Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
When to sell a bond fund?
Old 04-06-2008, 10:56 AM   #1
Thinks s/he gets paid by the post
redduck's Avatar
 
Join Date: Mar 2005
Location: yonder
Posts: 2,054
When to sell a bond fund?

I'm basically and buy and hold type with regard to mutual funds. Last week my wife and I bought a bunch of VCAIX (Vanguard's tax-exempt Calif. municipal bond fund). Yes, we live in Calif. Anyhow, regarding bond funds, municipal or otherwise, is there a time when they should be sold as per what the economy or stock market it doing?
__________________

__________________
redduck is offline   Reply With Quote
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!

Old 04-06-2008, 11:05 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,412
im buying muni funds now.... great spread at this point compared to treasurys.... just loaded up on fidelity ny muni income
__________________

__________________
mathjak107 is offline   Reply With Quote
Old 04-06-2008, 11:34 AM   #3
Thinks s/he gets paid by the post
redduck's Avatar
 
Join Date: Mar 2005
Location: yonder
Posts: 2,054
mathjak107...

Well, it seem like we have both coasts covered. Anybody buying munis in the middle of the country?
__________________
redduck is offline   Reply With Quote
Old 04-06-2008, 12:41 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,881
Quote:
Anyhow, regarding bond funds, municipal or otherwise, is there a time when they should be sold as per what the economy or stock market it doing?
Just curious redduck, if you are buy and hold guy, why the concern of when to sell a mutual fund that you just bought?
__________________
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.
mickeyd is offline   Reply With Quote
Old 04-06-2008, 01:05 PM   #5
Thinks s/he gets paid by the post
redduck's Avatar
 
Join Date: Mar 2005
Location: yonder
Posts: 2,054
Quote:
Originally Posted by mickeyd View Post
Just curious redduck, if you are buy and hold guy, why the concern of when to sell a mutual fund that you just bought?
Oh, sure. Well, first off I'm not concerned, I'm just wondering. I've never bought a muni bond fund before, so I'm trying to learn more about them. I've read numerous articles indicating that this is a good time to buy munis, but I've never read anything about when it might be a good time to sell them. I guess the very best time to learn (or figure out) when to sell them might be before I buy them. What do you think? Would you even be more curious then?
__________________
redduck is offline   Reply With Quote
Old 04-06-2008, 01:20 PM   #6
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,038
I guess a good time to sell munis would be when people realize that most munis are not that dangerous and they start buying them again en masse to increase their portfolio's income. Right now treasuries are seen as the best insurance policy against default but they pay nada in *taxable* interests. I believe that when people realize that their investment income is dwindling away fast, they'll look at other options and they might find munis attractive again which will make their prices go up. But quite frankly if you are a buy and hold investor, then it should not matter.
__________________
FIREd is online now   Reply With Quote
Old 04-06-2008, 01:55 PM   #7
Thinks s/he gets paid by the post
redduck's Avatar
 
Join Date: Mar 2005
Location: yonder
Posts: 2,054
Quote:
Originally Posted by FIREdreamer View Post
I guess a good time to sell munis would be when people realize that most munis are not that dangerous and they start buying them again en masse to increase their portfolio's income. Right now treasuries are seen as the best insurance policy against default but they pay nada in *taxable* interests. I believe that when people realize that their investment income is dwindling away fast, they'll look at other options and they might find munis attractive again which will make their prices go up. But quite frankly if you are a buy and hold investor, then it should not matter.


OK, when the prices go up on a muni bond fund because people are piling into it, will that mean that the interest rate paid to me will go down because more money is piling into the fund and the fund is then buying bonds at a lesser interest rate than I bought in for? (I think the above should have been at least three sentences). Are these potential late-comers going to get in the way of my being able to enjoy my eventual retirement?
__________________
redduck is offline   Reply With Quote
Old 04-06-2008, 02:03 PM   #8
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,038
Quote:
Originally Posted by redduck View Post
OK, when the prices go up on a muni bond fund because people are piling into it, will that mean that the interest rate paid to me will go down because more money is piling into the fund and the fund is then buying bonds at a lesser interest rate than I bought in for? (I think the above should have been at least three sentences). Are these potential late-comers going to get in the way of my being able to enjoy my eventual retirement?
I am not quite sure I understand all your points (especially the one with the late comers and your eventual retirement), but yes as the prices of the bonds go up, the interest they pay comes down, but if you want to sell at a profit (which I believe was your original question), then who cares how much interest they pay then. Pocket your capital gains and let other people get paid less to hold munis.
__________________
FIREd is online now   Reply With Quote
Old 04-06-2008, 02:25 PM   #9
Thinks s/he gets paid by the post
redduck's Avatar
 
Join Date: Mar 2005
Location: yonder
Posts: 2,054
Thanks for the info FIREdreamer.

Sometimes I think I could be the poster boy for the Financial Planner's association.

That being said, I was just hoping to hold on to this bond fund and keep getting a decent of rate income (what ever that might be). I do like making money via interest now that my equity mutual funds and ETFs seem to be in place (although I continue to add on slowly in this area).
__________________
redduck is offline   Reply With Quote
Old 04-06-2008, 02:44 PM   #10
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,038
Quote:
Originally Posted by redduck View Post
Thanks for the info FIREdreamer.

Sometimes I think I could be the poster boy for the Financial Planner's association.

That being said, I was just hoping to hold on to this bond fund and keep getting a decent of rate income (what ever that might be). I do like making money via interest now that my equity mutual funds and ETFs seem to be in place (although I continue to add on slowly in this area).
Well shop around, not all bond funds are created equal. An intermediate term bond fund for example might be able to ride a short period of low interest rates without a significant cut in the dividend because they might have so many other bonds still paying high dividends in their portfolio that they might not need to purchase a lot of the newer bonds paying lower dividends. So if munis are part of a well planned asset allocation and if you choose your fund carefully, they might be exactly what you are looking for.
__________________
FIREd is online now   Reply With Quote
Old 04-06-2008, 02:47 PM   #11
Thinks s/he gets paid by the post
packrat44's Avatar
 
Join Date: Jun 2007
Location: near Canadian border and near Mexican border
Posts: 1,142
Quote:
Originally Posted by redduck View Post
OK, when the prices go up on a muni bond fund because people are piling into it, will that mean that the interest rate paid to me will go down because more money is piling into the fund and the fund is then buying bonds at a lesser interest rate than I bought in for? (I think the above should have been at least three sentences). Are these potential late-comers going to get in the way of my being able to enjoy my eventual retirement?
If you bought a bond today that pays 5% it will continue to pay 5% until it has matured. When the demand for bonds increase, the issuer of new bonds can offer lower interest and still get buyers (supply and demand). Therefore, the interest will be lower but only on the new issue bonds, not the old bonds,

If you paid $100/bond with 5% interest, you would not being willing to sell it for $100/bond when interest on new bonds drop to 4%. You may be willing to sell for $105/bond (not math correct and depends on maturity date, etc). Now if you sell your higher valued (higher interest bonds) and purchase lower priced bonds (with lower interest) you should expect to see the same total gain on your investment since you will now have more bonds even though the interest they pay is lower.

Bottom line, you do not lose money on your bonds simply by having new bonds issued with a lower interest rat.
__________________
Pigs get fat, hogs get slaughtered. That's my story and I am sticking to it.
packrat44 is offline   Reply With Quote
Old 04-06-2008, 02:50 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,412
Quote:
Originally Posted by FIREdreamer View Post
I am not quite sure I understand all your points (especially the one with the late comers and your eventual retirement), but yes as the prices of the bonds go up, the interest they pay comes down, but if you want to sell at a profit (which I believe was your original question), then who cares how much interest they pay then. Pocket your capital gains and let other people get paid less to hold munis.
number of people buying bonds is irrelevant, what counts is whats being offered as far as bids. lots of people were buying bonds at 15% in the 70's. lots of people were buying bonds recently at 3.25% ...

bond funds work a little different than actual bonds. a bond has a fixed price and fixed interest rate. a bond fund has a variable price and a variable interest rate. interest rates on bond funds change daily as bonds are being bought and sold all the time. yes if rates drop you will get less interest in the bond fund but your price per share will rise to offset the drop in interest .

you buy an intermediate treasury bond fund for 10.00 bucks. the average maturity is say 5 years. your getting 5% say the day you buy in. rates fall to 4% but the fund rises 5% in net value as the older bonds are worth more,, at the end of 5 years you got your interest plus capital gains giving your 5% average again.
__________________
mathjak107 is offline   Reply With Quote
Old 04-06-2008, 02:58 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by packrat44 View Post
Bottom line, you do not lose money on your bonds simply by having new bonds issued with a lower interest rat.
Unless what you own is callable. Hard to tell in a bond fund sometimes.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 04-06-2008, 03:01 PM   #14
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,038
Quote:
Originally Posted by mathjak107 View Post
number of people buying bonds is irrelevant, what counts is whats being offered as far as bids. lots of people were buying bonds at 15% in the 70's. lots of people were buying bonds recently at 3.25% ...
I meant to say that when more people want to buy the same thing, prices go up as a result. I mean it's like an auction, right? The more people want the same stuff, the more they are willing to pay for it and the higher the price go, no? As a result, the borrower doesn't have to pay as much in interests for its bond to find a taker. Lately the problem was that at auction, fewer people were bidding on munis so rates had to be increased a lot to make them attractive again. So my thinking is that when people become less scared of munis, they'll bid up on them again and borrowers will be able to pay lower interest rates on their bonds (and therefore the bonds you bought with a higher interest rate will be worth more on the second hand market). Are we talking about the same thing, or are you saying this is wrong?
__________________
FIREd is online now   Reply With Quote
Old 04-06-2008, 03:10 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,412
not the same. you can never have more buyers than sellers . they have to be equal in order for a transaction to happen. because a transaction isnt logged or counted in effecting the price unless a deal happens . as an example you have 200 buyers and 2 sellers. the sellers want 5 bucks a share. the buyers,even though there may be 100 of them dont want to pay more than 4 bucks a share... no deal no price change that day. if one buyer agrees to 5 he gets the deal. if one seller agrees to 4 he gets the deal but the bids arent necessarily controlled by numbers. suppose one buyer offered 2x the price to get a share of xyz company. there may be 100 sellers but only one gets double the price and in effect the posted price of that stock is now double what it was with only having 1 buyer and 100 sellers.. unless other bidders offer the same price that price wont hold after the next transaction.
__________________
mathjak107 is offline   Reply With Quote
Old 04-06-2008, 03:37 PM   #16
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,038
Quote:
you can never have more buyers than sellers ... as an example you have 200 buyers and 2 sellers. if one buyer agrees to 5 he gets the deal. if one seller agrees to 4 he gets the deal but the bids arent necessarily controlled by numbers.
I am not following. Isn't the price of bonds controlled by demand vs. offer ultimately?
__________________
FIREd is online now   Reply With Quote
Old 04-06-2008, 03:40 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,412
simple answere.... yes, no and sometimes. it all comes down to the bids that actually execute.. the bids are based on sooooo many different things, flight to quality, definatly bids are based on demand and numbers.... but economic conditions usually dictate more about the offers than the sheer numbers of people.
__________________
mathjak107 is offline   Reply With Quote
Old 04-06-2008, 04:02 PM   #18
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,038
Ok, thanks. It's nice to know that some people understand the intricacies of the market. Could you recommend any book (or source) discussing the mechanism of bond auctions? I'd like to learn more.
__________________
FIREd is online now   Reply With Quote
Old 04-06-2008, 10:50 PM   #19
Thinks s/he gets paid by the post
DblDoc's Avatar
 
Join Date: Aug 2007
Posts: 1,224
Quote:
Originally Posted by redduck View Post
I'm basically and buy and hold type with regard to mutual funds. Last week my wife and I bought a bunch of VCAIX (Vanguard's tax-exempt Calif. municipal bond fund). Yes, we live in Calif. Anyhow, regarding bond funds, municipal or otherwise, is there a time when they should be sold as per what the economy or stock market it doing?
1) To tax loss harvest
2) To rebalance
3) For withdrawals to fund your retirement
4) If you decide you no longer need that asset class
5) Or were you talking about market timing

DD
__________________

__________________
DblDoc is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
What Bond Fund? yakers Stock Picking and Market Strategy 15 12-13-2007 03:54 PM
Global Bond Fund? hogtied Stock Picking and Market Strategy 2 11-01-2007 10:32 PM
Bond Fund and Money Market Fund Tax Treatment Question terminator FIRE and Money 4 03-01-2007 07:56 AM
TIPS: Buy Bond or Bond FUND? Pros & Cons please! Jane_Doe FIRE and Money 67 11-20-2006 09:29 PM
Bond Fund or CD smooch FIRE and Money 17 06-16-2006 03:57 PM

 

 
All times are GMT -6. The time now is 09:44 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.