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portfolio analysis says I'm light on bonds....
02-29-2012, 08:59 AM
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#1
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Confused about dryer sheets
Join Date: Apr 2007
Location: Simplicity
Posts: 4
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portfolio analysis says I'm light on bonds....
We have always aspired to be FIRE-like, and have maxed out TIAA-CREF 403b and steadfastly put extra cash into Vanguard funds. We would like to retire by 52 and had a portfolio analysis that shows we are very light in bonds at 3% of PV, and Emerging Markets. I have some cash available, would now be a good time to buy bonds, while they are low? The Emerging Market field has gone up sharply since Dec, so not sure if it will continue the rise- perhaps wait for a drop and then buy in?
I've always been a fan of Vanguard mutuals, and now am looking for Vanguard ETF's for even lower expenses. Thank you.
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02-29-2012, 09:11 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,877
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Bonds are basically now at a 30-year high... it's their interest rate that's low, not their price. On a relative basis among broad asset classes, housing and stocks are currently underpriced.
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02-29-2012, 10:16 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
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Quote:
Originally Posted by shiody
I have some cash available, would now be a good time to buy bonds, while they are low?.
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At the risk of being called a dirty market timer, I don't think a large allocation to bonds makes much sense right now. High-quality bonds (US Treasuries and notes) pay less than CD's, corporate bonds have been bid up by those escaping stocks and wanting something better than the paltry rate on Treasuries, and long-duration bonds offer precious little additional yield at tremendous downside risk when rates go up (which is a virtual certainty from the present lows).
I think it makes sense to substitute CDs for bonds in non-equity holdings. When the Fed stops maintaining these artificially low rates or when higher-quality corporate bonds rise in yield in response to inflationary pressures I'd probably rebalance into more bonds.
Another option is to increase the "tilt" of your equities to include more value/steady dividend stocks to replace the regular income that bonds would have produced.
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02-29-2012, 10:22 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,588
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I am out of index bond funds now, even the tiny bit I had.
They pay little now and interest rates can't go any lower (well, maybe a little, but there ain't much left). When interest rates go up, the value of bonds bought today will go down. They will for sure go 'lower' (NAV). Can't go 'higher'.
I am putting my money in selected energy stocks right now, but I would consider an emerging markets index fund if I weren't.
Of course, I always like small cap and value indexes.
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I have outlived most of the people I don't like and I am working on the rest.
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02-29-2012, 10:23 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Feb 2009
Location: Cville
Posts: 1,600
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If you follow conventional AA theory, as least as I read in Rick Ferri's "All About Asset Allocation", timing is not really a factor, you buy what ever the AA says you should. That is the theory. If you find yourself with more equities than your AA calls for, then you sell equities and buy bonds (in a simple bonds and equities AA). This forces you to sell high and buy low.
However, I can't bring myself to buy bonds at this point. I have been sneaky with myself, and purchased some alternatives like floating rate funds to fill out my 30% bond allocation. Fidelity Floating Rate High Inc (FFRHX) is but one example of such funds. They buy bank loans that have a floating rate that will increase with prime rate increases. They are normally lower credit rating than bonds, but they are normally backed by assets so even if the loan goes bad there is an asset to be liquidated to recover some or all of the loan principal.
Just one option.
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02-29-2012, 10:34 AM
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#6
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Full time employment: Posting here.
Join Date: Apr 2010
Posts: 853
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The bond bubble has been talked about bursting for the last 2 years. There are many suggestions to mitigate any exposure to the bursting bond bubble: don't invest being the most popular. Dr Bernstein has suggested short term bonds are the "least bad option". He also cautioned that more money has been lost to reaching for yield than at the point of a gun. It's important to note the reason one would want to hold bonds in their portfolio and the risk they assign to that portion.
I like the suggestion of cd's, I wouldn't use that portion to instead invest in sector stocks or etf's. But, I'm extremely conservative.
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02-29-2012, 03:46 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2006
Posts: 7,733
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CD are the least sucky of the fixed income assets. If your 403B offers something called a stable value fund, it is probably worth investing in otherwise the shorter the better form bond funds IMHO.
Emerging market had a bad year last years down 15-20%, so much of this years rally is just catching up. If you have the option to invest in broad international fund like Vanguard Total International Stock Market then there is probably no need for separate emerging market fund. Otherwise you could investigate dollar cost average into a fund just by redirecting your future contribution to one.
@SamClem dirty market timer shame on you
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02-29-2012, 05:51 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,206
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Quote:
Originally Posted by RetireBy90
If you follow conventional AA theory, as least as I read in Rick Ferri's "All About Asset Allocation", timing is not really a factor, you buy what ever the AA says you should.
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Quote:
Originally Posted by ronocnikral
The bond bubble has been talked about bursting for the last 2 years. There are many suggestions to mitigate any exposure to the bursting bond bubble: don't invest being the most popular. Dr Bernstein has suggested short term bonds are the "least bad option".
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There is no right answer, more a choice between lesser evils. - I have not changed my bond allocation (about 38% at present), Mr Ferri seems like good company.
- I have shortened duration considerably, half my allocation is in Short Term Invst Grade with the rest in TBM, Dr Bernstein and Jack Bogle seem like good company.
- The bubble hasn't burst despite dire warnings for at least 2 years. Seems to me with the Fed on record holding interest rates down into 2014, the NAV damage is years away. But when interest rates do increase, and they will for sure, bond NAV's will take a hit. The longer the duration, the bigger the hit. However, I realize I may hang on too long and get burned. I will get more yield than any CD in the meantime.
- And I don't plan to rebalance from equities to bonds in the meantime. If my equity allocation breaks the upper range, I will let it ride with apologies to true Bogleheads and the like.
Some people are advocating dividend equities instead of bonds lately. That's fine, but it's the same as increasing equity allocation with higher risk. Not the same function as bonds. And it's market timing to boot.
That's my story, and I'm sticking to it? Others here will make a compelling argument completely at odds with my POV.
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No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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02-29-2012, 06:15 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Nov 2005
Location: Colorado, USA
Posts: 1,127
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Have you considered the TIAA Traditional Account in your 403B? It's a nice fixed value account with a guaranteed return.
Coach
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"Comprehensive health insurance is an idea whose time has come in America." President Richard M. Nixon, February 6, 1974
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02-29-2012, 06:52 PM
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#10
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Recycles dryer sheets
Join Date: Jul 2011
Location: SoCal
Posts: 115
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I'm with the "be true to your AA" crowd. Just keep the bond duration on the shorter side and you should be OK. The longer duration bonds would be a no-no at the moment; maybe this is timing!?
I have never met anyone who can predict or time the market. Even Buffet can be wrong at times. Someone at w*rk used to try and give me "hot tips" from his broker about when to get in and out of the market. I'm pretty sure this guy is still sitting on the sidelines since 2008. As I used to tell him "I'm all in" followed by a pushing poker chips forward motion.
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03-01-2012, 07:22 PM
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#11
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Recycles dryer sheets
Join Date: May 2010
Posts: 497
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Brinker has this bond fund on his list.
DLTNX
What do you think?
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03-01-2012, 08:00 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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I'm (nominally) 100% equities. How did you select you bond allocation? you can make a case for 0%-100%.
I'm trying TLT (long-term treasuries ETF) for some of my excess cash on the theory that if Europe drags us down or we do it by ourselves in the next couple of years they are likely to move in the opposite direction as equities. But not by much since they're already pricey.
Otherwise cash is nice...
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03-25-2012, 09:18 PM
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#13
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Dryer sheet aficionado
Join Date: Apr 2011
Location: Macedon
Posts: 35
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IBonds are paying over 3%. You get that rate 6 months then the rate resets. Assume it drops to 2%. You can get out after a year with a 3 month interest penalty but your annual rate of return souls still be well above most bonds.
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03-25-2012, 09:43 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
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Quote:
Originally Posted by Bdroc
IBonds are paying over 3%. You get that rate 6 months then the rate resets. Assume it drops to 2%. You can get out after a year with a 3 month interest penalty but your annual rate of return souls still be well above most bonds.
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True. But There's a $10K annual limit on purchases of electronic I-Bonds (you can still get up to $5000 additional in paper I-Bonds if purchased with a tax refund). You could get 1.5% interest risk-free with a CD, so for 6 months you'd be earning 1.5% extra interest--$75 overall on $10K. And a 3 month interest penalty if you quit early. Only the individual can decide if it's worth the hassle (another source of income for taxes, etc).
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03-26-2012, 07:12 AM
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#15
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Dryer sheet aficionado
Join Date: Apr 2011
Location: Macedon
Posts: 35
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I'm aware of the $10k annual purchase limitation but a married couple can purchase $20k. That would be $100k in 5 years. Added benefits include tax deferral and state tax exemption.
My real point, however, is that this iBonds will yield a minimum of 2% for a year even with the penalty. If we get some inflation the yields will be much better. But you are also correct about the purchase limits.
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03-26-2012, 08:39 AM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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I seek to avoid emotional "gut feeling" decisions and keep investing on auto pilot. Having said that, it's really tempting -- given pathetic bond yields -- to replace a portion of bond holdings with dividend stocks that are yielding just about as much as bonds and have some growth potential as well.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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03-26-2012, 08:41 AM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
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Quote:
Originally Posted by ziggy29
I seek to avoid emotional "gut feeling" decisions and keep investing on auto pilot. Having said that, it's really tempting -- given pathetic bond yields -- to replace a portion of bond holdings with dividend stocks that are yielding just about as much as bonds and have some growth potential as well.
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I'm fighting that urge as well, knowing if I do swap some bond funds for a high dividend stock fund, equities will immediately tank - and dividend stocks will lead the decline...
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Numbers is hard
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03-26-2012, 08:51 AM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Quote:
Originally Posted by REWahoo
I'm fighting that urge as well, knowing if I do swap some bond funds for a high dividend stock fund, equities will immediately tank - and dividend stocks will lead the decline...
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Yeah, when I get that urge I create a mental time machine and go back three years...
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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03-26-2012, 08:52 AM
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#19
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,587
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Quote:
Originally Posted by ziggy29
I seek to avoid emotional "gut feeling" decisions and keep investing on auto pilot. Having said that, it's really tempting -- given pathetic bond yields -- to replace a portion of bond holdings with dividend stocks that are yielding just about as much as bonds and have some growth potential as well.
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Quote:
Originally Posted by REWahoo
I'm fighting that urge as well, knowing if I do swap some bond funds for a high dividend stock fund, equities will immediately tank - and dividend stocks will lead the decline...
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Yes. I guess we just need to do it a little at a time.
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03-26-2012, 09:33 AM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 9,067
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Quote:
Originally Posted by REWahoo
I'm fighting that urge as well, knowing if I do swap some bond funds for a high dividend stock fund, equities will immediately tank - and dividend stocks will lead the decline...
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Let me know before you do.
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Retired 3/31/2007@52
Investing style: Full time wuss.
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