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Bond Mutual Funds
Old 02-18-2013, 02:43 AM   #1
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Bond Mutual Funds

Almost every where you look now a days you see...
there should be a mutual fund split of 70 percent stock funds to 30 percent bond funds, or 80-20, or 60-40.
Mutual fund AA are always talking in splits between stock mutual funds and bond mutual funds.

Here is my worry. I think the Fed has kept the bonds so artificially low for so long that the bond mutual funds have had a huge run up-- though artificial also. Hence, I believe that a bubble may burst and these bond mutual funds may crash.

If this happens, the stock funds should be okay, but what about the bond funds? These 'safe' portions of AA may just seriously hurt a portfolio.

So, what to do? Invest solely in stock mutual funds? Risky. Stock mutual funds, and what else, money markets?
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Old 02-18-2013, 05:46 AM   #2
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Lots of folks invest in CDs, high-yield savings accounts, guaranteed fixed-rate annuities, stable value funds, I-bonds, short-term TIPS, short-term bonds, etc.

Bond funds fluctuate in value and have dropped as much as 3% to 4% as recently as Nov-Dec 2010, so I don't know why anyone would consider them 'safe'. They are less risky than stocks and that's important.

So what did you do when bond funds dropped that month back at the end of 2010? Did you panic?
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Old 02-18-2013, 07:29 AM   #3
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In theory, the reason for higher interest rates which would cause a decline in bond values would be a recovering economy, which would be good for stocks so presumably any losses in the value of bonds would be offset by stock gains. However, there is a chance that things might work out differently.

My bonds are short to intermediate term but I am monitoring unemployment and may bail on bonds at some point in time.
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Old 02-18-2013, 07:40 AM   #4
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It is probably best to be in intermediate bond funds now. An actively managed fund like Dodge and Cox Income Fund might be a good idea now because they can react to rising interest rates better than an index fund. Although I do own Vanguard Total Bond (VBTLX) and Dodge and Cox, I also have a stable value fund to round out my fixed income.
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Old 02-18-2013, 09:54 AM   #5
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Between my IRA and my taxable accounts, I am in 4 bond funds. They vary from long-term to intermediate-term, from munis to corporate, from investment grade to slightly below investment grade. The prices go up and down, with a smaller range for the intermediates than the long-terms. Sadly, the one thing they have all done together is see their yields (i.e. monthly dividends) drop in recent years. I would welcome a small price drop if the yield would go up a bit.
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Old 02-18-2013, 11:25 AM   #6
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Over the last few years I've been moving my bond fund allocation to shorter and shorter terms and I'm currently about 66% intermediate, 30 % short and 4 % long. (Out of a 55% equities 45% bonds overall AA) Maybe time to move mostly short. I've been reluctant to follow a dictum where "everybody" agrees but maybe this time it's different?
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Old 02-18-2013, 11:38 AM   #7
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Quote:
So, what to do? Invest solely in stock mutual funds? Risky. Stock mutual funds, and what else, money markets?
1. Ignore the noise.
2. Select an asset allocation that reflects your time horizon and risk tolerance.
3. Stay the course.
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Old 02-18-2013, 11:41 AM   #8
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Right now I am 87% Eq 13% Bonds. And may shrink the bonds even more.
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Old 02-18-2013, 12:46 PM   #9
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Originally Posted by mickeyd View Post
1. Ignore the noise.
2. Select an asset allocation that reflects your time horizon and risk tolerance.
3. Stay the course.
+1

Read some good books instead. Pick one from Bogle or Bernstein. They lay out a good case for sticking to an AA that suits your needs & risk tolerance.
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Old 02-18-2013, 12:51 PM   #10
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Already lots of threads on "the bond bubble" here and elsewhere. And for every "cautionary" article or post, there are just as many to the contrary. A recent example No, there probably isn’t a bond bubble.

I've shortened duration on my bond funds, but I haven't changed my % allocation. There will be a drop in bond fund NAVs when rates rise, but it won't be sudden and not for several years. Like pb4uski, I am watching and if I get lucky I many sell some bond fund holdings, but odds are I will miss the timing - and that's OK. I'm a long term investor like most here, not a market timer. YMMV
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Old 02-18-2013, 12:56 PM   #11
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+1

Read some good books instead. Pick one from Bogle or Bernstein. They lay out a good case for sticking to an AA that suits your needs & risk tolerance.
+1

I particularly like the books on the Bogleheads' list, and would suggest reading any 3-4 of them that appeal to you, if you have not already done so.
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Old 02-18-2013, 04:19 PM   #12
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Speaking of ignoring the noise, at the bogleheads forum, there is also someone named Senin with some interesting posts, but first, let me ask a question:

Guess which intermediate-term bond fund has the best performance since November 19, 2012? Is it VFIIX? VWITX? VIPSX? VBMFX?

Quote:
Originally Posted by Senin Feb 5, 2012
I truly believe that the American economy has turned. Things are starting to look better and we are in for an upturn.

My wife and I have several other investments. This year I started to dollar cost average into Vanguard Total Stock Market and Vanguard GNMA.

I believe the market is going up.

My question is.....
in light of this upturn, are the GNMA's going to underperform? How will these GNMA's do?

Quote:
Originally Posted by Senin Feb 6, 2012
I've actually been in GNMA's since early last year. They were champs through the nightmare times of 2011. I'm glad I had em.

I do believe the recovery is here. I believe this will be a booming year for the market. But given that, usually bonds take a beating. I know GNMA is the best of the bonds, but will they take a beating too when the market skyrockets?

Quote:
Originally Posted by Senin April 25, 2012
GNMA has had a great run. Year after year of consistent income regardless of how bad the market has been. When rates fell and people thought that all the refi's would hurt GNMA's, it didn't. GNMA still has solid performances.

So my question is,
what indicators are there to tell us to get the hell out of GNMAs?

GNMA's seemingly have withstood everything. When is it time so say, uh oh, look at this, time to get out?!

Quote:
Originally Posted by Senin November 19, 2012
GNMA's (VFIIX) are not having their best year. It could be that their steam is starting to run out. Of course, the natural inclination is to move to the Total Bond Market (VBMFX).

But wait one minute, what about Tax Exempt Muni Bonds? They are having a good year. And, they are tax exempt. Right now several of them are beating VFIIX even without the tax free benefits. Wouldn't it make sense to move out of GNMAs into one of the tax exempt Munis?

I live in Calif. A Vanguard Calif Muni would be ideal. Except for the fact that Calif is currently a total financial mess-- the state has no money, cities are filing bankruptcy, etc (though there was some good news after the recent election-- who knows).

What do you think about the current (or future) condition of GNMA's, the Total Bond, and possibly moving into Tax Exemt Muni's?
Quote:
Originally Posted by Senin Jan 19, 2013
The VFIIX is not looking too good right now.

As of last November I transfered a number of shares into VWITX.

Anybody know what is going on with GNMA's?
Guess which intermediate-term bond fund has the best performance since November 19, 2012? Is it VFIIX? VWITX? VIPSX? VBMFX?
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Old 02-18-2013, 04:47 PM   #13
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Originally Posted by LOL! View Post
Guess which intermediate-term bond fund has the best performance since November 19, 2012? Is it VFIIX? VWITX? VIPSX? VBMFX?
LOL!

VFIIX Chart Vanguard GNMA Inv Fund Chart from 11/19/2012
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Old 02-18-2013, 05:39 PM   #14
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Nice chart!
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Old 02-18-2013, 05:53 PM   #15
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Nice chart!
M* makes it easy!
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Old 02-19-2013, 05:46 AM   #16
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Originally Posted by AWeinel View Post
Right now I am 87% Eq 13% Bonds. And may shrink the bonds even more.
We've been relying mostly on target date funds to keep us properly allocated toward bonds. We have one additional bond fund (PIMCO Total Return) that was use to balance-out other investments we have to keep our asset allocation in range, though we're still over-allocated toward stocks, though reading through a lot of the chatter, I'm not heavily motivated to "fix" this at this point [not to mention that I've done a lot over the last year to "clean up" our rather untidy portfolio, and selling everything again to clean it up further is beginning to concern me. It seems to work against the idea of buy and hold (though perhaps, at least in 401(k)s, I shouldn't be worried about that).]
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401k Bond choices are limited
Old 02-19-2013, 05:58 AM   #17
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401k Bond choices are limited

I see posters talking about short term bond funds, intermediate and long as well. I would guess a number of people, (at least me ), don't have access to these options as the largest percentage of our funds are in a 401k plan with limited choices. Mine imparticular has PTTRX and FPURX as my only Bond choices. Percentagewise I am at 2.5% in PTTRX, not sure if that is too small though.

[quote] So, what to do? Invest solely in stock mutual funds? Risky. Stock mutual funds, and what else, money markets? [quote]

When you don't have choices like in a 401k plan are you questioning whether we should limit our exposure now?

Edit: Just realized that FPURX is only 40% bonds... I had nothing in it mainly because I didn't want to have to think about a percentage of a percentage...lol.
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Old 02-19-2013, 07:01 AM   #18
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The response that I have received several times to similar questions has been: "Get your employer to provide better choices." I haven't found my employer to be even remotely constructive in that regard, though I plan to renew my attempts today.
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Old 02-19-2013, 09:05 AM   #19
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I see posters talking about short term bond funds, intermediate and long as well. I would guess a number of people, (at least me ), don't have access to these options as the largest percentage of our funds are in a 401k plan with limited choices. Mine imparticular has PTTRX and FPURX as my only Bond choices. Percentagewise I am at 2.5% in PTTRX, not sure if that is too small though.

Quote:
So, what to do? Invest solely in stock mutual funds? Risky. Stock mutual funds, and what else, money markets?
When you don't have choices like in a 401k plan are you questioning whether we should limit our exposure now?

Edit: Just realized that FPURX is only 40% bonds... I had nothing in it mainly because I didn't want to have to think about a percentage of a percentage...lol.
PTTRX is typically an intermediate term diversified bond fund, and the management has some leeway shorten/lengthen durations based on market conditions as well as change around the mix of types of bonds it holds.

It's a perfectly good choice for a core bond fund and has historically done very well. If that were my only choice I'd be OK with it as it is flexible enough, and you can let the managers deal with any shifts in bond market values.
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Old 02-19-2013, 09:29 AM   #20
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Speaking of ignoring the noise, at the bogleheads forum, there is also someone named Senin with some interesting posts, but first, let me ask a question:

Guess which intermediate-term bond fund has the best performance since November 19, 2012? Is it VFIIX? VWITX? VIPSX? VBMFX?



Guess which intermediate-term bond fund has the best performance since November 19, 2012? Is it VFIIX? VWITX? VIPSX? VBMFX?
That looked like some classic performance chasing. Pretty short-term at that.
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