[friar1610]

Quote:

Originally Posted by joesxm I have been reviewing my bond allocation... I used to consider everything not a stock or a stock mutual fund to be in the bond allocation. Now I am wondering about some items. Series I Savings Bonds - These almost seem like a tax-deferred CD. Should I consider these as bonds rather than cash? 6-month CD - I currently have this in the bond part of my spreadsheet, but I think it is really more like cash? Bond Funds - Some seem to be holding a very large percentage in cash. Should I worry about this or just consider the whole fund as bonds? Money Market Fund - obviously cash. This gets me wondering what the defining feature of a bond is that makes it a bond rather than cash.... However, it seems to me that if you held an individual bond to maturity there would be no "capital gain" value and total return would be only based on the dividends. It that case would there be any difference between a 5-year bond and a 5-year CD aside from the possibility that the bond might pay dividends while maturing but the CD might pay all at the end? Two more quick questions. If I buy some REIT should I consider that part of my 40% bond allocation? Thanks.

I'm glad someone else is questioning this. I've posted on several boards asking essentially the same questions and have never gotten a satisfactory discussion going. This one seems to be a good discussion, nevertheless.

Here is how I have ultimately resolved things in my own mind, for better or worse

• I don't think of my AA as "equities" vs. "bonds." I think of it as "equities" vs. "fixed income".
• In the "fixed income" category I include individual Treasuries, bond mutual funds, longer-term CD's and "I" Bonds. (I own some of all of these.)
• I exclude from "fixed income" anything in a Money Market fund or really short-term CD's. (I think of these as "cash reserves".)
• I have so far been successful in buying "fixed income" instruments and not selling them before their maturity dates (at which time I generally buy another one.) Therefore, an individual bond and a CD are essentially the same. (If I wanted to get into the business of selling these instruments on the secondary market, I might go more with bonds, but I don't so they're pretty much the same to me.)
• I avoid bond funds which hold too much cash by using Vanguard Total Bond fund which is always fully invested in bonds. That way I decide how much to hold in cash; not a fund manager.
• I think of REITs as equities, not fixed income.
  

I'm not saying I have all the right answers, but what I described above makes sense to me and keeps me from obsessing about AA.