest rates recently went up and the predicted decimation in bond fund values did not happen.

My conclusion: Much ado about nothing.
It doesn't really allow that conclusion. It does show that if rates go up, then come back down, no current damage is experienced.

Ha
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