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Old 06-10-2007, 12:19 PM   #21
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Anyone who is in a long-term bond fund is taking it in the shorts.

I avoid long bonds in my asset allocation completely. Bill Bernstein has demonstrated that there is very little additional return in long maturities over short maturities, and not nearly enough additional return to justify the significantly higher risk.

I tend to keep my bond fund allocation in funds with less than five year weighted average maturities, and 2-3 years would be most preferable to me. The NAV of my bond funds are down only about 1.2% from the start of the year, meaning after interest payments my bond holdings are still positive for the year to date.
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Old 06-10-2007, 01:10 PM   #22
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I agree the long term bull bond market is over. That was always a vestige of the highly inflationary '70s and '80s. Anyone who bought 30 year bonds then and held have been laughing all the way to the bank. Now that those are all expiring, it is a different world.

With the turn in short term rates from a bottom in 2003 and long term bond yields falling below 5% for the last several years, bond yields have nowhere to go but up...and that means face value depreciation for the foreseeable future. Bonds are still the place to be for a good portion of your FI component to smooth volatility especially nearing, or into retirement, but shorter durations are essential. I would not go longer than a 5 year ladder (average duration 2.5 years) for the foreseeable future and would not suggest anyone go longer than a 5 year weighted average duration in one's FI component at any time.
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Old 06-10-2007, 01:32 PM   #23
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right now the long bond is down about 4% for the year . its eaten thru all the interest you would have gotten plus another 2% or so. if you take the fact that it was actually up for the year a few months ago the losses are approaching 6%
Bonds are down, so what? If stocks give up all their YTD returns in the next few weeks (like they did during last year's correction) should we bail out on them and avoid investing in them in the future? Bonds like stocks can go up or down. It does not mean they are bad investments. They are cyclic just like stocks. Personally I like intermediate bonds because they combine the advantages of short and long bonds. They are less volatile than long bonds but have higher yield than short bonds. All my bond funds are still up 1-6% YTD according to quicken.
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Old 06-10-2007, 01:40 PM   #24
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A very good reason to avoid long bonds. For asset allocation purposes, it's best to keep in the short to intermediate duration range.
Maybe. If we the Fed overdoes its tightening and pushes us firmly into recession, you will wish you had bought the longer duration bonds.

Best to look at this in the context of an overall portfolio.
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Old 06-10-2007, 02:37 PM   #25
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Maybe. If we the Fed overdoes its tightening and pushes us firmly into recession, you will wish you had bought the longer duration bonds.

Best to look at this in the context of an overall portfolio.
I agree.

I have most of my bonds in Wellesley in IRA's so I can't really see what is going on in the bond portion, but in my 401(k) I have Scwab Total bond and the 401(k) website provides personal performance figures ytd and it is 0.5% for me. I also have VG Tax Exempt Inter. Term Muni's and ytd ROI is -0.3% for me.

If this a "pounding" then I can take it, particularly since I have no intention to sell any bond mutual funds for some years yet.
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Old 06-10-2007, 03:38 PM   #26
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the "pounding" referred to the fact that last thursday the long bond funds fell just shy of 2% in one day. that was virtually almost unheard of before . the intermediate bond funds fell almost 1% in one day. thats a huge amount for bond funds that change .30 to .50 on a bad day usually.

check agg and tlt for thursday. that was scarey
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Old 06-10-2007, 03:44 PM   #27
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i do believe in getting in bonds early if your going to reap any capital gains but i think even at this point its a little to early. geesh bill gross sees 6.5% on the long end as an eventual possibility.
First - Bill Gross says eventual possbility on the longend. It could be a long time.

Second - even if it does reach 6.5%, that doesn't mean it will stay there indefinitely.

I add to my bonds whenever the allocation gets knocked down by a certain percent. If the 5yr gets to 5.25% soon, my bond allocation will probably be depressed enough to justify adding. It depends on what equities do at the same time.

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Old 06-10-2007, 04:15 PM   #28
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the "pounding" referred to the fact that last thursday the long bond funds fell just shy of 2% in one day. that was virtually almost unheard of before . the intermediate bond funds fell almost 1% in one day. thats a huge amount for bond funds that change .30 to .50 on a bad day usually.

check agg and tlt for thursday. that was scarey

Just like stocks I try to not panic at short term drops. Since the bond funds I am in have dividends re-invested it does mean that I'll be buying more bonds at a lower NAV
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Old 06-10-2007, 04:59 PM   #29
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Maybe. If we the Fed overdoes its tightening and pushes us firmly into recession, you will wish you had bought the longer duration bonds.

Best to look at this in the context of an overall portfolio.
I do. I avoid long term bonds because short to intermediate behave better for asset allocation rebalancing purposes from the studies I have read.

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Old 06-10-2007, 06:18 PM   #30
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Just like stocks I try to not panic at short term drops. Since the bond funds I am in have dividends re-invested it does mean that I'll be buying more bonds at a lower NAV
this is true but you will have to stay long enough to reach the duration rating of the fund. of course this only applys to treasuries as credit risk on corporate bonds can alter the duration by alot.

as an example if the duration value of your bond fund is 5 and sells for 10.00 bucks a share, it means if rates rise 1% your nav will drop to 9.50 or by 5%.

you will be getting the extra 1% interest though so it will take 5 years to break even assuming no further rate change. it gets a lot more complex in real life as rates vary all over the place.
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Old 06-10-2007, 07:11 PM   #31
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this is true but you will have to stay long enough to reach the duration rating of the fund. of course this only applys to treasuries as credit risk on corporate bonds can alter the duration by alot.

as an example if the duration value of your bond fund is 5 and sells for 10.00 bucks a share, it means if rates rise 1% your nav will drop to 9.50 or by 5%.

you will be getting the extra 1% interest though so it will take 5 years to break even assuming no further rate change. it gets a lot more complex in real life as rates vary all over the place.
I just haven't seen my bond funds do any losing this last 7 years and there have been drops of 1 - 2% from year to year in the 5 yr treasurury

2000, 6.16
2001, 4.56
2002, 3.82
2003, 2.97
2004, 3.43
2005, 4.05
2006, 4.75


VG total bond index, avg maturity 4.5 years, has consistent gains over these last few years of interest rate increase. I had heard that if rates rise faster than 2% /year then intermediate duration bond funds will start losing value.
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Old 06-11-2007, 03:25 AM   #32
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the early 2,000's were good if you were holding bonds as money market rates were less that 1%. as things leveled out until recently the intermediate and long term end was barely hit with rising rates as that end held stuck in the same range.

now that end has finally moved and vg bond index is only up ytd about 1.99 % including interest . a money market is up about 2.4

considering earlier this year intermediate bonds were up almost 3% they are now down almost 5% off the high since rates rose,

intermediate bonds loose about 4.5 - 5% for every point rates rise
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Old 06-11-2007, 04:04 AM   #33
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I had heard that if rates rise faster than 2% /year then intermediate duration bond funds will start losing value.[/quote]


you heard wrong....... all bonds are effected immeadiatly if the rise or fall is within their time frame. thats true of bond funds too. until recently the intermediate end fell within a range of 1/2% or so since rates started rising so you lost part of your interest last year but it didnt dip into principal.

this year however if you bought in last few months you are now negative for the year.
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Old 06-11-2007, 07:13 PM   #34
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this year however if you bought in last few months you are now negative for the year.
Then I'm doomed. I have been and will continue to be an annual re-balancer.

If my bond funds go down then I guess I'll be buying more of them in January when I re-balance, unless the stock funds have dropped as well
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Old 06-12-2007, 01:38 PM   #35
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Billy, IMHO, 100% equities is very risky at your age. My portfolio consists of:

10% Lg US stocks (VTI)
10% Sm US stocks (VB)
10% Lg For stocks (VEU)
10% Sm US stocks (GWX & DLS)

10% Gold (GLD
10% Commodities (DBC)

40% Cash (short-term US$ CDs)

I'm trying to find a way to invest directly into non-UD$ fixed income assets such as EUR bonds without paying a lot in fees, commissions, or taxes. By next year, I want my fixed income portfolio to look like this:

10% Short-Med (1-5 year) US treasury notes, bills, bonds or CDs
10% Long (30 year) US T-bond
10% Short-Med (1-5 year) non-US$
10% Long (30 year) EUR bond

This way, I'm covered for almost any financial eventuality. My 40% in stocks will give me good upside in prosperous times. 40% in bonds, notes a/o CDs will cover a depression or recession. 20% in gold and commodities should do well in inflation.

BTW, I checked out a pic of you, the Terhorsts, and somebody else on Paul and Vicki's website. You're all looking good. I hope to run into you and Akaisha again sometime in the near future.


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This is exactly my point, and why we remain 100% equities.

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