No Bonds – AA rebalancing quandary.
I am rebalancing my AA which today is; 70% stocks (70%US / 30% International),
2% I-Bonds, & 28% cash. Conventional wisdom says I am missing bonds. But, interest rates seem to have no where to go but up, which I expect that will drive bond fund NAV down. VG’S BSV is yielding only 2%, and has NAV down side risk. Other than a SPIA, I which I am to young for, I have not found a bond with low risk and good yields.
It seems to me that, the Ally’s raise your rate 2 yr CD, at 1.1% is a better space now for low risk money while I wait for the short end of the bond yields to come closer to the S&P returns (S&P has a P/E of 13, or 8% earning to market cap, & a 2% yield).
I reason, if interest rates have no where to go but up, the AA mix of stocks and bonds today does not make uncorrelated asset class mix, as bonds don’t have the room to move both ways.
I have a basket of MLP stocks (now have; RNF, EPD,PAA,ETP, EEP, OKS, KMP,WPZ) which I consider as bond like substitute, and will park most of the cash at Ally. Does this seem reasonable?