What is your current bond fund strategy

[roger r]

Thank you for all of the replys and opinions. Not exactly unanimous, but enough folks thinking like me to make some small changes. I think I will shift some out of my intermediate and total bond funds into short term and also a TIPS fund. It seems like every day there are inflation hints. Today it was oil prices. When oil goes up, so does virtualy everything else.

I have a "fixed" fund that I've held onto after retirement and also a few I-bonds from the 1% fixed days. I've been very thankful for these through these times of low interest rates.

 

[HFWR]

Currently...

HYG - 5%
LQD - 5%
IEI - 5%
TIP - 10%
BSV - 5%

Cash - 10%

 

[Lsbcal]

I've looked at the bond history going back to the 1950's. Did you know that rates moved up somewhat slowly from 1954 through 1970 before accelerating in the great inflation of the 1970's? Here is a picture of the "triangle" for intermediate Treasuries: 5-Year Treasury Constant Maturity Rate (GS5) - FRED - St. Louis Fed

What was interesting to me is the winner in the period 1950 to 1980 was CASH over 2yr Treasuries and 5yr Treasuries. That is cash like in Vanguard Prime Money Market. Almost the mirror opposite of what we've come to see as the norm in recent decades.

Anyway, in the spirit of this thread here is my current allocation:

older Ibonds paying 3.4% fixed
Vanguard Short Term investment grade
Pimco Total Return

My strategy is to move between cash, short term Treasuries and Intermediate Treasuries based on trailing returns over the last 9 months or so. Backtesting shows this worked OK over 60 years. Although this is market timing, it seems to beat intuition and guesses.

 

[HFWR]

Currently...

HYG - 5%
LQD - 5%
IEI - 5%
TIP - 10%
BSV - 5%

Cash - 10%

Also have a 5% stake in PCRIX, which ups my TIPs exposure.

 

[In-control]

I do the age ratio. I'm ~ 50 so I am 50% in Bonds and 50% in Stocks. My bonds are divided into 10% Corp. Bond Fund, 20% Total Bond fund and the rest is CD's in various US banks which equal 5 years of living expenses. You may think me very conservative but it has held well over this difficut time and I sleep well.

 

[Meadbh]

All my bonds are Canadian. To understand why, see Niall Ferguson's 2010 Niarchos Lecture.

http://www.petersoninstitute.org/publications/papers/niarchos-ferguson-2010.pdf

 

[Brat]

I am kicking 70 (hard) and have too high a % in cash equivalents doing next to nothing. I am thinking about purchasing some Fidelity Capital & Income with IRA money. Comments please.

 

[Midpack]

I am kicking 70 (hard) and have too high a % in cash equivalents doing next to nothing.

I have more cash than I'd like (10%) and even more (26%) in bonds (that are certain to lose some value when interest rates rise - only question is when). Odds are you will turn out to be the smarter between the two of us. Best of luck...

 

[GregLee]

What was interesting to me is the winner in the period 1950 to 1980 was CASH over 2yr Treasuries and 5yr Treasuries.

That is less interesting than it might seem, since bond prices in 1980-81 were exceptionally low. See this Time cover story from Monday, Mar. 24, 1980, http://www.time.com/time/magazine/article/0,9171,921854,00.html , "Inflation and interest rates, both topping 18%, are so far beyond anything that Americans have experienced in peacetime—and so far beyond anything that U.S. financial markets are set up to handle—as to inspire a contagion of fear." So the particular period you choose has a peculiar ending point.

 

[scrabbler1]

I like HYG. A high yield junk bond fund. I wouldn't get into it now. I did 2 years ago when it was low priced. So the value has gone up, but I am still getting a great return. If it's value goes way down I will buy some more and hold as long as they keep paying me that great dividend check every month.

This is just what I did. When I ERed and left my company just over 2 years ago (see my signature line), I was able to buy a huge chunk of shares at rock-bottom prices from a high yield bond fund (Fidelity Focused High Income Fund) which buys bonds rated at or just below investment grade. Because I was able to buy about 25%-30% more shares than I originally anticipated, my monthly dividend check has been higher than I originally budgeted despite the slight drop in the monthly dividends per share. I use the relatively small monthly dividends from another bond fund to add shares to this bond fund.

 

[Retire Soon]

My bond strategy is zero percent allocation to bonds.

 

[Free To Canoe]

Like many others, I am staying in cash versus new bond purchases.


Free to canoe

 

[Independent]

I'm retired with a significant non-COLA'd pension. So inflation is my biggest risk. I'm exclusively in TIPS. I can argue that with the historically low real interest component I should get out, wait for prices to fall, then buy back in. But I'm sure that I don't know how to time the market. I could lose more by sitting on the sidelines than I would make with an eventual increase in prices.

 

[Lsbcal]

That is less interesting than it might seem, since bond prices in 1980-81 were exceptionally low. See this Time cover story from Monday, Mar. 24, 1980, Jimmy Carter vs. Inflation - TIME , "Inflation and interest rates, both topping 18%, are so far beyond anything that Americans have experienced in peacetime—and so far beyond anything that U.S. financial markets are set up to handle—as to inspire a contagion of fear." So the particular period you choose has a peculiar ending point.

Yes around 1980 was the peak of the interest rates. My adult life experiences consisted of the 1970's inflation and then the long (erratic) rate slide to here. But the point is that we're back to early 1950 rates, not at those peak rates. See the link I posted to that Fed graph.

So I think the lesson is to not expect that extra kick that intermediate or long term bonds have given in the past.

Here is some info from the past:

1954 to 1962
cash 3.0%
2yr Treasury 2.6% (mid point of 1yr and 3yr Treasury yields)
5yr Treasury 2.3%
5yr Treasury rate change +1.9%

1963 to 1972
cash 5.1%
2yr Treasury 4.7%
5yr Treasury 4.3%
5yr Treasury rate change = + 1.8%

 

[tsturbo]

1/3 Vanguard Tips fund
1/3 Vanguard Intermediate Treasuries
1/3 Vanguard Total Bond Market Index

I follow the 110 - age = equity %

I hold Vanguard TSM & Vanguard Total international index funds for my equity portion in about a 70/30 ratio.

Take your risks with equites and stay high quality in bonds.

 

[haha]

I am kicking 70 (hard) and have too high a % in cash equivalents doing next to nothing. I am thinking about purchasing some Fidelity Capital & Income with IRA money. Comments please.

One thing that cash is not doing is losing your money. I am very conservative with fixed investments, and in your place right now the only thing I would consider doing is to buy some pretty short term cds. A lot is going on, and we really can't predict what might happen. When the US government goes all out to produce inflation, it just might get it, big time.

Ha

 

[steelyman]

I am kicking 70 (hard) and have too high a % in cash equivalents doing next to nothing. I am thinking about purchasing some Fidelity Capital & Income with IRA money. Comments please.

I've owned FAGIX for a number of years and have been quite pleased with it. I've been selling shares of it lately (since mid-2010), but only because it has gotten up there in my bond allocation. When it gets back down to my preferred level, I'll hang in there with it. Overall though, it has a place in my portfolio.