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Join Date: Mar 2003
Posts: 10,537
1) Debatable. If it isn't a large % of your portfolio (over, say 5%), no big deal if you want to make the bet.
2) Probably smart
3) Probably a good idea, assuming these funds don't represent a liquidity buffer/e-fund.
4) Not likely to make a significant difference in the long run. If you'd have cap gains, a no-go.
5) What is the Morgan Growth Fund?
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Join Date: Mar 2003
Posts: 10,537
Eh, I'd just as soon skip the growth fund, so long as you have adequate equity exposure through the indexes.
On the bond index vs. GNMAs and short terms, a two part answer:
1) The market-timing answer: Making the switch to short term stuff was actually quite prescient on your part. However, times have changed and rates have risen, without the longer end of the curve blowing up. The yield curve is inverted and there is a fairly high likelihood that the Fed will go too far. If that proves to be the case, the Fed will be cutting rates and long term bonds will offer cap gains plus coupons, while short term stuff will only see the yield fall.
2) The portfolio diversification answer: Medium and long term bonds are a classic diversifier to equities. When the economy is contracting, equities usually take it on the chin and interest rates fall. This means that medium and long bonds tend to offer cap gains just as the equity market is taking a beating. This is nice diversification to have.
2. Moving all GNMA shares to Total Bond Index fund
.... or somewhere else, maybe foreign bond if you dont have that.* I dont think GNMA's are really a necessary a component in a portfolio.
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3. Moving all short-term bond and money market funds to the total bond index fund.
This was your worst advise by far.* with interest rates already at moderate levels and definitely in a pattern of rising, going short-term on bonds is a solid choice (because they are not very subject to rising rates), AND money market become more attractive because in high + rising interest rates, (long-term) bonds typically fall, and stock also historically do poor with high interest rates.* Conversely, it is relatively common knowledge that money market accounts pay more with higher rates and they also serve as a nice safety net in a high + rising interest rate scenario.
I could easily see 40% of a portfolio in nothing but Money market and Short-term bond (or more) as being a solid defensive choice right now, even for an aggressive investor.
Not sure about 4 + 5.* I dont know what your current weightings are.
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Join Date: Mar 2003
Posts: 10,537
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Originally Posted by saluki9
I agree with getting rid of the GNMA fund
I'm of the opinion that people should not hold MBS or ABS securities in their personal portfolios
1. They are often heavily optioned (not in your favor)
2. because of repayments, the maturity and duration of these bonds can vary by large amounts.
I avoid total market bond index funds because of their inclusion
Actually, I think MBS offers an attractive addition to the total bond index. Yep, it is short convexity and options, but you get a yield offset over treasuries. If you don't own MBS/ABS, you have to own something else. More corporates? More treasuries? If rates don't move that much, GNMAs will outperform other options.
Are these funds in a taxable or tax deferred account? If in a taxable account I would question the value of some of the changes vs. the tax consequences.
Actually, I think MBS offers an attractive addition to the total bond index. Yep, it is short convexity and options, but you get a yield offset over treasuries. If you don't own MBS/ABS, you have to own something else. More corporates? More treasuries? If rates don't move that much, GNMAs will outperform other options.
Considering the yield differential is only 16BPS in favor of the GNMA I will happily give that up in favor of the Vanguard Int Term Treasury to be free of their limitations. That being said I do hold DFIHX which does have some agency notes
In addition, of all the Vanguard funds, I would be happiest with 2.4% real yield on the TIPS fund
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Join Date: Jun 2006
Posts: 6,076
I talked with the financial planner today. The discussion was good, and pretty much as expected.
One thing I got out of it is something I hadn't considered. He recommends a few actively managed funds in order to reduce volatility. That is, a managed fund might be less likely to move in lockstep with an index fund, and thus smooth out the changes.
What is the Morgan Growth Fund?
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