When interest rates start to rise, are you planning any portfolio changes?

[jIMOh]

The lowering of interest rates over the last 5-10 years created a GREAT period to be a bond investor. Are you planning to make any changes now or in near future when the fed suggests they will raise short term interest rates?

 

[Alan]

The lowering of interest rates over the last 5-10 years created a GREAT period to be a bond investor. Are you planning to make any changes now or in near future when the fed suggests they will raise short term interest rates?

No.

 

[LARS]

I figure I'll be most likely dead by the time the FED normalizes rates.

Oh, and by the way, I'm not expecting to die anytime soon

Reality is that the debt levels are so high at the government/private sector (more individuals than corporations) that the economy will not be able to stand significant increases in interest rate levels for years to come. Therefore, the FED will be maintaining ZIRP for the foreseeable future. Get used to it...

 

[rescueme]

No.

Same here ...

 

[73ss454]

I figure I'll be most likely dead by the time the FED normalizes rates.

Oh, and by the way, I'm not expecting to die anytime soon

Reality is that the debt levels are so high at the government/private sector (more individuals than corporations) that the economy will not be able to stand significant increases in interest rate levels for years to come. Therefore, the FED will be maintaining ZIRP for the foreseeable future. Get used to it...

Isn't that the truth!

 

[W2R]

No.

Same here ...

+2

Investing and life are both too complicated for me to [-]time[/-] respond to the markets to any great extent. I guess if I did then I would sell bonds and buy real estate, but I'd rather stay put since I feel comfortable with my present AA.

I did come very, very close to doing that last summer - - selling bonds and using that money to buy another house to live in, before selling my present home. That would have been for personal life satisfaction rather than as an investment move. But I chickened out due to the rocky economy and somebody else bought the house. Sour grapes, it just didn't feel like home to me anyway.

 

[Mulligan]

I figure I'll be most likely dead by the time the FED normalizes rates.

Oh, and by the way, I'm not expecting to die anytime soon

Reality is that the debt levels are so high at the government/private sector (more individuals than corporations) that the economy will not be able to stand significant increases in interest rate levels for years to come. Therefore, the FED will be maintaining ZIRP for the foreseeable future. Get used to it...

I was about to lump some cash into a 5 year CD about a year ago that paid 3.75%. Then I thought what idiot would tie up their money for that. I know the answer to that question now.... Me. If I could go back in time!

 

[MichaelB]

No.

Could you be more specific?

 

[MichaelB]

The lowering of interest rates over the last 5-10 years created a GREAT period to be a bond investor. Are you planning to make any changes now or in near future when the fed suggests they will raise short term interest rates?

The only change I would make would be to shift some allocation from fixed income to equities, but that would be triggered by falling stock prices, not rising rates.

 

[Meadbh]

Rising interest rates would lead me to increase my investments in 5 year GICs (CDs) rather than bonds. I would consider both to be Fixed Income.

 

[eytonxav]

I might be inclined to rebuild my CD ladder if and when such rates go up. The last holding of my previous CD ladder expires in 2013.

 

[unclemick]

Hmmm - sort of involuntarily. Target Retirement 2015 so my asset class shifts toward inflation protected and shorter term as the clocks on - but slowly.

Remember the early days of this forum? This is where the posters who understand duration, concave, convex and that sort of stuff leap forward to post.

So far the Fed is hanging in there but Mr Market may have other plans. I'm old enough to remember the 70's and 80's thrills and chills inflation/interest wise.



heh heh heh - stay tuned.

 

[unclemick]

And then there is skewness and co-skewness.



heh heh heh - less we forget.

 

[JPatrick]

Will take a look at CD's and I-Bonds.

 

[IBWino]

Why not consider short duration bond funds instead of CDs? Vanguard's short-term investment grade bond fund is yielding >1.7% with a duration of 2.2 years. Currently, the best CD rates at our local banks are running at 1% for 24 months.

 

[Alan]

Could you be more specific?

I have lots of bonds within Wellesley and Target Retirement Funds in VG and Fidelity.

The only bond fund I'm invested in is a VG short term bond fund which should recover well enough for my needs in a rising interest environment.

The only individual bonds I hold are I-Bonds.

 

[grasshopper]

Why not consider short duration bond funds instead of CDs? Vanguard's short-term investment grade bond fund is yielding >1.7% with a duration of 2.2 years. Currently, the best CD rates at our local banks are running at 1% for 24 months.

+1 I have moved to the short end of duration with my bonds.

 

[MichaelB]

I have lots of bonds within Wellesley and Target Retirement Funds in VG and Fidelity.

The only bond fund I'm invested in is a VG short term bond fund which should recover well enough for my needs in a rising interest environment.

The only individual bonds I hold are I-Bonds.

Sounds reasonable. Thanks

 

[pb4uski]

I'm in VBTLX and HABDX, which have relatively long durations (5.2 and 6.6, respectively) and are 40% of my portfolio.

If interest rates rise, that would likely be in response to an economic recovery. While the value of these bond funds would decline wouldn't one expect that equities would rise and offset the decline in bonds? (in theory anyway).

 

[jIMOh]

Why not consider short duration bond funds instead of CDs? Vanguard's short-term investment grade bond fund is yielding >1.7% with a duration of 2.2 years. Currently, the best CD rates at our local banks are running at 1% for 24 months.

This is along the lines of what I am doing- focusing primarily on short term bonds with that part of my portfolio.

 

[Chuckanut]

I have no bonds, CD, or mutual funds with a duration much over 2 years. Well, I do have two 5 yeard CD's with a bank that has a 60 day penalty for early withdrawal. That penalty is low enough that I can break the CD and still do at least as well as buying a two year CD. However, now that a credit union has been able to increase its penalty retroactively, I would not buy another. Risk is for stocks and longer bonds. Not CD's.

 

[ziggy29]

We will not see "high" rates on savings and "safe" investments any time in the foreseeable future, IMO. Slightly higher? Maybe. But I think there's just WAY too much cash looking for safe harbors to expect "normal" interest rates any time this decade.

 

[Chuckanut]

With the Federal Govt adding over $1,000,000,000,000 (one trillion dollars) to the deficeit every year, I can understand the Feds not wanting to see interest rates rise. How do they explain this to the citizens when they have to pay, say 5%, on this amount of money?

We do have the best government money can buy. To bad, we don't have the money to buy it!!

 

[WilliamG]

We will not see "high" rates on savings and "safe" investments any time in the foreseeable future, IMO. Slightly higher? Maybe. But I think there's just WAY too much cash looking for safe harbors to expect "normal" interest rates any time this decade.

This is the optimist view. If/when foreign dollars decide US bonds are not a good buy......

 

[MichaelB]

This is the optimist view. If/when foreign dollars decide US bonds are not a good buy......

On the contrary. Foreign dollars mean US$ remitted abroad to pay for goods imported into the US. Those $$ have no place else to go so they are recycled back into US Treasuries. If by some good fortune the US should import less and produce more domestically, there would be less need to emit US treasury bonds. Domestic purchases by institutions, such as pension funds and investors, should satisfy gov't financing needs and then some.

I agree with Ziggy.