choosing bond fund(s)

[simple girl]

Hi all,

My brother is re-working his 401K (getting out of hi-cost funds) and needs to choose some bond funds. He has set his asset allocation for 70% stock, 30% bond.

Choosing bond funds is a weak area for me. We personally don't have many selections to choose from in our 401K's, so I have just stuck with what is offerred that has reasonable expenses: an intermediate, high quality bond fund. My brother has a TON of possible funds to choose from, however, in his 401K. I was hoping for input from the group. Here are the categories from which he can choose (multiple fund offerings within each):

Ultrashort Bond
Short Government
Short-Term Bond
Intermediate Govt
Intermediate-Term Bond
Inflation-Protected Bond
Long Govt
Long-Term Bond
Multisector Bond
High Yield Bond
Bank Loan
World Bond
Emerging Markets Bond

How would you recommend he set up his bond allocation? Stick with one group? Choose 2 or 3 to split up the allocation between? Why/why not? Once he sets up his asset allocation for bonds we will then look at the particular funds in detail.

Thanks for your input!

P.S. He is in hid mid 50's, and risk tolerance I think could be described as fairly aggressive. No immediate plans to retire early; has one in college and another one still in highschool that he needs to put through.

[LOL!]

I'd pick my bond fund based mostly on expense ratio and duration. So what are the expense ratios?

[Gone4Good]

It's hard to know without seeing prospectuses. He already has a pretty aggressive allocation with 70% stock so he may not want to amp up the risk on the bond side too. For a plain vanilla bond allocation I'd probably split it 50% inflation protected and 50% Intermediate Term bond (which is probably a total bond market index or proxy) and be done with it.

Too add a little spice to that I'd look at short-term high grade corporates (very nice spreads right now), the bank loan fund (very attractive discounts on debt that is senior in the capital structure), and maybe even a touch of high yield (although I'd probably put any money directed at high yield into the bank loan fund instead).

[brewer12345]

Hard to go wrong with an intermediate term fund that owns investment grade corporates. Very fat spreads (historically wide).

[Dennis]

Well, I would suggest Ck out:
>FundAdvice.com - Suggested Portfolios
>Ask Scott Burns> Asset builder
> @ Three Simple Portfolios - Kiplinger.com and look at
Larkin's Bond portfolio
> Larry Swedroe is recommending nothing but TIPS..right now ( 40% )
>another is recommedning 20% -50% in Vanguard Total Bond Market ETF (BND) (Tracks a broad index of high-quality U.S. bonds)for the "Real Lazy Inwestor"..LOL
> And Look at Hussman's Bal Fund for his Bonds he has for more ideas @ HSTRX fund

In my 35/65 port, I sold most of my Bonds of all Treauries 1st week of Jan. and have Gone with VFSTX and FFRHX for this yr so far.. as has my Managed Port. by a Firm..

I am assuming his 70/30 Port is Not a major part of his Retirement fiancing process and will be getting a Good Pension, along with SS and/or has other resources and thus can afford to take this kind of risk . 70/30 after last yr would probably be in the -25 to -30% loss for the yr. I would assume.. but Should give him a Big shot at the recovery and followng few yrs thereafter and then I would suggest consider changing it to a 50/50 thereafter..and 3 yrs prior to wanting to Retire, to a 35/65.

Hope this helps

[ziggy29]

I'd go with about half intermediate term, investment-grade corporates and half TIPS.

[simple girl]

Thanks everyone - I'm going to look at what his offerings are in the following 2 categories:

• Intermediate-term, investment grade corporates (60 offerings to sort through!)
• Inflation-Protected Bond (3 funds to choose from)

[simple girl]

Quote:

Originally Posted by simple girl Thanks everyone - I'm going to look at what his offerings are in the following 2 categories: Intermediate-term, investment grade corporates (60 offerings to sort through!) Inflation-Protected Bond (3 funds to choose from)

OK, I quickly sorted through the funds. I was able to cross out most, as the majority were load funds. Here is what is left for him to choose from:


Intermediate Bond Funds

• WBRIX: Wilmington Broad Market Bond Instl (exp ratio .90)
• TGMNX: TCW Total Return Bond N (exp ratio .73)
• JADFX: Janus Adviser Flexible Bond S (exp ratio 1.05)
• RRNIX: T. Rowe Price New Income R (exp ratio 1.15)
• INISX: Federated Intermediate Corp Bd Instl Svc (exp rat .80)
• RBFCX: American Funds Bond Fund of Amer R3 (exp rat .95)
• ABQKX: Alliance Berstein Interm Bond K (exp rat .80)
• IYMYX: Ivy Mortgage Securitieis Y (exp rat 1.01)
• IBOYR: Ivy Bond Y (exp rat 1.34)

Inflation Protected Bond
AIAVX: American Century Infl-Adjusted Bond Adv (exp rat .74)


All of these expense ratios are higher than I would like. None of the funds are really jumping out to me as all that good - but as I said...I'm not well versed in bonds, so...

any comments from the peanut gallery?

[youbet]

Don't exclude ETF's. How about using TIP for your TIPS holdings?

[simple girl]

Quote:

Originally Posted by youbet Don't exclude ETF's. How about using TIP for your TIPS holdings?

This is my brother's 401K. As far as I can tell, they don't offer ETF's or straight TIPs...

[mathjak107]

i have been thinking of that larkins bond portfolio..boy is that thing volatile... pcy ,hyg man 3 -4% swings are nothing for them....

to tell you the truth they have all the downside potential as stocks with limited gain potential compared to stocks......

[Dennis]

Well, Seeing as it is your Borhters $ , he really should be Learning all this himself..
What's he going to do in the future when he has to change it?

I suggest keyword Larry Swedroe and get his book .. It's as good as any and here is his Site @ Investing : Moolanomy
Click here> Treasury Inflation-Protected Securities (TIPS), The Best Bond To Buy?
he is recommending 40% in just TIPS for 09' so far..

You can also Get more adivce from him in the Vanguard Diehards Discussion Board
And at M* >Bond Squad board

FYI? If you invest into the wrong bonds? You could have a 2008 Repeat, where Corp. bonds lost over -25%, & popular LSBRX lost over -23%... so be very carefull..

IMO on Bonds? They are to be used for Safety of Principal and just keeping up with Inflation and use Equites to make your Growth..
So Look at those Funds your borther has available and how did they do in both 08' and in the past 5-10 yrs. very closely..
Bonds have become just as Complex, if not more than, selecting equties now..

[simple girl]

Quote:

Originally Posted by Dennis Well, Seeing as it is your Borhters $ , he really should be Learning all this himself.. What's he going to do in the future when he has to change it? I suggest keyword Larry Swedroe and get his book .. It's as good as any and here is his Site @ Investing : Moolanomy Click here> Treasury Inflation-Protected Securities (TIPS), The Best Bond To Buy? he is recommending 40% in just TIPS for 09' so far.. You can also Get more adivce from him in the Vanguard Diehards Discussion Board And at M* >Bond Squad board FYI? If you invest into the wrong bonds? You could have a 2008 Repeat, where Corp. bonds lost over -25%, & popular LSBRX lost over -23%... so be very carefull.. IMO on Bonds? They are to be used for Safety of Principal and just keeping up with Inflation and use Equites to make your Growth.. So Look at those Funds your borther has available and how did they do in both 08' and in the past 5-10 yrs. very closely.. Bonds have become just as Complex, if not more than, selecting equties now..

Thanks for the links and the cautionary warning - much appreciated!

As for him learning this himself, he is already doing that, and we are having lengthy email discussions. He just isn't real big into boards like this, whereas I am. I am a big believer in hearing lots of different opinions, reading books, etc. to cover all angles.