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New here:hope to retire 2yrs, with a question
Old 01-19-2011, 03:09 PM   #1
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New here:hope to retire 2yrs, with a question

I'm sure this question has been asked many times: For the conservative portion of my portfolio, Bond Fund or individual bonds? Vanguard recommended funds, and actually strongly advised against individual bonds.

Current total portfolio $1.1 million. My wife will likely work another 6-7 years, my target is 2 years (we're both 58 years old). I'm concerned that with interest rates so low, they can only go up and I'm worried that interest rate increases would cause loss in value to negate the returns.

I previously had a very aggressive mix of stocks: cash, and now want to reallocate.
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Old 01-19-2011, 03:26 PM   #2
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You are correct in being concerned about bonds and thier future value with rates are where they are today. Interest rates in general are artificailly low due to the Federal Reserve trying to stimulate the economy thus in general bonds are prices may be artifically high. My personal belief some bonds and bond funds may actually be in a bubble forming stage of a cycle. Currently I have more allocated to a divesifed portfolio stock funds and the conservative portion in cash awaiting higher interest rates to then move back into some bond funds. I believe bonds are carryin more risk than usual right now. Looking forward to others thoughts as well. I do aggree with VG on funds vs individual bonds unless you can make you own fund by holding many indiviual bonds to reduce risk from a default.
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Old 01-20-2011, 10:59 AM   #3
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I don't feel I can predict both when and how fast bond rates rise so trying to time the bond market won't help me. I continue to diversify into short, intermediate term and TIPS. Here is Sauter's view at Vanguard:

If you don't feel you can tolerate much if any short term drop in your bond portfolio then maybe stick to short term treasuries or CD's for now.

At 54% of FIRE target
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