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- Sep 10, 2006
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Tons of very helpful info/food for thought in this response - thank you so much!!!
So, Morningstar x-ray analysis of my port shows within my bond allocation (which is around 31% of my total port) is:
~ 51% medium quality, moderate term (3.5-6 yrs)
~ 19% "not classified" (a chunk of change I have in Ibonds & CD's)
~ 15% low quality, limited term (<3.5 yrs)
~ 10% high quality, moderate term (3.5-6 yrs)
~ 5% high quality, extensive term (>6 yrs)
Since the majority (~60%) of my bond funds have a moderate term of 3.5 to 6 years, if it's accurate that the time to recover is the duration of the fund * each % rate increase, I'd be looking at 14 years (3.5 yrs * 4%) best case scenario to 30 years (6 yrs * 5%) worst case scenario for the funds to recover. Good times! lol
It's hard to imagine it could be that bad but it's one possible scenario.
I'm glad we have many tiers to our FIRE plan (including a future pension which covers ~ 20% of our expenses, future SS, and a very low withdrawal rate). That helps me not get overly anxious about this drop, but I still want to be more on top of this part of our portfolio than I have been.
Indeed!
The only portion of our bond holdings that are in taxable accounts are our ibonds & CD's.
Everything else is either in IRA's or 401K's. In fact, I need to rollover two 401K's soon, one of which has our largest bond fund holding. Sooooo...trying to decide if I should just stay in the same fund or make some moves during that rollover...
Yep, that's me.
I've been thinking about treasuries and am definitely investigating further. Tx!
For sure!
Yes, we have a different strategy, total return not living off of bonds for income. Definitely staying fully invested, no worries there!
As far as time to recover, it depends on the funds holdings. If you notice, bond funds have a stated "duration" which is not just measured by the maturity date of bonds, it is a formula that calculates when the investment will be paid back, incorporating the coupon and other events also. It is thus said that the time to recover from a 1 percent increase in rates is equal to the duration of the fund. But look what we have, rates went up 4-5%.
So, Morningstar x-ray analysis of my port shows within my bond allocation (which is around 31% of my total port) is:
~ 51% medium quality, moderate term (3.5-6 yrs)
~ 19% "not classified" (a chunk of change I have in Ibonds & CD's)
~ 15% low quality, limited term (<3.5 yrs)
~ 10% high quality, moderate term (3.5-6 yrs)
~ 5% high quality, extensive term (>6 yrs)
Since the majority (~60%) of my bond funds have a moderate term of 3.5 to 6 years, if it's accurate that the time to recover is the duration of the fund * each % rate increase, I'd be looking at 14 years (3.5 yrs * 4%) best case scenario to 30 years (6 yrs * 5%) worst case scenario for the funds to recover. Good times! lol
It's hard to imagine it could be that bad but it's one possible scenario.
I'm glad we have many tiers to our FIRE plan (including a future pension which covers ~ 20% of our expenses, future SS, and a very low withdrawal rate). That helps me not get overly anxious about this drop, but I still want to be more on top of this part of our portfolio than I have been.
So what to do? depends on what you hold and why.
Indeed!
If you are in a taxable account, you may want to reposition to recognize losses and choose new funds that reflect your current understanding of funds, your goals and risk tolerance.
The only portion of our bond holdings that are in taxable accounts are our ibonds & CD's.
Everything else is either in IRA's or 401K's. In fact, I need to rollover two 401K's soon, one of which has our largest bond fund holding. Sooooo...trying to decide if I should just stay in the same fund or make some moves during that rollover...
Many people who do their equity investing via indexes want bond funds or indexes so they can rebalance easily.
Yep, that's me.
If you want to try individual securities you can go with US treasuries which have no credit risk, or agencies which have little. That can be a good way to get your feet wet and these also behave best in times of market turmoil, generally speaking.
I've been thinking about treasuries and am definitely investigating further. Tx!
Cd's can also be in the mix. If you regularly rebalance you want to have a plan for how you will do so with individual bonds or CD's. Perhaps harvest the shortest maturities.
For sure!
Be aware also that some of the investors most bullish on individual bonds here do not own equities at all (so no rebalance) and rely on bonds to provide income for living expenses. You may have different strategies. It is good to understand that as it provides context.
And by all means, Stay Fully Invested.
Yes, we have a different strategy, total return not living off of bonds for income. Definitely staying fully invested, no worries there!