Goosing Bond Allocation - Thoughts?

[ERD50]

Quote:

Originally Posted by photoguy Even better than seeking experts opinion, you can look at the data and decide for yourself.

Yes, I have done that in the past.

I hold a hi-yield bond fund - and I have always counted it as 50% equity, 50% fixed in my AA. It roughly looks to be about half as volatile as equity, close enough for me.

It's nice to see that the Hi-Yield funds have outperformed the S&P 500 index, with about half the volatility. I know the party is probably over for Hi-Yield, but I'm having trouble defining an exit point, and what to move it to.

-ERD50

[pb4uski]

Quote:

Originally Posted by photoguy Even better than seeking experts opinion, you can look at the data and decide for yourself.

If you read my post, you should see that I did decide for myself after looking at data and expert opinion.

I suspect that if one looked at the long-run historical cash flows of a high-yield bond portfolio of B+ or better that the cash flows would be more bond-like, even after defaults. Interestingly though, the market values tend to be more volatile and seem to be between equities and bonds. Since my high yield are only about 5% of my total AA, I'm not about to lose sleep over whether they are included in bonds or equities.

[Which Roger]

Quote:

Originally Posted by pb4uski This seems inconsistent. Did you mean less risky rather than more risky? If not, please elaborate as it would seem to me that substituting high yield bonds for short medium term bonds would make a portfolio more risky, not less risky.

Yes, I meant less risky. Good catch, and sorry about the typo.

[photoguy]

Quote:

Originally Posted by pb4uski If you read my post, you should see that I did decide for myself after looking at data and expert opinion.

Yes you did. I missed that, sorry.

Quote:

Originally Posted by pb4uski I suspect that if one looked at the long-run historical cash flows of a high-yield bond portfolio of B+ or better that the cash flows would be more bond-like, even after defaults.

Most of the vanguard fund that I plotted is B+ or better (about 20% have lower ratings). Of course the lower rated funds may have been responsible for a big chunk of the losses (I don't have any data on this to know for sure). However, Vanguard's investment grade fund (VFICX) had a 10% drop in the last recession -- not terrible (compared to equities) but maybe my opinion would be different if my portfolio was more bond heavy.