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Old 06-13-2015, 02:26 PM   #21
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Perhaps Purplesky meant that the Fed is just a captive of the market, and simply reacting to it.
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Old 06-13-2015, 02:28 PM   #22
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You are timing the market. That's fine as I'm sure you know that's what you're doing.

When, long term, there is only one direction the money can move it is a smart way to "time". In fact buffet calls that a soft ball. If you see negative yields and don't take a short position, you are throwing money away. You must believe in reversion to mean.


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Old 06-13-2015, 02:53 PM   #23
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When, long term, there is only one direction the money can move it is a smart way to "time". In fact buffet calls that a soft ball. If you see negative yields and don't take a short position, you are throwing money away. You must believe in reversion to mean.


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I'm not arguing against market timing. Everyone does it to some extent. My point was that a whole lot of people moved a portion or all of their bond allocation to CDs or cash because of the impending bond rout and we've been waiting for it for years now. They lost a lot of money trying to time the market. Other people timed the market and moved more money to stocks. They have done well but they've taken on a lot of extra risk and could get hammered at any moment. If they can move into and out of stocks at the right time, then more power to them. They deserve to be rich. For me, I'll stand pat and ignore the experts. They've proven again and again that they dont know any more than anyone else.
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Old 06-13-2015, 02:58 PM   #24
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I don't follow some replies, the NAV return as of 6/12 inclusive of dividends is -.37%, am I wrong? I understood going in that a bond fund price fluctuates as I said in my original post, I am surprised to be negative 6 months into the year, and am wondering if bond funds don't really fit the AA model given they act so different than bonds purchased directly? I had thought after research that BND so heavily weighted in US Treasuries with a 2+ % yield was going to perform closest to a bond held to term.


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Old 06-13-2015, 02:59 PM   #25
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The bond market is being actively manipulated in a big way by the fed. That takes it out of the realm of a "normal" market. If the stock market were being manipulated, I'd have reservations about playing in that sandbox, too.

But, there's no doubt that being over-allocated in equities is risky. When the fed finally ends the QE games and interest rates climb, stocks may very well get hit hard. Putting the "normal" bond money in short duration bonds is probably the best that can be done until the games stop.
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Old 06-13-2015, 03:02 PM   #26
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How can you say both these things?

Unless you think the fed is a "regular market force"?



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The Fed knows the major fundamental weakness of the economy is stagnant wage growth.

So The Fed has to react to what is taking place in the "The regular market force".

The economic downward spiral is not really over. The "race to the bottom economy" appears to be here to stay for now.

This whole conversation about the Fed raising interest rates is almost comical now. Its been going for years.

The Fed is just waiting for the economy to actually move forward. That will be real wage growth for the middle-class. I don't see that happening anytime soon in this current Corporate environment.

The Fed raising rates will not improve this economy. The Feds job is to do whats best for the economy.
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Old 06-13-2015, 03:10 PM   #27
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I don't follow some replies, the NAV return as of 6/12 inclusive of dividends is -.37%, am I wrong? I understood going in that a bond fund price fluctuates as I said in my original post, I am surprised to be negative 6 months into the year, and am wondering if bond funds don't really fit the AA model given they act so different than bonds purchased directly? I had thought after research that BND so heavily weighted in US Treasuries with a 2+ % yield was going to perform closest to a bond held to term.


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Bonds bought directly or through a fund act the same... if interest rates go up, the price of them go down...

Now, some people will say that as long as I hold it to maturity I get all my money back... true... but the value was down... if you had to sell you would lose money... just like if you had to sell your bond fund you would lose money...
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Old 06-13-2015, 03:20 PM   #28
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I don't follow some replies, the NAV return as of 6/12 inclusive of dividends is -.37%, am I wrong? I understood going in that a bond fund price fluctuates as I said in my original post, I am surprised to be negative 6 months into the year, and am wondering if bond funds don't really fit the AA model given they act so different than bonds purchased directly? I had thought after research that BND so heavily weighted in US Treasuries with a 2+ % yield was going to perform closest to a bond held to term.
Ah, the ol' bond funds are different from bonds false argument.

Yes, BND (a bond fund) will perform closest to a bond held to a similar duration. One will probably just not see that the individual bond price will be marked-to-market and also look like it has lost money. So it is like putting blinders on, but blinders do not make one more money.

One may wish to read about something called "the point of indifference". Here is a recent thread at boglheads with a chart and som other links: https://www.bogleheads.org/forum/viewtopic.php?t=167418
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Vanguard BND, a mistake to consider that bonds for AA?
Old 06-13-2015, 03:24 PM   #29
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Vanguard BND, a mistake to consider that bonds for AA?

Thanks Texas Proud, that is why I liked BND with so many US Treasuries seems the long term expectation should be the coupon yield. So should I AA rebalance and buy more, or is that bond market timing ;-)
LOL! I should expect holding BND to average duration of 5 years I should expect average coupon of 2.5%

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Old 06-13-2015, 03:46 PM   #30
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Thanks Texas Proud, that is why I liked BND with so many US Treasuries seems the long term expectation should be the coupon yield. So should I AA rebalance and buy more, or is that bond market timing ;-)
LOL! I should expect holding BND to average duration of 5 years I should expect average coupon of 2.5%

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likely you would be best off if you figure out what your goals are, find out how these different securities work, then make up your own mind about what securities to use to achieve your own goals. Asking a board is tricky. You will get many answers, and you will not know what sensible or otherwise assumptions went into these bits of advice.

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Vanguard BND, a mistake to consider that bonds for AA?
Old 06-13-2015, 04:00 PM   #31
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Vanguard BND, a mistake to consider that bonds for AA?

Haha, I do know my goal, probably not said in original post, I am near my retirement savings goal, and after being 100% equities for many years I did some FIRECALC scenarios and found an 80/20 AA looked best. The question is can I treat this bond fund the same as a bond, the answer appears yes when held to average term.


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Old 06-13-2015, 04:22 PM   #32
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...I did some FIRECALC scenarios and found an 80/20 AA looked best. I sat on my 20% as cash for half of 2014 and decided as this year began I should put the 20% in bonds, after research picked BND.
You got quite unlucky in your timing. Bonds were rallying for virtually all of 2014, including the six months you were sitting on cash. When you finally decided to buy BND early this year, the bond rally was near its end. You missed a big rally and bought just in time to see the correction.

Bond yields have risen recently, but they are still below their levels from late in 2013. So the bond correction may very well have a ways to go. I personally am roughly neutral right now. I sold a bunch of bonds in late January and early February when they were near their highs, but have since had to repurchase most of what I sold in order to get back to my target allocation. We'll see where we go from here.
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Old 06-13-2015, 04:40 PM   #33
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Haha, I do know my goal, probably not said in original post, I am near my retirement savings goal, and after being 100% equities for many years I did some FIRECALC scenarios and found an 80/20 AA looked best. The question is can I treat this bond fund the same as a bond, the answer appears yes when held to average term.


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I hope I didn't imply that you do not know your goals. I didn't mean to, and if it seemed that way I apologize. All I meant, was apparently simple things like how to handle one's fixed income allocation is not so simple, once you ask yourself some detailed questions.

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Old 06-13-2015, 04:51 PM   #34
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You got quite unlucky in your timing. Bonds were rallying for virtually all of 2014, including the six months you were sitting on cash. When you finally decided to buy BND early this year, the bond rally was near its end. You missed a big rally and bought just in time to see the correction.
I would not call that a bond rally myself, but would call it recovering from the last time interest rates went up in mid-2013. I guess it's a matter of perspective.

Here is a 3-year chart of two Vanguard bond funds (of different average duration and credit risk) where one can see where Total US Bond Index dropped when rates went up and also the start of something similar in mid-2015:
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