Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Bonds - What to do?
Old 05-05-2013, 12:15 PM   #1
Recycles dryer sheets
 
Join Date: Apr 2011
Location: Castro Valley
Posts: 400
Bonds - What to do?

Is anyone else worried about the potential Bond bubble? I've read several articles advising to reduce bond exposure to next to nil. With equities at an all time high and cash yielding an all time low, what are the alternatives?

Just curious what everyone else is thinking or doing?
__________________

__________________
jkern is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-05-2013, 12:24 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,385
Quote:
Originally Posted by jkern View Post
Is anyone else worried about the potential Bond bubble? I've read several articles advising to reduce bond exposure to next to nil. With equities at an all time high and cash yielding an all time low, what are the alternatives?

Just curious what everyone else is thinking or doing?
The only alternative that makes any sense would be cash. Only a remote chance would take bonds and not equities down strongly.

The whole purpose of these low rates is to drive savers toward more risk.

As anyone who has ever seen a loading chute knows, it is usually smart to avoid whatever you are being driven toward.

Ha
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 05-05-2013, 12:40 PM   #3
Full time employment: Posting here.
 
Join Date: Nov 2008
Location: Harrogate, UK
Posts: 864
Quote:
Originally Posted by haha View Post
The whole purpose of these low rates is to drive savers toward more risk.

As anyone who has ever seen a loading chute knows, it is usually smart to avoid whatever you are being driven toward.

Ha
So THAT'S why I have those whip marks on my back.....
__________________
F4mandolin is offline   Reply With Quote
Old 05-05-2013, 12:42 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,364
Eventually (exactly when no one knows) the Fed will stop buying bonds at which time bond prices will drop and yields will rise. Historically during times of negative real interest rates, such as we have now, precious metals have performed well. Don't fight the Fed.
__________________
GrayHare is offline   Reply With Quote
Old 05-05-2013, 12:46 PM   #5
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,044
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.
__________________
FIREd is online now   Reply With Quote
Old 05-05-2013, 12:48 PM   #6
Full time employment: Posting here.
 
Join Date: Mar 2010
Location: Chicago
Posts: 867
Well, what is one supposed to do. You need bonds for ballast. I would just stay in the middle of the ship with intermediate bonds.
__________________
ripper1 is offline   Reply With Quote
Old 05-05-2013, 01:03 PM   #7
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: The Woodlands, TX
Posts: 7,164
Fed implied they will keep rates low until unemployment is down to 6.5% and inflation is increasing. I would suspect a lot of people will be asleap at the wheel when bonds and bond funds see their NAV start heading down.
__________________
......."Everybody has a plan until they get punched in the face." -- philosopher Mike Tyson.
aja8888 is offline   Reply With Quote
Old 05-05-2013, 01:13 PM   #8
gone traveling
 
Join Date: Mar 2007
Posts: 559
Quote:
Originally Posted by jkern View Post
Is anyone else worried about the potential Bond bubble? I've read several articles advising to reduce bond exposure to next to nil. With equities at an all time high and cash yielding an all time low, what are the alternatives?

Just curious what everyone else is thinking or doing?

if bonds are a bubble-and equitys are at all times highs-isn't that a bubble.

cash or cd-the only out..

you can't win so stay the course. what else can you do
__________________
gerrym51 is offline   Reply With Quote
Old 05-05-2013, 02:00 PM   #9
Thinks s/he gets paid by the post
veremchuka's Avatar
 
Join Date: Oct 2010
Location: irradiated - too close to the nuclear furnace
Posts: 1,294
I have kept about 35% of the portfolio in my 401k to use the stable value fund for fixed income, the yield now is 3.2%. Anything much higher than that would worry me they are taking too much risk but this fund has performed well over the the years. In a rollover IRA I have an equal allocation to the Vanguard TIPS (which I think was a mistake) and the Intermediate Investment Grade bond fund which I'm ok with.

It's a tough situation - bonds are paying dick and poised to take a hit while equities are sky high and have to correct to some point some day. Talk about a rock and a hard place!
__________________
veremchuka is offline   Reply With Quote
Old 05-05-2013, 02:23 PM   #10
Full time employment: Posting here.
 
Join Date: Apr 2009
Posts: 731
Not a good time to be in bonds, IMHO - neither in funds or owning bonds directly. All of my good-paying bonds are being called. I expect my bond funds to go down in NAV... I'm seriously thinking of selling the funds Monday and doing other things with the money (more risky but way more profit).
__________________
Retired July 2, 2010 at 62. My only regret is that I couldn't do it sooner.
thinker25 is offline   Reply With Quote
Old 05-05-2013, 02:26 PM   #11
Thinks s/he gets paid by the post
bUU's Avatar
 
Join Date: Dec 2012
Location: Georgia
Posts: 1,914
I mentioned in another thread that I'm being pointed toward bank loans instead of bonds. I'm still unsure about it, but I haven't heard positive recommendations toward any other alternatives. :\
__________________
bUU is offline   Reply With Quote
Old 05-05-2013, 02:32 PM   #12
Thinks s/he gets paid by the post
timo2's Avatar
 
Join Date: Jul 2011
Location: Rio Rancho
Posts: 1,438
Quote:
Originally Posted by GrayHare View Post
Eventually (exactly when no one knows) the Fed will stop buying bonds at which time bond prices will drop and yields will rise. Historically during times of negative real interest rates, such as we have now, precious metals have performed well. Don't fight the Fed.
What I was reading today speculated that the change in value will happen very quickly, so keep in short term bonds. Even though indications are the Fed will keep rates low until 2015, that still seem close to me.
__________________
"We live the lives we lead because of the thoughts we think" Michael O’Neill
timo2 is offline   Reply With Quote
Old 05-05-2013, 02:44 PM   #13
Thinks s/he gets paid by the post
seraphim's Avatar
 
Join Date: Mar 2012
Posts: 1,492
I mentioned the same thing as verumchuka a month or so ago: I have the option of moving about $500,000 from stable accounts (mostly paying about 1.62%, about $120k paying about 2,25%) into Vanguard accounts - my AA is and would be 60s/40b. My thought then was to leave the bond portion in the account paying 2.25% until a better time to pay into bonds. Have about a month before I can transfer anything (post retirement)

The rates are a bit different now than what I posted last time. The ones in this post are more accurate - not exact, but close enough to give an idea The large account follows ten year treasuries, and I'm not sure how the smaller account is figured.



Thoughts on a strategy
__________________
"Growing old is no excuse for growing up."
seraphim is offline   Reply With Quote
Old 05-05-2013, 04:36 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,619
I thought the "bond bubble" was last month's worry and we are now beyond it.

Lots of threads over on Bogleheads were started in March-April on the subject, but the recent rally to all-time highs has quieted things down a bit.

Here are some recent threads to read on the subject:
Bogleheads &bull; View topic - Vanguard: Six questions (and answers) about bonds (Links a Vanguard Q&A article which is very good)
Bogleheads &bull; View topic - A graphic on the role of bonds (Role of bonds in a portfolio)

A surprising (to me) fraction of Bogleheads have reported that they shortened their bond durations. This is remarkable from the "stay-the-course" crowd. Folks have gone to CDs, stable value funds, I-bonds, and short-term bond funds.
__________________
LOL! is offline   Reply With Quote
Old 05-05-2013, 05:02 PM   #15
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,972
Quote:
Originally Posted by veremchuka View Post
I have kept about 35% of the portfolio in my 401k to use the stable value fund for fixed income, the yield now is 3.2%. Anything much higher than that would worry me they are taking too much risk but this fund has performed well over the the years. In a rollover IRA I have an equal allocation to the Vanguard TIPS (which I think was a mistake) and the Intermediate Investment Grade bond fund which I'm ok with.

It's a tough situation - bonds are paying dick and poised to take a hit while equities are sky high and have to correct to some point some day. Talk about a rock and a hard place!
I'm still somewhat new to investing but my understanding is that bonds don't drop by very much whereas equities could drop by 1/3 within a matter of months. Seems like bonds are better, even now, for people who are concerned about volitility. Am I wrong? When I say bonds, i'm referring to bond funds such as total bond market funds.
__________________
aaronc879 is online now   Reply With Quote
Old 05-05-2013, 05:04 PM   #16
gone traveling
 
Join Date: Mar 2007
Posts: 559
Quote:
Originally Posted by bUU View Post
I mentioned in another thread that I'm being pointed toward bank loans instead of bonds. I'm still unsure about it, but I haven't heard positive recommendations toward any other alternatives. :\
fixed termination date funds

investigate this

Has Fidelity Solved a Major Problem with Bond Mutual Funds?


https://www.fidelity.com/mutual-fund...maturity-funds


2023 version starting this month https://fundresearch.fidelity.com/mu...mary/31635V109
__________________
gerrym51 is offline   Reply With Quote
Old 05-05-2013, 05:44 PM   #17
Thinks s/he gets paid by the post
 
Join Date: Feb 2011
Posts: 1,629
Quote:
Originally Posted by gerrym51 View Post
Another company with similar offerings as ETF's- and at lower exp ratios (~0.24% vs 0.4%) IF you use deep disc broker to buy 'em-

ETFs | Guggenheim Investments
__________________
ERhoosier is offline   Reply With Quote
Old 05-05-2013, 05:48 PM   #18
gone traveling
 
Join Date: Mar 2007
Posts: 559
Quote:
Originally Posted by ERhoosier View Post
Another company with similar offerings as ETF's- and at lower exp ratios (~0.24% vs 0.4%) IF you use deep disc broker to buy 'em-

ETFs | Guggenheim Investments
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
__________________
gerrym51 is offline   Reply With Quote
Old 05-05-2013, 06:56 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by bUU View Post
I mentioned in another thread that I'm being pointed toward bank loans instead of bonds. I'm still unsure about it, but I haven't heard positive recommendations toward any other alternatives. :\
Bank loans have little if any interest rate risk, which is why they are suggested. The problem is that they all have substantial junk grade credit risk and the junk market has gotten stupid. I owned this stuff as the markets clawed their way out of the bust, but would not touch them now.

If you want an alternative to index bond funds, keep your durations short, your credit quality high, and make sure your funds own no agency mortgage backed securities (fannies, freddies, ginnies). The optionality embedded in gubmint mortgage bonds means that bondholders will get disastrously killed when rates rise and reported durations on these securities are effectively meaningless.

Other alternatives I have been making use of are merger abitrage funds, CDs, I bonds and plain old cash.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Bonds
Old 05-05-2013, 07:12 PM   #20
Full time employment: Posting here.
 
Join Date: Oct 2012
Location: Reno
Posts: 556
Bonds

Brewer's advice is good, although I have moved about 10% of my bond allocation through harvesting gains into Floating Rate. Despite the important risk he notes. In a credit crisis, they would be killed; if it's interest rates rising, not so much. Also have moved similar allocations into emerging bonds (Fidelity New Markets) and foreign currency funds (Templeton GIM) . Also decreased duration, with more in short-term. Finally, you could consider a Guggenheim Bullet-bond ladder. And I bonds. And cash is not trash. Your mileage may vary; and most of these incur more risk, from a traditional perspective, than vanilla Treasury bonds. Pick your poison.

I've been making these changes over the last two years, gradually. Grundlich is probably talking his book but argued recently--as he has for the last two years--that with QE, we'll be in low yields and high bond prices for a long time. I tend to agree so I've been using primarily gains to make these moves.
__________________

__________________
RobLJ is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 11:03 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.