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Old 05-31-2013, 09:31 AM   #21
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Your point deserves serious consideration in the decision to change durations.
Some other points to consider. Capital gains, I sold a good chunk of bond funds in Dec, the CGs were worth about 8 years of income going forward. The income from those funds had been declining significantly as well.

For duration, short term bond funds are barely paying 1%, You can get that with online savings accounts without the risk. Longer term CDs in 1.75-2% range and you break those if needed.
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Old 05-31-2013, 09:42 AM   #22
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Those who have been shortening up durations for the past year (or years) leave out an important part of the analysis - how much did they "lose" over the year(s) making this move? I remember investing in a 5 year CD 3 or 4 years ago and the experts were advising to wait for rates to rise. If I followed that advice, I'd still be waiting and missed all that income. Obviously current interest rates are very low but like other posters have said, I'm in intermediate bonds, will continue to enjoy the income they throw off and will rebalance taking advantage of any price declines by automatically investing in them should they end up being the underperforming asset class. I'm just not smart enough to forecast interest rates but I am smart enough to read a spreadsheet.
You could equally well argue that those who have been in intermediate bonds for the last few years have given up those long term gains.....it's all just an argument for bond index investing.

I emphasize the income producing aspects of bonds, so if rates go up I'll be happy and take the eventual extra income. I've often thought about constructing a target date bond ladder when I retire, but as I'm not planning on spending down my bond allocation in ER, just taking the income, I don't really see the need. If I have to rebalance I'll be either buying bonds on the way down or selling on the way up which is ok with me. As I don't intend to sell bonds on a regular basis to support my spending a bond ladder doesn't seem to offer much advantage over a regular bond fund, but if you have a plan to spend down your bonds then a ladder would have an advantage.
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Old 05-31-2013, 11:26 AM   #23
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Those who have been shortening up durations for the past year (or years) leave out an important part of the analysis - how much did they "lose" over the year(s) making this move? I remember investing in a 5 year CD 3 or 4 years ago and the experts were advising to wait for rates to rise. If I followed that advice, I'd still be waiting and missed all that income. Obviously current interest rates are very low but like other posters have said, I'm in intermediate bonds, will continue to enjoy the income they throw off and will rebalance taking advantage of any price declines by automatically investing in them should they end up being the underperforming asset class. I'm just not smart enough to forecast interest rates but I am smart enough to read a spreadsheet.
Not only that, but it seems that the short-term bonds have been bid up more than the intermediate bond by those seeking safety from an interest rate rise.

I have an allocation to short-term bond funds as part of my AA, but the rest are intermediate term, and we'll be holding those for decades (I hope).

I don't believe in shortening duration across the board in an attempt to avoid some loss. As you wait for the "dreaded event" you can be loosing out on dividends, and even when the "dreaded event" occurs, the outcome is not always permanent, or can even play out in totally unexpected ways.

Better just to rebalance (buy more) whenever a given asset class gets hit hard.
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Old 05-31-2013, 12:12 PM   #24
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Thanks to all of you for your insightful thoughts and opinions.
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Old 05-31-2013, 09:09 PM   #25
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We have an IRA which we draw a small amount from as Social Security and pension take care of the rest of our expenses. We have an asset allocation of 60% bonds and 40% equities. Have done well with it until now. With the current bond environment, my question is what do you do with the bond allocation? Do you remain true to your original allocation and wait it out? Usually with equity funds you know they will eventually bounce back if they go down, but what about bond funds? Thanks for any input.
The Vanguard government bond funds I owned (VFIJX=GNMA, VIPSX=TIPS) have traditionally moved counter-cyclical to equities. Today the DJIA fell over 200 points. In normal times, the bond funds would have almost certainly been up, but today they were down. For the last 4 weeks, VFIJX was down 2.4%, VIPSX was down 4.3%. These intermediate government bond funds are not providing the diversification I bought them for. After holding for well over a decade, I gave them the ski-doo today and bought short term high-grade bond funds and money market fund. You can stand on principle and get what you deserve...or you can think for yourself.
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Old 06-01-2013, 06:20 AM   #26
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I got into some bond funds about a year ago, and have had about 10 percent gain since then, but now am watching my profit slowly, slowly erode on a daily basis. Unless they tick back up soon, I will have to "take profits" and bail before they evaporate completely.
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Old 06-01-2013, 12:01 PM   #27
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The Vanguard government bond funds I owned (VFIJX=GNMA, VIPSX=TIPS) have traditionally moved counter-cyclical to equities. Today the DJIA fell over 200 points. In normal times, the bond funds would have almost certainly been up, but today they were down. For the last 4 weeks, VFIJX was down 2.4%, VIPSX was down 4.3%. These intermediate government bond funds are not providing the diversification I bought them for. After holding for well over a decade, I gave them the ski-doo today and bought short term high-grade bond funds and money market fund. You can stand on principle and get what you deserve...or you can think for yourself.
Thanks for the post. It sounds like a pre-capitulation post though rather than a full-on capitulation. We need to start reading posts that fit the latter definition which I suppose will have to come from someone else since you are now out. We may get there sooner rather than later.
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Old 06-01-2013, 12:37 PM   #28
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Thanks for the post. It sounds like a pre-capitulation post though rather than a full-on capitulation. We need to start reading posts that fit the latter definition which I suppose will have to come from someone else since you are now out. We may get there sooner rather than later.
If your bonds go down why not rebalance and buy some more?
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Old 06-01-2013, 01:18 PM   #29
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While I continue to hold intermediate term bond funds ( VG Total Bond Instl. & Pimco Total Return Instl.), I have some concerns. I understand that if you hold through the duration of the fund you will recover losses from a rise in rates. However this still does not address a large sell off of the fund or a prolonged period of steadily rising rates. This rising rate scenario could take decades to play out, not simply the period equal to the duration of the fund. No easy answers but I wouldn't blindly follow the advice that it will play out OK in the long run.
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Old 06-01-2013, 04:20 PM   #30
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Thanks for the post. It sounds like a pre-capitulation post though rather than a full-on capitulation. We need to start reading posts that fit the latter definition which I suppose will have to come from someone else since you are now out. We may get there sooner rather than later.
I have never heard the word capitulation associated with the bond market. To me, capitulation implies a decision made on emotion. The basis for my decision is the end of a 30 year down trend in interest rates, not emotion. I really didn't expect total returns of intermediate bond funds to go negative until the Fed changed their policy. Between my account and an account I manage for a relative, I sold over $1M in intermediate bond funds last week, which were generally replaced by short term bond funds and commercial paper. I am generally a buy and hold investor, having held these funds for well over a decade. But I don't follow any approach blindly and temper it with some common sense...
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Old 06-01-2013, 04:21 PM   #31
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While I continue to hold intermediate term bond funds ( VG Total Bond Instl. & Pimco Total Return Instl.), I have some concerns. I understand that if you hold through the duration of the fund you will recover losses from a rise in rates. However this still does not address a large sell off of the fund or a prolonged period of steadily rising rates. This rising rate scenario could take decades to play out, not simply the period equal to the duration of the fund. No easy answers but I wouldn't blindly follow the advice that it will play out OK in the long run.
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Old 06-01-2013, 05:00 PM   #32
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While I continue to hold intermediate term bond funds ( VG Total Bond Instl. & Pimco Total Return Instl.), I have some concerns. I understand that if you hold through the duration of the fund you will recover losses from a rise in rates. However this still does not address a large sell off of the fund or a prolonged period of steadily rising rates. This rising rate scenario could take decades to play out, not simply the period equal to the duration of the fund. No easy answers but I wouldn't blindly follow the advice that it will play out OK in the long run.
This sounds like bond market timing.
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Old 06-01-2013, 06:20 PM   #33
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This sounds like bond market timing.
Being concerned about a situation is not the same as reacting constantly to short term developments. I have been a stay the course type investor long before it was fashionable. However I honestly believe that people are being misled about holding these funds for a specific period of time and all will be fine. Meanwhile I'll continue to hold and stick to my AA. We'll see how it works out.
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Old 06-01-2013, 07:18 PM   #34
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... After holding for well over a decade, I gave them the ski-doo today and bought short term high-grade bond funds and money market fund. You can stand on principle and get what you deserve...or you can think for yourself.
"and get what you deserve." Uh, and just what do people deserve if they don't think like you think?
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Old 06-04-2013, 10:17 PM   #35
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"and get what you deserve." Uh, and just what do people deserve if they don't think like you think?
Time will tell...
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