Bonds - What to do?

[aja8888]

I sold off my tip bond fund (VIPSX) a couple of months ago when the NAV was higher than when I bought it 3 years ago. When I sold it had a negative 30 day SEC yield. I have a position in Vanguard Intermediate Bond fund and one in the Vanguard GMNA fund. I need to start reducing those positions this summer. What to do with the cash will be the question (all in my IRA).

 

[sheehs1]

A lot of commentary seems to be as if there is some sort of precipice we are rapidly approaching and it is very near. Is this a likely scenario? Rates in Japan have been very low for decades and there has been talk of a precipice scenario re Japan bonds for a long time (decades?). With all of the debt being piled on to government balance sheets all over the world how likely is it really that governments will start paying a large part of their budgets in interest payments by simply letting go in the immediate future?

+1

Add to this that just about every public and for that matter private entity I can think of has to by law or mandate hold a certain percentage of their investments in bonds. State and federal pension funds, college/university endowment funds, non-profits, etc.

Also as ejman states above, our own government has to be able to pay the interest on it's debt.

It will be interesting to see how or if the Fed gets us out of this low interest rate environment or IF they do anytime soon.

Dow 20,000 which just a few short years ago was a pipe dream, is not that far away considering how much liquidity has been pumped into the system.

 

[daylatedollarshort]

We are selling off all the individual TIPS, TIPS funds, and US bond funds that are not short term. The individual TIPS had some crazy high returns these past few years. We felt we should lock in the profits while we could. There just isn't much room for them to go up in price any more but they could go back down 20 - 40% in price if we didn't sell.

For our fixed income we have an assortment of several different stable value funds from former employer 401Ks, CDs, I bonds, Fidelity New Markets, high yield checking, short term bond funds and Fidelity Floating rate. I also have some long term Treasuries at over 4% I am hanging on to. The overall yields suck by historical standards but they are what they are. This is the best mix so far we could come up with.

 

[AndrewJackson]

About 50% of our fixed income allocation is invested in cash, CDs, or i-bonds. About 25% is invested in intermediate bonds, investment grade or better, with a duration < 5 years. The last 25% is invested in PIMCO Total Return (only bond fund choice in DW's 401K). Hopefully Bill Gross will see us through those uncertain times.

You sir are smart. Loaded up with options on high rates is very prudent way to do it.

 

[nun]

I'm mostly in intermediate high quality bond funds with 5 to 6 years durations. What's wrong with higher yield? Sure, if interest rates go up the NAV will go down, but the increased yield will eventually off set any drop in NAV and as I'm looking at a 30 year retirement horizon I don't see a reason to market time.

 

[seraphim]

Just read on the AP App Warren Buffet advises average investors to keep enough cash to be comfortable, and in best the rest in equities...

Couldn't link the repprt

 

[rbmrtn]

He said bonds are currently a terrible investment now. He was interviewed on CNBC

Click the video link in the article to listen.

Warren Buffett: Stocks Will Go 'Far Higher' Over Time

Given current conditions and what bonds are yielding , an online savings account @ 1% seems better than a short/intermediate bond fund

 

[ERhoosier]

bulletshares(guggenheim) are corporate bonds


fidelity are
these are municpal bonds not taxable

i live in massachusetts where fidelity is so munis are also lower state tax rate and not taxable at all on federal tax

Just pointing out another defined maturity fixed-income investment product line.
Obviously decision to go for muni vs corporate bonds depends upon relative interest rates & personal tax situations at the time someone is looking to invest.

 

[hsv_climber]

I've put some money into TIPS & Total Bond Market funds on Friday.

 

[seraphim]

Rbmrtn

Thanks for the correctiion

 

[kmt1972]

Well, there are predictions that Dow will hit 20,000 by the end of decade mostly based on the fact that bonds are overpriced.

http://www.nytimes.com/2013/05/12/y...r-a-20000-dow-still-holds.html?pagewanted=all

My views is more like the PIMCO New Normal where neither equities and bonds would do that great. On the equity side are contrarian signals such as Gallups poll on how many people own stocks.

U.S. Stock Ownership Stays at Record Low

Note that ownership surged in 2000 and 2007 right before the bubble popped. That 2013 is a record low should in theory be a signal of a bull market to come. Of course it could also be a secular trend from equities to bonds as the average age of investors rise.

 

[kmt1972]

I've put some money into TIPS & Total Bond Market funds on Friday.

What did you buy for TIPS? I usually buy WIW to be exposed to TIPS.

 

[devans0]

REITs, foreign REITs, commodities, corporate and international bonds are where I am looking to balance to. I am hunting for land, too.

To be 100 % in equities no longer seem best at these stock prices.

 

[clifp]

Nobody knows when or if bond yields in the US will spike. However, I have learned a very few tricks in the last 20 years and I try to wait for the fat pitch, but I also try to reduce risk whenever it is cheap to do so. You give up vanishingly small amounts of yield these days to avoid a LOT of interest rate risk. I will take that trade any day of the week.

+1

Buffett calls "bonds return free risk",which is pithier way of saying what Brewer said.

Right total bond market has a yield of 2.5%. An Ally 4 year "Raise your rate CD" is 1.30%. If rates remain stable for the next 4 years you give up ~5% by having your money in a CD vs a bond fund. On the hand if rates go up 5% (which would bring them up to historical levels) the total bond fund would go down by ~25% Making you downside risk 5 times greater than your upside. (I am ignoring the case that rates drop further aka Japan). Even a 1% increase in rate wipes out the advantage of holding bonds as opposed to CDs.

 

[nun]

+1

Buffett calls "bonds return free risk",which is pithier way of saying what Brewer said.

Right total bond market has a yield of 2.5%. An Ally 4 year "Raise your rate CD" is 1.30%. If rates remain stable for the next 4 years you give up ~5% by having your money in a CD vs a bond fund. On the hand if rates go up 5% (which would bring them up to historical levels) the total bond fund would go down by ~25% Making you downside risk 5 times greater than your upside. (I am ignoring the case that rates drop further aka Japan). Even a 1% increase in rate wipes out the advantage of holding bonds as opposed to CDs.

I don't think you'll see rates go up by 1% overnight, much more likely that they'll creep up in 0.25% steps and you can rebalance. Still I'll stick to my AA as I expect to get most of the return from my bonds in interest and not NAV appreciation.

 

[clifp]

I don't think you'll see rates go up by 1% overnight, much more likely that they'll creep up in 0.25% steps and you can rebalance. Still I'll stick to my AA as I expect to get most of the return from my bonds in interest and not NAV appreciation.

You are generally right but 1% hikes overnight aren't unknown, Volcker did it. More importantly the Fed often act pretty swiftly. For instance between June of 2004 and June of 2006 the Fed raised the Fed Rate from 1% to 5.25% in .25% increase roughly every two months. It was cut 5% 5.25%-.25% from Aug 2007 to Dec 2008.

But back in 2004 most bond funds were paying 6% a lot different than the 2.5% of today.

 

[eytonxav]

This bond bubble chatter seems over done to me. Just watch the unemployment rate, as there will not be any upward spikes in interest rates until we see real unemployment come down dramatically. Calm down and stop listening to CNBC!

 

[MikeD]

This bond bubble chatter seems over done to me. Just watch the unemployment rate, as there will not be any upward spikes in interest rates until we see real unemployment come down dramatically. Calm down and stop listening to CNBC!

Didn't the Fed just say that they won't raise rates until unemployment comes down a few days ago? I am just starting to follow this as I recently moved most of our money from stocks to bonds. I really don't know what I am talking about yet so take my words with a grain of salt.

Mike D.

 

[bUU]

It was longer than a few days ago (though perhaps they have restated it recently), but yes, that's the case.

 

[allanlevy]

you could try

alternatives would be annuities and real estate