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What is your current bond fund strategy
Old 02-18-2011, 11:05 PM   #1
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What is your current bond fund strategy

Being a conservative investor, I have a decent percentage of my portfolio in bond funds, with a mixture of durations. This has been a sweet spot in the last couple of years with interest rates dropping. I've done poorly in trying to predict interest rates, but the recovering economy combined with news of rising prices and inflation is hinting pretty strongly at interest rates rising. One thing that seems for certain is that interest rates have little or no room to fall further.

To complicate things, my equities have risen to the point that I will probably be rebalancing into fixed income investments of some sort.

Have any of you made changes to your bond fund mix or durations or do you have plans to do so? I've been considering shifting into short duration funds or possibly out of a few funds completely and into short duration CDs or individual bonds in order to protect against a fall in NAV.
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Old 02-18-2011, 11:14 PM   #2
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I've always been stymied by the bond market. I do not diversify based on duration. I am currently in all Fidelity funds (due to plan restrictions): FBIDX, FAGIX, FNMIX, FINPX, FSICX, and FGMNX. Over half is in the total bond fund (FBIDX).
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Old 02-19-2011, 01:59 AM   #3
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Major problem for me. I have a stable value type fund (TSP G Fund) which I will rebalance into but I have cut back on bonds for a couple years now awaiting the arrival of inflation.
A decent recent article on bonds: Is now a good time to shift your investments into bonds? - USATODAY.com
Not sure what to do but if my AA gets really out of wack I will have to rebalance to some degree.
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Old 02-19-2011, 06:43 AM   #4
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I've moved ~1/3 from my intermediate bond fund into a short term bond fund. Another 1/3 into a global bond fund.
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Old 02-19-2011, 06:57 AM   #5
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Not fired yet but getting closer. Currently 70% equities 6% bonds and 24% Cash and want to go to more conservative allocation thru bonds. I have decided to wait for interest rates to get back to more historical level and Uncle Ben to pull the current artificially low rates before starting to move.
One thing of note using Fidelity retirement planner which is Monte carlo based when I Increase the inflation rate the portfolio actually did better which I found counter intuitive and spoke to a representaive who said typically equities tend to inflate more when inflation is lightly elevated.

But what we do not nor ever know is what lies ahead only an educated guess based on past.
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Old 02-19-2011, 08:44 AM   #6
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I have largely gone to cash and CDs as a bond fund proxy, although I do have a CEF that is mostly invested in convertible preferreds and bonds.
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Old 02-19-2011, 09:45 AM   #7
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EE bonds 5% - no changes planned
I bonds 1.25% - no changes planned
DODIX 1.4% - no changes planned
VBIAX 5% - no changes planned
VWINX 9.5% - no changes planned

VMLTX 2% - currently adding to this holding via DCA to get more short term duration exposure

VWALX 39% - no changes planned. This holding is a designated "special use" fund for either
1) TE income generation for DCA instead of using my monthly income streams, or
2) immediate extra income if the need suddenly arises.
I am currently reinvesting all dividends. Yes, I understand about the risks involved with this one. It has proved itself to be very stable for over 10 years (except for 4Q08 of course) since I first started building it by investing into VWAHX.
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Old 02-19-2011, 10:02 AM   #8
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Overall allocation approx 50/50.

Playing defense on the fixed.


Fixed Allocation:

  • Bonds in Balanced funds (5% of fixed)... Consider as Total bond index
  • Stable Value (about 30% of fixed)
  • Money Market (about 45% of fixed)
  • Short-term Bond Fund (about 10% of fixed)
  • TIPs (about 10% of fixed)

I want to do something with the MM funds. But since I am going to FIRE soon, I will not put it in the stock market. I am studying the situation.


At this time, I consider some of this money to be earmarked to buy several small SPIAs over the next few years. Approx 40% of fixed (20% of the portfolio)... but I reserve the right to change my mind... depends on how things play out over the next year or so.
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Old 02-19-2011, 10:14 AM   #9
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IRA: 50% Total Bond Fund 50% TIPS Fund

Taxable: 40% Equities 60% Municipal Bond Funds
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Old 02-19-2011, 10:32 AM   #10
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Quote:
Originally Posted by brewer12345 View Post
I have largely gone to cash and CDs as a bond fund proxy, although I do have a CEF that is mostly invested in convertible preferreds and bonds.
Agree. I have TIPS and I-bonds from the past, cash and CDs.

Remember Franz Pick from the 70s? "Bonds are guaranteed certificates of confiscation." Well, he couldn't have been more wrong then, and he is safely in the ground now. But his prediction is about to come true, 35-40 years down the road.

Paul Volcker was a moral and physical giant when he arrived on the scene back then, and though he is still around, the Lilliputians in power won't allow him near the controls this time.

Ha
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Old 02-19-2011, 10:33 AM   #11
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Quote:
Originally Posted by steelyman View Post
I've always been stymied by the bond market. I do not diversify based on duration. I am currently in all Fidelity funds (due to plan restrictions): FBIDX, FAGIX, FNMIX, FINPX, FSICX, and FGMNX. Over half is in the total bond fund (FBIDX).
I guess I should add that these funds represent approximately 20% of my retirement assets overall. I have not added to any fixed income components in a couple of years. The market meltdown graciously unbalanced my portfolio and I am patiently watching it return to the allocation I'd intended.
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Old 02-19-2011, 10:37 AM   #12
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I have largely gone to cash, CDs and individual TIPS. I have only 2 bond funds left: Pimco total return (the only bond option in DW's 401K, so I hope Bill Gross knows what he's doing) and Vanguard Intermediate tax exempt fund (munis - 80%+ of our money is in taxable accounts).
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Old 02-19-2011, 10:47 AM   #13
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I haven't made any changes.

My asset allocation is 45:55 (equities:fixed), and the 55% includes:
  • TSP "G Fund" (Government bond fund, share price guaranteed not to drop)
  • VWIAX (Vanguard Wellesley Income Fund) bond portion
  • VBTLX (Vanguard Total Bond Market Index)
  • cash
In 2008-2009, we had a stock market crash and I held on and sold nothing. I like the results. If/when bonds experience the predicted drop, I'll probably do the same.
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Old 02-19-2011, 10:56 AM   #14
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I only have 30% bonds right now but I am going to follow Brewer's advice and reduce it further by going into more cash .
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Old 02-19-2011, 11:04 AM   #15
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I have TIAA traditional for some of my fixed income. It is like a stable value fund with a guaranteed minimum yield. I don't have to worry too much about losing any money with this, but I also don't get to enjoy outsize gains that some bond holders get.

Some of my bonds are in short-term bond funds. The rest in intermediate term bonds funds. In the past, I had some short-term CDs when they were paying above 5%, but generally, I don't like to have any low-interest cash around.

It's been this way for years and years. I see no reason to make any changes.

I recently needed to rebalance out of equities. Instead of rebalancing into bonds, I just spent the money. That worked to get my asset allocation back in tune.
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Old 02-19-2011, 11:34 AM   #16
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brokered cds at vanguard are not a good buy. i don't want to be moving ira monies from institution to institution so i won't put anything into other cds such as ally bank or pentagon federal cu. i'm in gmna and stable value equal %. fixed income is 40% of portfolio.
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Old 02-19-2011, 11:35 AM   #17
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I like Pimco's Emerging Local Bond D (PLBDX). I see the dollar losing value in the long run relative to Emerging Market's currencies. I repeat, the long run.
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Old 02-19-2011, 11:38 AM   #18
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30% cash/cd's. Only 4.5% in ST bond funds now.

And I'm back up 65% stocks, which is making me a little nervous currently.
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Old 02-19-2011, 11:42 AM   #19
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I recently needed to rebalance out of equities. Instead of rebalancing into bonds, I just spent the money. That worked to get my asset allocation back in tune.
Perfect!

Ah well, but I don't really see any more big expenditures ahead. I'll have to think on this one.
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Old 02-19-2011, 12:09 PM   #20
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I am holding on to the individual tax free municipal bonds that I have as they pay good dividends, but I am not adding to them. I have a 457-b plan that is one-third Pimco total return which I add to via payroll deduction every two weeks. I don't plan on changing this either.
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