Fear of bonds

[pb4uski]

Brewer - as mentioned in the past, I like the predictability of CD income. This, in my opinion, is what I like most about CDs : no surprise. Can't say the same about bonds or bond funds.

I would not agree with you OB, a bond is really very similar to a CD. It a promise to pay a certain amount in interest periodically until a maturity date. The only real difference between a brokered CD and a bond is credit risk. Both have interest rate risk and both repay the principal if held to maturity. Bond income is as predictable as CD income other than credit risk.

Up to the FDIC limit there is no credit risk with a CD, there is a smidgen of credit risk with an investment grade bond.

 

[RetireAge50]

I think if you fear bonds (and stocks) you end up giving a huge chunk (most) of your earnings (from the money) to 3rd parties. CD’s, Annuities, Stable Value Funds, are similar in that they are predictable and expensive.

 

[nun]

Obgyn's 12% payout rate is probably the monthly benefit at 62 in relation to the deposit at age 49, so it includes 13 years of growth of the initial premium deposit whereas Nun's 7% payout is actually slightly better assuming that 4.726% crediting rate holds as $100 would grow to be $182 in 13 years and result in a $12.76 payout.

That crediting rate only holds for current deposits, older vintages have lower and also higher rates. TIAA-CREF quoted me assuming my annuity balance grows by 3% per year until I'm 55, that's in 2.5 years time. The 7% payout comes from dividing the annual payment by the annuity balance at 55. If I was to wait to 62 I imagine the payout would be higher still.

 

[dvalley]

I just read this thread from the beginning and my head is spinning lol. I invest in funds (Fidelity 4 in 1 and Target age retirement fund 2030) in IRA and 401k which in turn invest in bonds. All my taxable investments are going into VTSAX. Given I have another 10years before I consider ER should I worry?

Currently my AA is:

50% domestic stocks
20% intl stocks
13% bonds
15% cash and CDs
2% unknown/alternatives

Unlike most here I'm not as well read on what makes the economy tick but just like the housing bubble which most people didn't see coming I'm worried about the stock market bubble.

 

[Ready]

Unlike most here I'm not as well read on what makes the economy tick but just like the housing bubble which most people didn't see coming I'm worried about the stock market bubble.

No need to worry. I can GUARANTEE you the stock market bubble will come. Eventually. And the market will go down a lot. And then it will come back. And then it will go down again. Rinse and repeat. So if you're worried that it might happen, don't bother. It will. I promise.

 

[RobLJ]

I've allowed my stock allocation to go up 8% with the market in 2013, rather than rebalancing. (The recent adjustment took it back to 6% so I'm waiting to sell or allow the market to take it back down.)
Over more than two years I've steadily but gradually moved the durations down, rebalanced gains (made monthly contributions) to the Fidelity Floating Rate fund and considerably less to a high yield fund, and bought muni Closed End Funds. A
Also have made monthly contributions to foreign currency fund, a corporate bond fund, and put some money (not a lot) in emerging market bond fund, and a small allocation to Convertible fund. And let cash build up when harvesting gains. The emerging market bond looks more attractive after the recent EM selling.

61-21-17 now.
I give myself 10% wiggle room (minimum to maximum band) in a category based on my sense of comparative value. Considering the tax issue, munis seem a comparative bargain still, even after the recent climb.

 

[seraphim]

I have about 28% of my portfolio in an SV account (cash) which became available for rollover last year. The original intent was to roll it over into bonds, which would give me a 60s/40b AA. The SV earns the same, roughly, as the ten year treasury. With the uncertainty of bonds, I've held off putting that new money into bonds. Same income, no loss of principle. If there comes a buying opportunity in bonds, I'll take it.

I'm basically a Boglehead, but use a bit of flexibility. When equities dropped in January a bit, I waited until February to take an annual withdrawal. Call it market timing *shrug*. I call my SV account 'fixed income in lieu of bonds' and it functions essentially the same as bonds in the current market. I don't see being totally locked in to bonds, but won't sell the old ones. They've performed their function over the years.

 

[CaliforniaMan]

No need to worry. I can GUARANTEE you the stock market bubble will come. Eventually. And the market will go down a lot. And then it will come back. And then it will go down again. Rinse and repeat. So if you're worried that it might happen, don't bother. It will. I promise.

+1 Very well said!

When I was in my accountants office recently we happened to get into a discussion of 401Ks, retirement and withdrawal rates. I told him and his assistant that I planned for a 20% drop when calculating how much to take out. His assistant seemed surprised thinking of such a large drop. I told them I hoped I would live long enough to see a lot of 20% plus declines. His assistant's jaw dropped. I guess she didn't realize what I meant. Not that I enjoyed the inevitable bear markets, just that I hoped to live a long time.

 

[rjohnla]

Hi, just quick response. Interest Rates (IR) will not stay low for ever, with QE Infinity tapering off (more after election), IR will go higher Bond Funds down. Bonds, buy hold, USG Bonds, until maturity = no loss. Wait until about 2015-6 (best after Pres. election), then buy actual USG bonds (safest) at about 4-6%.

 

[seraphim]

Wave - You're saying nothing new, but while everyone suspects yields will rise due to interest rate increase, no one know how much or how quickly the yield will rise. I'm highly dubious of a 4 to 6 percent yield, but it's possible. I don't think the Fed will raise rates that quickly. But, if they do, I'm ready. Lol

 

[rjohnla]

Yes, nothing new said except the IR forecast. Fed does not control IR market does. Fed is market follower. Time - when, is the hardest to forecast (2016?). I'll stick with 4-6% forecast though.