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Anyone with a Balanced Portfolio feeling major pain?
Old 03-17-2023, 04:15 PM   #1
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Anyone with a Balanced Portfolio feeling major pain?

I am frustrated. I don't try to time the market, and saw major NAV losses in bond FUNDS which constitute a large portion of my fixed income allocation.
The notion that 'this year will be different' is fading fast for me, as i watch my mostly short term bond funds tank - again, as in 2022, WITH equities... and simply not functioning as 'ballast' or offsetting volatility in equities. I also am watching a large investment in small cap equity getting wrecked.

What's the realistic outlook going forward for 1-3 year bond FUNDS. I have a roughly 2.5m assets PF and am worried about where this market is going. I have an hourly advisor who isn't suggesting any changes at all.

Thanks for any perspectives,
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Old 03-17-2023, 04:35 PM   #2
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If rates rise, your bond funds are going to continue to get spanked.
If rates fall, your bond funds might start to recover.
Why limit yourself to "bond FUNDS"? 1-3 year maturities are easy to hold as individual bonds.
As far as alternatives, what's your inventory of "beans, bullets, bandages, and bullion"?
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Old 03-17-2023, 05:06 PM   #3
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Excluding rentals, Iím in 100% equitiesÖ my sister has an AA of 50/50 and sheís feeling your pain!
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Old 03-17-2023, 05:11 PM   #4
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Yeah, it the problem with bond funds that has been in the financial media for a while now. Existing bonds with the lower rates of yore don't have buyers in the market unless the price is lowered to be consistent with the rates paid on newer issue yields. The bond fund is forced to sell when redemptions come in, and so all of us with bond funds have taken a hit in share prices. There isn't much of a fix... but the thing to do is build your own bond ladder where you can hold to maturity to get the "advertised" rate. I did this for the first time a few months ago with treasuries...after reading about it here in the forums.

As a side note, this is partially the problem that SVB had. When withdrawals came due, their bond holdings had to be sold at market rate (a lower price than when bought, due to interest rate increases) and word of the losses sparked a run.
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Old 03-17-2023, 05:27 PM   #5
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Quote:
Originally Posted by Spock View Post
If rates rise, your bond funds are going to continue to get spanked. If rates fall, your bond funds might start to recover. Why limit yourself to "bond FUNDS"? 1-3 year maturities are easy to hold as individual bonds. As far as alternatives, what's your inventory of "beans, bullets, bandages, and bullion"?


No other alternatives in my port. Funds are simpler and easier, basically.
Well, if you're an hourly advisor who probably doesn't want to spend a whole lot of time advising for the hourly rate client vs one of his "one percent" AUM clients.
But I'm just spitballing conjecture there. Have worked with this guy for about 12 years. He's always seemed reasonable and not greedy, with no incentive to 'push' anything. I have to believe he really thinks, long-term, i'm ok not bailing on bond funds, and maintaining the same AA that i've had for...basically, years. I.e., no jump from the very same bond funds that i was in pre 2022...and in fact, adding to another one, SHY, specifically, and VCSH. Am I being hoodwinked : )
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Old 03-17-2023, 05:32 PM   #6
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I'm sure I'll feel the pain after this month. I only update net worth on a quarterly basis. It helps with the sanity.
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Old 03-17-2023, 05:41 PM   #7
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Bond funds are an easy way to lose money in a rising rate environment. Iím moving towards 75% equities and 25% CDs, individual treasuries and bonds. Long term equities outperform, so Iím buying more equities while others are fearful.
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Old 03-17-2023, 06:05 PM   #8
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I'm almost all equities, and always have been so when the waters get rough like this I always go to Portfolio Visualizer and backtest my current allocation starting in March of 2000 ending in March of 2009. As long as that ending balance doesn't leave me on the streets I breathe a sigh of relief.
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Old 03-17-2023, 06:17 PM   #9
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I am still trying to understand bond funds so take anything I say with several grains of salt. My current plan/thought is to ditch some of my bond funds (once their transfer to Schwab has been completed and the cost basis information has been transferred as well). Some of those stinkers, however, have improved a bit in the past week or so. But they still smell and are carrying an unrealized loss. I am going to mix in individual bonds (laddered) and CDs (laddered). The ballast argument doesn't work much with me anymore.


Here's an analogy that for me illustrates the difference between bond funds and individual bonds. (I am looking for the smarter folks here to start poking holes in it.)


Imagine you are going on a long drive in the car. With individual bonds, I can plan my trip pretty well balancing when and where I stop for the essentials: gas, food, bathroom breaks and stretching my legs and back. I might run into bad weather, accidents, heavy traffic, road construction, car problems, etc. But I have some options for planning for those things such as maintaining my vehicle, checking ahead of time on the weather, road construction, and traffic, planning my route to avoid major metro freeways during rush hour, etc.


With a bond fund, I am not alone in the car. I have the car full with other passengers. And as much as we might all agree in advance on a plan for when we are going to stop for gas, meals, bathroom breaks, etc., you know the chances are pretty good that as soon as we have been driving 20-30 minutes, someone in the car is going to speak up and announce that they have to go to the bathroom, or ask if we can stop at the next town so they can get a cup of coffee, or whatever. My "plan" for the trip isn't much more than a figment of my imagination.


I'd rather hold individual bonds. When I bought the individual bond I had my "plan." I was okay with the amount of principal, the interest rate and the term. If rates increase I will probably be disappointed. But I knew that was a possibility going into the deal and I still know the rate of interest I will earn if I hold the bond to maturity. I AM FINE WITH THAT. But with the bond fund, the whole plans gets screwed up as soon as someone else on this trip decides that they are hungry or they have to go to the bathroom. Then I, and everyone else in the car, have their travel plans messed up. I am not fine with that.
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Old 03-17-2023, 06:41 PM   #10
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Hm, Portfolio Visualizer says short term investment grade bonds that OP is complaining about are down 5.5% since the start of 2022 vs the Total US stock market down 17.1%. So short term bond funds are dampening the volatility of the portfolio. Longer term bonds have been hurt more of course.

Maybe OP's funds are not really as short term as hindsight suggests would have been nice or perhaps OP is looking solely at NAV and forgetting that about the bond dividends being earned.
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Old 03-17-2023, 06:48 PM   #11
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Bond funds were discussed extensively on this board last year. Bond funds do no act the same as individual bonds, because bond funds typically don’t wait until the bonds mature - they are typically sold early. Secondly, bond funds typically loose money when the interest rate increases. I sold all my bond funds last year and replaced them with 1, 2 and 3 year CD’s. I’m getting 2% to 4.5% APR on the CD’s - which is much better than the majority of bond funds that lost 12% last year.
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Old 03-17-2023, 06:52 PM   #12
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Quote:
Originally Posted by Dash man View Post
Bond funds are an easy way to lose money in a rising rate environment. Iím moving towards 75% equities and 25% CDs, individual treasuries and bonds. Long term equities outperform, so Iím buying more equities while others are fearful.
Love it! Thanks for the uncertainty : O)
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Old 03-17-2023, 06:57 PM   #13
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Hm, Portfolio Visualizer says short term investment grade bonds that OP is complaining about are down 5.5% since the start of 2022 vs the Total US stock market down 17.1%. So short term bond funds are dampening the volatility of the portfolio. Longer term bonds have been hurt more of course.

Maybe OP's funds are not really as short term as hindsight suggests would have been nice or perhaps OP is looking solely at NAV and forgetting that about the bond dividends being earned.
Not factoring in dividends being earned- is the variable that i think you raise a valid point about. At least, for the advisor's sake.
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Old 03-17-2023, 08:02 PM   #14
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Not factoring in dividends being earned- is the variable that i think you raise a valid point about. At least, for the advisor's sake.
There most definitely is "the dividend being earned/" it would constitute the singular rationale that I can find for not selling, and holding these positions.
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Old 03-17-2023, 11:00 PM   #15
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OP - sounds like your advisor does the buying for you .

I buy my own stocks and bonds, in a self managed account and don't pay a yearly fee for that privilege.

I have learned, going forward, I'll not buy bond funds again. I got to enjoy some bond fund lowering of NAV like lots of people.

It's just as easy to buy Treasuries, CD's, or bonds of very safe companies like a few banks.

I'll keep enough money short term, to not have to sell the bonds at a loss, so not lose my principal.
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Old 03-18-2023, 03:32 AM   #16
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Quote:
Originally Posted by Dash man View Post
Bond funds are an easy way to lose money in a rising rate environment. Iím moving towards 75% equities and 25% CDs, individual treasuries and bonds. Long term equities outperform, so Iím buying more equities while others are fearful.
Quote:
Originally Posted by Al18 View Post
Bond funds were discussed extensively on this board last year. Bond funds do no act the same as individual bonds, because bond funds typically donít wait until the bonds mature - they are typically sold early. Secondly, bond funds typically loose money when the interest rate increases. I sold all my bond funds last year and replaced them with 1, 2 and 3 year CDís. Iím getting 2% to 4.5% APR on the CDís - which is much better than the majority of bond funds that lost 12% last year.
+1 Many of us here avoided the big hit that many bond fund holders took in 2022 (-13.1% for BND with dividends reinvested) by investing in brokered CDs, UST and GSE bonds.

Over the past year I've put together a rolling 4 year ladder that yields 5.2%. Meanwhile, BND's distribution yield is 2.8% and average coupon is 2.9%. And my ladder gives me much more control that a bond funds does, although it is a little work to get it set up and maintain.
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Old 03-18-2023, 04:08 AM   #17
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Ditched bond funds a few years ago. Mainly CD ladders now, which is easy to set up and maintain.
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Old 03-18-2023, 04:43 AM   #18
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Never owned a bond fund for the reasons above and never plan to. Still close to 100% equities on my long term money but if/when I decide I won the game, I would buy individual bonds. -Treasuries but maybe some investment grade commercial if I could afford the risk (but then I'd probably stay equities).
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Old 03-18-2023, 04:50 AM   #19
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I hold individual bonds. While I do see the market value fall when rates rise, at least I know I will get out at par on maturity.
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Old 03-18-2023, 05:15 AM   #20
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Originally Posted by mikes425 View Post
I am frustrated. I don't try to time the market, and saw major NAV losses in bond FUNDS which constitute a large portion of my fixed income allocation.
The notion that 'this year will be different' is fading fast for me, as i watch my mostly short term bond funds tank - again, as in 2022, WITH equities... and simply not functioning as 'ballast' or offsetting volatility in equities. I also am watching a large investment in small cap equity getting wrecked.

What's the realistic outlook going forward for 1-3 year bond FUNDS. I have a roughly 2.5m assets PF and am worried about where this market is going. I have an hourly advisor who isn't suggesting any changes at all.

Thanks for any perspectives,
Your advisor is correct.
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