bonds phew!

[mathjak107]

the "pounding" referred to the fact that last thursday the long bond funds fell just shy of 2% in one day. that was virtually almost unheard of before . the intermediate bond funds fell almost 1% in one day. thats a huge amount for bond funds that change .30 to .50 on a bad day usually.

check agg and tlt for thursday. that was scarey

 

[audreyh1]

i do believe in getting in bonds early if your going to reap any capital gains but i think even at this point its a little to early. geesh bill gross sees 6.5% on the long end as an eventual possibility.

First - Bill Gross says eventual possbility on the longend. It could be a long time.

Second - even if it does reach 6.5%, that doesn't mean it will stay there indefinitely.

I add to my bonds whenever the allocation gets knocked down by a certain percent. If the 5yr gets to 5.25% soon, my bond allocation will probably be depressed enough to justify adding. It depends on what equities do at the same time.

Audrey

 

[Alan]

the "pounding" referred to the fact that last thursday the long bond funds fell just shy of 2% in one day. that was virtually almost unheard of before . the intermediate bond funds fell almost 1% in one day. thats a huge amount for bond funds that change .30 to .50 on a bad day usually.

check agg and tlt for thursday. that was scarey

Just like stocks I try to not panic at short term drops. Since the bond funds I am in have dividends re-invested it does mean that I'll be buying more bonds at a lower NAV

 

[audreyh1]

Maybe. If we the Fed overdoes its tightening and pushes us firmly into recession, you will wish you had bought the longer duration bonds.

Best to look at this in the context of an overall portfolio.

I do. I avoid long term bonds because short to intermediate behave better for asset allocation rebalancing purposes from the studies I have read.

Audrey

 

[mathjak107]

Just like stocks I try to not panic at short term drops. Since the bond funds I am in have dividends re-invested it does mean that I'll be buying more bonds at a lower NAV

this is true but you will have to stay long enough to reach the duration rating of the fund. of course this only applys to treasuries as credit risk on corporate bonds can alter the duration by alot.

as an example if the duration value of your bond fund is 5 and sells for 10.00 bucks a share, it means if rates rise 1% your nav will drop to 9.50 or by 5%.

you will be getting the extra 1% interest though so it will take 5 years to break even assuming no further rate change. it gets a lot more complex in real life as rates vary all over the place.

 

[Alan]

this is true but you will have to stay long enough to reach the duration rating of the fund. of course this only applys to treasuries as credit risk on corporate bonds can alter the duration by alot.

as an example if the duration value of your bond fund is 5 and sells for 10.00 bucks a share, it means if rates rise 1% your nav will drop to 9.50 or by 5%.

you will be getting the extra 1% interest though so it will take 5 years to break even assuming no further rate change. it gets a lot more complex in real life as rates vary all over the place.

I just haven't seen my bond funds do any losing this last 7 years and there have been drops of 1 - 2% from year to year in the 5 yr treasurury

2000, 6.16
2001, 4.56
2002, 3.82
2003, 2.97
2004, 3.43
2005, 4.05
2006, 4.75


VG total bond index, avg maturity 4.5 years, has consistent gains over these last few years of interest rate increase. I had heard that if rates rise faster than 2% /year then intermediate duration bond funds will start losing value.

 

[mathjak107]

the early 2,000's were good if you were holding bonds as money market rates were less that 1%. as things leveled out until recently the intermediate and long term end was barely hit with rising rates as that end held stuck in the same range.

now that end has finally moved and vg bond index is only up ytd about 1.99 % including interest . a money market is up about 2.4

considering earlier this year intermediate bonds were up almost 3% they are now down almost 5% off the high since rates rose,

intermediate bonds loose about 4.5 - 5% for every point rates rise

 

[mathjak107]

I had heard that if rates rise faster than 2% /year then intermediate duration bond funds will start losing value.[/quote]


you heard wrong....... all bonds are effected immeadiatly if the rise or fall is within their time frame. thats true of bond funds too. until recently the intermediate end fell within a range of 1/2% or so since rates started rising so you lost part of your interest last year but it didnt dip into principal.

this year however if you bought in last few months you are now negative for the year.

 

[Alan]

this year however if you bought in last few months you are now negative for the year.

Then I'm doomed. I have been and will continue to be an annual re-balancer.

If my bond funds go down then I guess I'll be buying more of them in January when I re-balance, unless the stock funds have dropped as well

 

[temsike]

Billy, IMHO, 100% equities is very risky at your age. My portfolio consists of:

10% Lg US stocks (VTI)
10% Sm US stocks (VB)
10% Lg For stocks (VEU)
10% Sm US stocks (GWX & DLS)

10% Gold (GLD
10% Commodities (DBC)

40% Cash (short-term US$ CDs)

I'm trying to find a way to invest directly into non-UD$ fixed income assets such as EUR bonds without paying a lot in fees, commissions, or taxes. By next year, I want my fixed income portfolio to look like this:

10% Short-Med (1-5 year) US treasury notes, bills, bonds or CDs
10% Long (30 year) US T-bond
10% Short-Med (1-5 year) non-US$
10% Long (30 year) EUR bond

This way, I'm covered for almost any financial eventuality. My 40% in stocks will give me good upside in prosperous times. 40% in bonds, notes a/o CDs will cover a depression or recession. 20% in gold and commodities should do well in inflation.

BTW, I checked out a pic of you, the Terhorsts, and somebody else on Paul and Vicki's website. You're all looking good. I hope to run into you and Akaisha again sometime in the near future.

This is exactly my point, and why we remain 100% equities.

Billy
RetireEarlyLifestyle.com