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Old 06-18-2015, 05:57 PM   #21
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bond rates don't have to move much at all to do damage.. each point can cause a total bond fund to drop 6-10%.

sure over time you get a bit of an increase in interest but you can stay pretty far behind the curve pulling down the gains in what is up.

the poor performance of wellesely since bond rates went up is a good example.

since rates went up it is up 1/2% year to date. fidelity growth and income fund with less bonds is up almost 3% . my growth and income portfolio i use is up 3.70% ytd.

bonds can be a huge drag for quite a while if the tide has turned,

i am not saying avoid total bond funds but i think cutting back may be smarter .

it can be easier dealing with market risk than interest rate risk going forward.

a good example was today markets were up almost 200 points . wellesley was up a penny.
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Old 06-18-2015, 06:12 PM   #22
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Odd. We must have different Wellesley shares. Mine went up $0.19.
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Old 06-18-2015, 06:14 PM   #23
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The risk of being in lots of cash rather than bonds is rates might go up slowly or maybe they generally stay flat for many years.
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Old 06-18-2015, 06:38 PM   #24
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The risk of being in lots of cash rather than bonds is rates might go up slowly or maybe they generally stay flat for many years.

I would bet on a slow, long rise over a number of years. Well broadcasted.


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Old 06-18-2015, 06:42 PM   #25
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Odd. We must have different Wellesley shares. Mine went up $0.19.
yep , just noticed morningstar still has not updated. but even so .33% is still very low for a 200 point day . no doubt bonds are weighing on things fidelity growth and income was up more than 2x that.

as if you can't tell , i am a big believer not in market timing but in fitting investments better in to the big picture nudging them back on course like steering a big ship.

buy and sit worked fine for 40 years but once something like rates which can run cycles spanning decades reverses it isn't like waiting for a stock market cycle.


just my own opinion.

unless i wanted a truly defensive portfolio like the permanent portfolio which i have sat with in the past i prefer a bit more active approach .
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Old 06-18-2015, 08:22 PM   #26
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yep , just noticed morningstar still has not updated. but even so .33% is still very low for a 200 point day . no doubt bonds are weighing on things fidelity growth and income was up more than 2x that.

as if you can't tell , i am a big believer not in market timing but in fitting investments better in to the big picture nudging them back on course like steering a big ship.

buy and sit worked fine for 40 years but once something like rates which can run cycles spanning decades reverses it isn't like waiting for a stock market cycle.


just my own opinion.

unless i wanted a truly defensive portfolio like the permanent portfolio which i have sat with in the past i prefer a bit more active approach .
.
You cant measure anything in one day. The Sp500 is +3.9% or so. Wellington is +2.4% or so. Its 65% stocks and 35% bonds.

If Wellington's stocks have a return of 3.9% YTD like the SP500, then its bonds have an approx return of -0.3%. Their bonds aren't exactly getting routed. The stocks may be doing a little worse than the SP500 and the bonds a little better. We don't know. The point is that bonds aren't getting killed and if you had put your bond allocation in cash 3 years ago when everyone started talking about the imminent bond rout, you are way behind.

I have my own personal mix of stock funds and bond funds with a total AA of 60/40 and my YTD return is 3.7%. My 40% bonds aren't killing me at all. In fact my bond funds have a YTD return of 0.6%. Nothing to write home about but better than cash
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Old 06-18-2015, 10:02 PM   #27
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I would bet on a slow, long rise over a number of years. Well broadcasted.


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If rates go up slowly then bond returns will be less than usual but they won't be returning zero for 4 years in a row like then did back from 77 - 80. Either way bonds are a place to park your money so that you can hedge against a stock market crash and to rebalance. If bonds do poorly then I would expect stocks to do better. Money has to go somewhere.
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Old 06-19-2015, 01:50 AM   #28
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except for treasuries you cannot not count on bonds doing well if stocks falter . corporate bonds tend to behave more like stocks and fall with them as credit ratings get hammered.

corporate bond funds were a mixed bag in 2008-2009 with as many down as up.

the next downt turn may also be triggered by rising yields which could make bonds falling the reason stocks fall.

no one knows but as i said cash may be the better choice . better to give up 2% in interest and not lose 6-10 % in value or just use other types of bond funds that have less interest rate sensitivity.

floating rate , unconstrained bond funds , TIPS , real return bond funds , strategic income funds ,etc all may be better than sitting in a total bond fund or bond index.

most of my equity funds are up in the 7-9% range this year but the models are returning 1/2 that because of the weight of those bonds ..

while currently one bond fund i own is still up .65% the other is down .50%. . while still okay and on par with cash any further drop in value and that will not be the case as they will take away from any gains at that point,.
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Old 06-19-2015, 03:39 AM   #29
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if you do want the fighter cover of bonds then something like the permanent portfolio would be a good choice.

while long term bonds can be volatile and do drop if rates rise ,any flight to safety would at least have them doing some powerful lifting.

in 2008 long term bonds which were dropping in value prior because rates were rising turned on a dime and actually rose enough to offset the drop in stocks.

that strategy i can see. remember too , that portfolio was up in 2008-2009 so it didn't fall and didn't need the next 5 years of gains to bring it back up again.

it also counts on more longer cycles were all assets get their day in the sun and the cash portion acts as call options on assets at lower prices.

so you can't really compare it to say a 60/40 mix which really counts on prosperity and low rates to fuel it.

which is really my logic for running both portfolio models now . i split it between the permanent portfolio and my growth and income portfolio.

so no i am not anti bond but in my growth and income model i am more cautious about fitting the big picture.
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Old 06-19-2015, 08:48 AM   #30
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I would bet on a slow, long rise over a number of years. Well broadcasted.


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That's what I think. It won't be smooth, but volatile. However, the overall trend will be gradual, and there will be some occasional recessions along the way which will boost bonds for a while before the next leg.

Rebalancing, just like the last 15 years.
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Old 06-19-2015, 09:50 PM   #31
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That's what I think. It won't be smooth, but volatile. However, the overall trend will be gradual, and there will be some occasional recessions along the way which will boost bonds for a while before the next leg.



Rebalancing, just like the last 15 years.

Just speculation on my part, but most of us here remember the 1970s and 80s. I wonder if we remember them too well. I read an article that surmised an interesting comment. That being... If mortgage rates went to 6% many would consider that returning to normal while younger people would view that as excessively high.
While my opinion means nothing, I had a change of thinking in the past few years. I threw in the towel on rates going back to "the way they used to be".
I wouldn't be surprised at all if the fed forces the funds rate up only to find its protecting the long end and long rates do not move up in a particularly huge fashion. That is why I have hitched my saddle onto some past call preferreds stocks hoping they do not get called. My two major issues yield 6.25%and 6.40%. They were both issued when 10 year treasury rates were 5.6% and 6.6%. So if rates go up, I will not feel much pain and still collect my dividend.
I will leave the proper money management to my pension fund and hope they do their job correctly!


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Old 06-20-2015, 08:43 AM   #32
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Just speculation on my part, but most of us here remember the 1970s and 80s. I wonder if we remember them too well. I read an article that surmised an interesting comment. That being... If mortgage rates went to 6% many would consider that returning to normal while younger people would view that as excessively high.
While my opinion means nothing, I had a change of thinking in the past few years. I threw in the towel on rates going back to "the way they used to be".
I wouldn't be surprised at all if the fed forces the funds rate up only to find its protecting the long end and long rates do not move up in a particularly huge fashion. That is why I have hitched my saddle onto some past call preferreds stocks hoping they do not get called. My two major issues yield 6.25%and 6.40%. They were both issued when 10 year treasury rates were 5.6% and 6.6%. So if rates go up, I will not feel much pain and still collect my dividend.
I will leave the proper money management to my pension fund and hope they do their job correctly!


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I don't think they are going back to "the way they used to be" for a very long time.

I think it will be a considerable time before we even see mid 2000 rates with the 10 year above 4.5%, let alone reaching 4% again.

"Implied Forward Rates" calculated from the current yield curves have the 5 year treasury at 2.75% in mid 2020. This seems a reasonable model/assumption given global economic conditions - and would mean an increase of of about 1.2% spaced over 5 years, or about 0.25% per year increase for intermediate bonds in general assuming the spreads stay the same.

Going much higher than that in interest rates means the economy has improved, considerably. There should be in improvement in stock market returns under such a scenario.
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