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Old 12-10-2013, 03:13 PM   #21
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Where can you get 5yr CD at 3%?
New at PenFed - 3% 5yr certificates
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Old 12-10-2013, 04:27 PM   #22
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I've been loading up on munis, but individual bonds, not funds. Frankly, I think the Fed is going to keep a lid on interest rates even after the taper. I've picked up 5% federally tax exempt bonds in recent months at 105% of par. Some of them mature as late as 2021, but most have call eligibility well before then. I suspect that municipalities will be motivated to get 5% debt off the books even five years down the road.

If I have to hold them to maturity, that's OK too ...
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Old 12-10-2013, 04:55 PM   #23
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Personally I think that all that cash sitting on the sidelines is just waiting for interest rates to go up. But won't that suppress the rates at some point? On the other hand if rates rise considerably won't the rotation to equities be reversed as investors return to fixed income safety? Who knows?
Anyway that's why an old plodder like myself continues to save and invest, holding to my comfortable 45/40/20 equity/bond/cash, CD allocation.
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Old 12-10-2013, 05:20 PM   #24
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Here's my 2014 prognostication:

1. The economy, although it has seemed to improve a little recently, still remains modest in strength and employment improves only at a snails pace.

2. Deflationary pressures persist, making the Fed nervous and limiting the extent of any QE tapering. The CPI stays stuck at around 1%.

3. The 10-year Treasury might make it to 3.25%, but doesn't really go above that. Well, there may be a temporary spike if we have another "Taper Tantrum" - but it moderates quickly.

Given these conditions, 3% on a 5yr CD looks pretty good, and it's pretty friendly environment for bonds.

But I've been wrong many times before .
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Old 12-10-2013, 05:23 PM   #25
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Buy the pen fed 3% cd?
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Old 12-10-2013, 05:37 PM   #26
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I rebalanced earlier this week to keep my 60/40 AA in tact. I purchased the Vanguard International Bond Fund (VTABX) to get some exposure to foreign bonds that I previously did not have.

However, of my 40% that is fixed income, only 24% is in bonds. The rest is in CDs earning 3% or greater. With PenFed paying 3%, CDs are looking more attractive than bonds, since most short to intermediate term high credit quality bonds are paying less than 3% these days. I don't want to be completely out of bonds, but I don't want to be at 40% either, so this feels like a good compromise.
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Old 12-10-2013, 06:01 PM   #27
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I've moved to the 2% 3 year and 3% 5 year PenFed CDs and into the Guggenheim and iShares target maturity bond portfolios (as a substitute for CDs) for my fixed income allocation until interest rates normalize. I'm getting reasonable yields and have mitigated the interest rate risk in my fixed income allocation.
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Old 12-10-2013, 06:13 PM   #28
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I just balanced back to 60/40 from 66/34. After calculating what the number was, I took a day to think about it and then sold a bunch of equity funds and bought more VG Intermediate Term Bond fund (my FI instrument of choice). It was a pretty big chunk and I had to swallow hard, but that's what an IPS/AA is supposed to do~find your comfort point when you are not pressed to make a rash decision.

I'm still sleeping well.
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Old 12-10-2013, 06:26 PM   #29
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Just to throw an additional wrench in the analysis - I have not heard anyone mention the fact they choose not to rebalance because of tax considerations...

realizing gains and paying taxes on those gains my cost more than you would benefit by having an ideal AA.

I would tend to "drift" towards my desired AA by harvesting losses if possible and if not, take a slower approach of investing dividends/other free cash flow into underbalanced assets.

At some point there is a tradeoff - I've been very good about harvesting losses for the past decade and because of the strong market for the past few years I am overweight risk and with no unrealized tax losses - and my AA continues to get further from my optimal....I still choose to simply reinvest dividends into bonds rather than realize gains and pay the taxes.

I'm not saying this is best, but just remember that sometimes rebalancing comes at the cost of being somewhat tax inefficient.
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Old 12-10-2013, 07:17 PM   #30
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Just to throw an additional wrench in the analysis - I have not heard anyone mention the fact they choose not to rebalance because of tax considerations...

realizing gains and paying taxes on those gains my cost more than you would benefit by having an ideal AA.

I would tend to "drift" towards my desired AA by harvesting losses if possible and if not, take a slower approach of investing dividends/other free cash flow into underbalanced assets.

At some point there is a tradeoff - I've been very good about harvesting losses for the past decade and because of the strong market for the past few years I am overweight risk and with no unrealized tax losses - and my AA continues to get further from my optimal....I still choose to simply reinvest dividends into bonds rather than realize gains and pay the taxes.

I'm not saying this is best, but just remember that sometimes rebalancing comes at the cost of being somewhat tax inefficient.
Hopefully you can avoid all this by doing your rebalancing within a tax deferred account. Of course if you're at retirement age and taking MRD's, I guess at some point you still have to deal with the taxes.
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Old 12-10-2013, 07:23 PM   #31
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My asset allocation has gotten to 57.6% stocks, thanks to the good stock performance in 2013. On Jan 2, my plan calls for trimming this back to 50% stocks. It will involve moving money from the total stock market VG fund to the total bond market fund.

The outlook for bonds sure doesn't seem good, but my plan doesn't allow me to make decisions based on my forecast.

Thoughts?
Would it be possible to modify your plan to allow a certain percentage tactical move? For example, you would rebalance to 55 only and allow a period of time in case the market corrects and you're back to 50 percent.
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Old 12-10-2013, 09:55 PM   #32
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I always wonder why one might have been so brilliant when making up the original ISP that no mid course revisions would be needed.

My prognostications:
stocks are OK for now -- the Fed is encouraging risk taking, the PE's are not too rich (I'll try posting a chart at the end of the month)
intermediate bonds are OK for now -- spreads are reasonable, yield curve is steep
short term bonds are OK for now -- the Fed is hardly about to invert the yield curve

I'm sticking with 65/35 for the time being. Might regret it some day.
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Old 12-10-2013, 11:49 PM   #33
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I don't even wan't to touch bonds. I am new to investing though and young and probably naive. I am high growth with a bit of risk...trying to achieve like 90/10 for my AA. Bonds are what led me to this forum. As in I had a 50/50 AA before I found this forum and realized that's only for the retired folks, and those that do not want to reach retirement.

My bond performance was terrible from 2010-2012 and with that 50/50 asset allocation I was seeing like 3.5% return in my entire portfolio while I saw on this forum people were laughing all the way to the bank with like 15% returns during the same time.

Bonds were killing me, but that is my perspective.
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Old 12-11-2013, 03:06 AM   #34
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Your AA is an agreement with yourself that you would rebalance during times like this.

Thinking it's better to stay in stocks right now sounds like market timing.

Stick to your plan. Good luck!
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Old 12-11-2013, 06:24 AM   #35
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I'd think about a slight modification to my.AA and look a shorter bond fund. Should rates go up your loss period will be shorter than the total bond fund. Your cost to do this would be to locking in a lower return for a few years.
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Old 12-11-2013, 06:53 AM   #36
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As many have already said, I'd put some of your fixed income allocation into CDs. That is part of our plan. We're on the cusp of RE and will convert from 60/35/5 to 60/25/15 to have the cash buffer. (This is based on the technique that Galeno posted some time back - Thx Galeno.). The cash buffer (~4-5 yrs) gives me more confidence to stick to our AA; and, frankly, to finally take the RE leap.

BTW- a late 'welcome back' Al. Didn't realize you had returned until I saw this thread.
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Old 12-11-2013, 07:01 AM   #37
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I still have bonds in Wellesley, but most of my fixed income is now in TIAA-Traditional getting 4.3% and a stable value fund producing 2.6%. I now have the chance to convert my DC plan to the state's DB plan and when I do that I'll go almost entirely equities with the rest of my money.
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Old 12-11-2013, 01:03 PM   #38
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Where can you get 5yr CD at 3%?

penfed.org
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Old 12-11-2013, 01:07 PM   #39
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Considering that 10-yr Treasury rates were almost 3% (2.98%) in September and above 2.8% at the moment, I don't see how an 0.2% increase can cause a "disaster".

In other words - maybe a bunch of the rise is baked in?
I think this is the case. We've already seen a big increase in the 10-year interest rate (from 1.6 to 2.8) this year. When tapering begins, I expect rates to rise a bit, but not a lot.
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Old 12-11-2013, 01:17 PM   #40
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Thanks for the thoughts. I will stick with my plan -- just wanted to make sure I wasn't missing something.
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