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Old 09-22-2013, 01:51 PM   #21
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I'd buy bonds to get the AA right, for the same reason that in a stock market downturn, I'd continue to buy stocks. AA is your friend to get emotions out of the equation.
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Old 09-22-2013, 03:12 PM   #22
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Originally Posted by easysurfer View Post
AA is your friend to get emotions out of the equation.

Thank you for that. For some reason that simple statement makes more sense then all the talking heads, and some investment books.

MRG
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Old 09-22-2013, 03:20 PM   #23
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+1. If bond interest rates increase meaningfully, equities will very likely fall too, given a little time.

I look at this asset allocation as fixed vs. equities. Fixed can be anything from cash to 30 year governments, and laterally to include high yield, corporate investment grade, EM, etc. When the allocation suggests more fixed, you can choose which fixed income vehicles seem most promising. Of course this is not anywhere near a science, but IMO it beats making yourself buy a long term bond when it really doesn't seem all that prudent.

Ha
Funny, I do exactly the same thing, albeit with a constraint. I try to keep at least a chunk in bond index funds just to avoid completely second guessing my chosen allocation. But I have been comfy keeping part of my fixed income position in cash, CDs, I bonds and more recent a foreign bond CEF trading at a discount to par (GIM). When I bail on the job and lose certain employment-related investment restrictions, I will probably start shopping for individual floating rate and step-up bonds.
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Old 09-22-2013, 05:41 PM   #24
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Based on my current asset allocation, compared to my goal asset allocation, I should purchase bonds in order to get the right mix of stocks and bonds.
Then do so.

The last time I didn't maintain my asset allocation was near the end of the Bush presidency. I let my stock percentage get up to around 85% because I didn't want to pay capital gains taxes, and we seemed so close to "our number." Mr market was nice enough to restore my target asset allocation for me. Though he overshot forcing me to sell some of my few bonds to buy stocks.

Nowadays, my rule is that I can adjust my target allocation for stocks down when the market has recently been setting one year or better highs, and I can adjust my target allocation for stocks up when equities have recently been hitting one year or lower lows. Other than that, I stay within a few percent of my target subject only to a "calamity" bond ladder emergency reserve. I've learned my lesson.

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I'd quit listening to the financial radio.
+1

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Originally Posted by easysurfer View Post
I'd buy bonds to get the AA right, for the same reason that in a stock market downturn, I'd continue to buy stocks. AA is your friend to get emotions out of the equation.
+1
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maybe too simple?
Old 09-24-2013, 05:45 AM   #25
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maybe too simple?

Wouldn't it be a prudent move to simply add short or VERY intermediate term (or even GNMA) funds/bonds to the mix which would A.) satisfy the AA requirements, keeping your "rules based" vs. "emotion based" investing in tact and B.) mitigating the investment rate risk. (i.e. shorter term securities will weave less when interest rates bob).
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Old 09-24-2013, 08:24 AM   #26
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Do NOT buy GNMAs.
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Old 09-24-2013, 08:32 AM   #27
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Do NOT buy GNMAs.
Do you mean short/intermediate term or just don't buy, period? I ask because I've been averaging into a GNMA fund with the intent to hold for at least 10 years. This is in a tax-deferred account.
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Old 09-24-2013, 09:09 AM   #28
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Do you mean short/intermediate term or just don't buy, period? I ask because I've been averaging into a GNMA fund with the intent to hold for at least 10 years. This is in a tax-deferred account.
I should clarify, I think. I don't mean short/intermediate in terms of bond duration, but holding period for fund shares, with reinvestment.
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Old 09-24-2013, 10:03 AM   #29
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I should clarify, I think. I don't mean short/intermediate in terms of bond duration, but holding period for fund shares, with reinvestment.
Quoted durations are meaningless for these funds. Google "negative convexity" and I will try to answer questions.
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Old 09-24-2013, 10:16 AM   #30
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Quoted durations are meaningless for these funds. Google "negative convexity" and I will try to answer questions.
Thank you! I skimmed a couple and believe I am too ignorant at this point to formulate a worthwhile question, but I may hit you up later. But I have homework reading.
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Old 09-25-2013, 12:03 PM   #31
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What is the goal of the rebalance?
What is the goal of the bond funds?

Ask those questions to yourself, and give yourself 3 answers to each...

The goal of the rebalance is to
a) buy low, sell high
b) get back to appropriate risk tolerance
c) reduce exposure to stocks

More than likely all 3 are correct to some degree

The goal of the bond funds is to
a) generate income
b) diversify away from stocks (have an investment not correllated to stocks)
c) Take advantage of buying something not at its peak?

If you could find an investment which did a) and b) and possibly c), would you do it?
Maybe that investment is
a) convertibles (do not behave like normal bonds)
b) long-short funds (income strategy which has less correlation to bond market)
c) cash (as others have suggested)
d) commodities
e) Real Estate (REITS)

It is my opinion as long as you avoid high exposure to long term bonds, you should be OK.

My allocation is 60-40, and my 40% are

10% to high yield
10% to diversified bonds
10% to inflation bonds
10% to Real Estate

If I could move the assets, I would reduce the 10% high yield and 10% diversified bonds into a long-short and convertible bond funds...
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