|
|
Rebalancing into VG Fixed Income
01-16-2011, 06:51 PM
|
#1
|
Full time employment: Posting here.
Join Date: Aug 2005
Location: Far NW 'burbs of Chicago
Posts: 898
|
Rebalancing into VG Fixed Income
The nice performance of the stock market has pushed my equity % above my target AA range at Vanguard.
Wanting to move some money into fixed income, the choices at VG look pretty bleak. MM pays almost nothing, short-term bond funds pay darned little and will probably take some losses as interest rates rise. Intermediate term bond funds pay more but will be hurt more as rates rise. GNMA have a nice track record but are subject to influences I don't really understand. We've got CD's on the outside, don't want all our FI eggs in that basket even though it should be safe.
Some folks say I should just put the money in the intermediate term bond funds, don't worry about the losses now; they'll recover as rates eventually stabilize. Problem is, rates are so low now that they could rise for a long time. I shouldn't be trying to time the market, but bond funds look like such a sure loser, or at best a go-nowhere class, that I'm not comfortable with them.
Suggestions? Please keep it simple...
|
|
|
|
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!
|
01-16-2011, 06:57 PM
|
#2
|
Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,498
|
Well, I think that (as you point out), the choices available are pretty bleak. When I rebalanced a couple of weeks ago, I put the excess into Vanguard Total Bond Market Index (VBTLX).
This is not a hot pick, though, I agree. I am more of a buy-and-holder, or I guess buy-and-rebalancer and just try to diversify, keeping my risk down if possible. Then, hang on tight and wait out the storms. It could be a long time but hopefully I will be consoled at least somewhat by the dividends in the meantime.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
|
|
|
01-16-2011, 07:01 PM
|
#3
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,673
|
Hey Jim,
If your AA is out of whack due to an increase in equity and your AA is still correct for YOU, then rebalance. Forget about the short term manifestations of the bond market. In the long term it will all work out. You probably already know this.
__________________
Part-Owner of Texas
Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx
In dire need of: faster horses, younger woman, older whiskey, more money.
|
|
|
01-16-2011, 08:26 PM
|
#4
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
I had the same questions about rebalancing my VG fixed income, but I just reminded myself that my fixed allocation is there for a purpose and that Total Bond Index has a consitent return over the years. My one bit of adjustment was to include some Intermediate Term Investment Grade fund as I like the balance sheet of corporations a lot more than government organizations at the moment, but my bong percentage has stayed the same.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
|
|
|
01-16-2011, 08:29 PM
|
#5
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
|
How much do you expect the bit of money you will put into bonds to return this year?
3%?
Let's say you need to move $50,000 from stocks to bonds and expect bonds to go up 3% in 2010. So 3% of $50,000 is $1500. Just let your stocks go up 3% more and then move $51,500 to cash.
|
|
|
01-16-2011, 09:10 PM
|
#6
|
Full time employment: Posting here.
Join Date: Aug 2005
Location: Far NW 'burbs of Chicago
Posts: 898
|
Quote:
Originally Posted by LOL!
How much do you expect the bit of money you will put into bonds to return this year?
3%?
Let's say you need to move $50,000 from stocks to bonds and expect bonds to go up 3% in 2010. So 3% of $50,000 is $1500. Just let your stocks go up 3% more and then move $51,500 to cash.
|
Ah, if only my crystal ball worked that well...
|
|
|
01-16-2011, 09:14 PM
|
#7
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
|
You know the YTD return of Vanguard's S&P500 index fund is already 2.9%, so maybe you can think about this another couple of weeks and it will come to pass.
|
|
|
01-17-2011, 07:27 AM
|
#8
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
|
CDs are still the best fixed income option in town. A 5-yr CD at Ally Bank yields 2.4% and has a 2 month break fee. It's not possible to calculate a duration for CDs, but I'd say it is less than 0.4 years. Compare that with Vanguard's Total Bond Market fund at a 2.73% yield and a 5 year average duration.
No contest what the better risk / return investment is, in my view.
__________________
Retired early, traveling perpetually.
|
|
|
01-17-2011, 07:37 AM
|
#9
|
Thinks s/he gets paid by the post
Join Date: Aug 2006
Posts: 2,433
|
Quote:
Originally Posted by Gone4Good
CDs are still the best fixed income option in town. A 5-yr CD at Ally Bank yields 2.4% and has a 2 month break fee. It's not possible to calculate a duration for CDs, but I'd say it is less than 0.4 years. Compare that with Vanguard's Total Bond Market fund at a 2.73% yield and a 5 year average duration.
|
While it may not be possible to calculate a single duration number, one could easily calculate the risk (loss in APR) of paying the break fee in 1 year, 2 years, etc.
__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
|
|
|
01-17-2011, 08:09 AM
|
#10
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
Quote:
Originally Posted by Gone4Good
CDs are still the best fixed income option in town. A 5-yr CD at Ally Bank yields 2.4% and has a 2 month break fee. It's not possible to calculate a duration for CDs, but I'd say it is less than 0.4 years. Compare that with Vanguard's Total Bond Market fund at a 2.73% yield and a 5 year average duration.
No contest what the better risk / return investment is, in my view.
|
You fail to mention that TBM had some price appreciation too and it's total return last year was 5.8%. The CD's defining feature is it's FDIC insurance.
|
|
|
01-17-2011, 08:26 AM
|
#11
|
Thinks s/he gets paid by the post
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
|
I agree 100%
Quote:
Originally Posted by Gone4Good
CDs are still the best fixed income option in town.
|
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
|
|
|
01-17-2011, 08:27 AM
|
#12
|
Thinks s/he gets paid by the post
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
|
It is difficult to beat this feature.
Quote:
Originally Posted by nun
The CD's defining feature is it's FDIC insurance.
|
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
|
|
|
01-17-2011, 08:40 AM
|
#13
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
|
Quote:
Originally Posted by obgyn65
It is difficult to beat this feature.
|
Unless you add to that a put feature for a nominal cost, say 40bp, that allows you to reset the security at a higher price if rates go up . . . oh, yeah, CDs have that feature too.
__________________
Retired early, traveling perpetually.
|
|
|
01-17-2011, 09:00 AM
|
#14
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2008
Posts: 13,142
|
My equity % was also up so I rebalanced early in Jan. To keep it simple, I rebalanced to my FI holdings (Total Bond Market) in a huge chunk all at once and within my IRAs.
I don't look back at rebalancing to see if the investment climate is right, but more as a reminder to keep my target AA on track and keep myself honest.
__________________
Have you ever seen a headstone with these words
"If only I had spent more time at work" ... from "Busy Man" sung by Billy Ray Cyrus
|
|
|
01-17-2011, 09:04 AM
|
#15
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
Quote:
Originally Posted by Gone4Good
CDs are still the best fixed income option in town........
No contest what the better risk / return investment is, in my view.
|
CDs have a place for short term cash and principal preservation. But, because of their low current returns, they can't fill the income part of a portfolio on their own, so I think there should be a few more caveats in your statement.
|
|
|
01-17-2011, 09:08 AM
|
#16
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
Quote:
Originally Posted by easysurfer
My equity % was also up so I rebalanced early in Jan. To keep it simple, I rebalanced to my FI holdings (Total Bond Market) in a huge chunk all at once and within my IRAs.
I don't look back at rebalancing to see if the investment climate is right, but more as a reminder to keep my target AA on track and keep myself honest.
|
I did almost the same, but I'm not sanguine about Government debt, so I moved 50% of my TBM into VG Intermediate Term Investment Grade Bond fund
|
|
|
01-17-2011, 09:33 AM
|
#17
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
|
Quote:
Originally Posted by nun
CDs have a place for short term cash and principal preservation. But, because of their low current returns, they can't fill the income part of a portfolio on their own, so I think there should be a few more caveats in your statement.
|
Returns are low on all income products, and CDs currently pay a meaningful premium over like maturity treasuries with the same credit risk (5-yr treasuries yield 1.9%). The only other way to increase yield is to increase risk, either by extending duration or increasing credit risk. Which are you recommending?
__________________
Retired early, traveling perpetually.
|
|
|
01-17-2011, 09:34 AM
|
#18
|
Recycles dryer sheets
Join Date: Jan 2011
Location: Marietta
Posts: 117
|
You should buy short term individual treasuries. That way you can hold to maturity and not face losses of the mutual fund. That's what I ended up doing. Low rates but principle safe.
|
|
|
01-17-2011, 09:54 AM
|
#19
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
Quote:
Originally Posted by Gone4Good
Returns are low on all income products, and CDs currently pay a meaningful premium over like maturity treasuries with the same credit risk (5-yr treasuries yield 1.9%). The only other way to increase yield is to increase risk, either by extending duration or increasing credit risk. Which are you recommending?
|
I'm recommending you have an AA inside your fixed income that reflects your tolerance for risk and requirements for income, for short term income products and principal preservation CDs are great.
I'll CD ladder my cash when I ER, not for the amount of the return, but for the guaranteed return. For money that I can let sit a while longer I use an intermediate term bond fund. I'm not dissing CDs, they are the best short term fixed income right now......but there is other fixed income too.
|
|
|
01-17-2011, 09:55 AM
|
#20
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
Quote:
Originally Posted by RetirementColdHardTruth
You should buy short term individual treasuries. That way you can hold to maturity and not face losses of the mutual fund. That's what I ended up doing. Low rates but principle safe.
|
...just like a CD.....
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|