Mutual bond fund question

[John Galt III]

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.

 

[LOL!]

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.

 

[nun]

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?

 

[foxfirev5]

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.

 

[CH]

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...

 

[CH]

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.

+1

 

[nun]

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.

 

[foxfirev5]

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.

 

[redduck]

... 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?

 

[CH]

"and get what you deserve." Uh, and just what do people deserve if they don't think like you think?

Time will tell...