Originally Posted by DoingHomework
But now, the Fed announces this morning that rates are staying low for a while. Bonds are rallying as are stocks. I'm torn between following through with my previous plan to cut back the allocation a little and take advantage of the rally or stay put since rates are probably not going to rise as soon as I had thought.
Any comments on how I should think about this?
Nobody knows where interest rates are going, period. That is the first thing you should acknowledge. Then you need a long term game plan that takes into account your total situation and risk characteristics.
In other words, you need to buy into some methodology.
My own fixed income AA uses trend following to move between Cash, 5yr Treasuries, and a general intermediate fund (like PTTRX or VBTLX). Cash tends to happen in rising rate periods, 5yr Treasuries in flight-to-safety periods, general intermediate in other rate environments. Would not recommend this to anyone though. Most people decide on a buy-hold plan which is probably just fine.
Whatever plan is chosen, it must have done decently in a long term rising rate environment like 1950 to 1970. Recommended -- study that period a bit.