I like my bonds these days

[Rich_by_the_Bay]

I'm one of the naive investors around here, just trying to stay out of big trouble.

I have about 40% in bonds, big diverse funds mostly. One thing I noticed is that not only are they doing nicely as ballast with the stock sag (I fully expected them to do that), but they are actually creeping up nicely in share price.

Is this normal? Can I expect them to actually improve when stocks are down, or just to hold their own and buffer the losses?

 

[brewer12345]

Depends on interest rates. When the bubble burst, long duration, high grade bonds spit out double digit returns for 2 or 3 years.

 

[Mwsinron]

I really dont want to be this heavy in bonds. However not much you can do. Might as well make some money than no money.

 

[Rich_by_the_Bay]

I really dont want to be this heavy in bonds. However not much you can do. Might as well make some money than no money.

The funny thing is that FIRECalc failure rates seems to optimize at 55-60% stocks in my scenarios. Going way up on stocks doesn't help that much and will presumably increase volatility.

 

[Mwsinron]

Currently I believe we are around 45 fixed and 55 stocks. Stocks are mostly skewed towards overseas Europe and Asia. A small amount in emerging markets. Im not really sure what I want to do with new money coming in. I guess cash till I figure something out.

 

[cute fuzzy bunny]

stocks are sagging? I'm up about 30k over the last couple of months...

 

[kcowan]

I am up 32% YTD in the stock portion. Was highest in April then regressed in late May and especially June then rebounded in July. Bonds and funds portion did much less.

 

[Spanky]

I am up 32% YTD in the stock portion.

Is this a diversified basket of stocks? It's very hard to get that kind of return unless it is a focus set of stocks.

 

[AltaRed]

Is this a diversified basket of stocks? It's very hard to get that kind of return unless it is a focus set of stocks.

5-6% would be more typical YTD for well diversified portfolio of equities.

Currently 40% cash looking for some buying opportunities in Sept and Oct.

 

[Leonidas]

32%! 8)

What kind of beer do you like? I'll bring a case and my notepad and we'll sit down and you can show me how you pick stocks!

I'm up 6.34% YTD and pretty darn pleased with that.

 

[mathjak107]

im up 5% overall

 

[Rich_by_the_Bay]

32%! 8)
What kind of beer do you like? I'll bring a case and my notepad and we'll sit down and you can show me how you pick stocks!
I'm up 6.34% YTD and pretty darn pleased with that.

I won pretty big at roulette last time I was in Vegas. I'm pretty sure it's cause I know a lot of stuff you don't know. For a case of Boddington Ale (pint can with the agitator built in), I'll tell you how I do it.

Don't count on hearing from my when I lose, by the way. NOYB.

 

[Leonidas]

I won pretty big at roulette last time I was in Vegas. I'm pretty sure it's cause I know a lot of stuff you don't know. For a case of Boddington Ale (pint can with the agitator built in), I'll tell you how I do it.

Don't count on hearing from my when I lose, by the way. NOYB.

To heck with the roulette strategy - tell me about how you win on the Big Wheel!

 

[Rich_by_the_Bay]

To heck with the roulette strategy - tell me about how you win on the Big Wheel!

Nah, I lose all the time -- worst odds in the casino, I've heard. But I've gotten good at spreading my bets and I can make $100 last a long time. Folks come and go, sit next to you, chat each other up for a while, sip a free cocktail or two. Pretty fun in small doses.

 

[audreyh1]

My bond holdings are making me happy too.  I don't know why but:

- Maybe I got tired of waiting for rates to rise (probably) - I think I'd been waiting since 2003.
- Maybe somehow 5% on the 10-yr was "good enough".  At least historically it had returned to 5% fairly often whereas 3% was clearly out of historical range.
- Maybe my bond allocation had just shrunk way too low.

Whatever

But in mid April of this year, I took the plunge, and brought my bond allocation back up to where it was supposed to be.

And I've been glad I did ever since!!!  

I really don't mind being a wee bit early.  I could have waited a month or so.  But it was close enough for me.

Audrey

 

[Rich_by_the_Bay]

My bond holdings are making me happy too.
But in mid April of this year, I took the plunge, and brought my bond allocation back up to where it was supposed to be.

Sweet timing - nice going.

Next time you get an urge to re-allocate, drop me a PM, OK?

 

[Spanky]

Nah, I lose all the time -- worst odds in the casino

I cannot recall winning anything from the casino, lottery, drawing, etc. It's a story of my life.

 

[ladelfina]

"I like my bonds these days..."

HUh? My wacky portfolio is up 9.7% ytd.. the reason it is so LOW is the fact that I bought into TIPS (+.3%), TLT (-6.9%), and GIM (-8.2%) -- my attempt to add some bonds to my virtually all-stock allocation. I didn't get any short-term govt bonds yet because I didn't see a huge difference between the brokerage's MMF (4.7%) and Vanguard's VFISX yield, for example (4.9%).. SHY says 4.4%. Bought into ETFs cause I am just too lazy to build a ladder.    FAX, tho', is up 14.7%.

I know in the long term this is supposed to add some ballast, but I'm not feeling the stabilizing effect currently. Am I looking at the numbers wrong? If I run my IRR report excluding TIPS, TLT, GIM, and, to be fair, FAX. I get 18%.

It was very painful to see total value go from (roughly) $995,000 in Jan. to $1,085,000, back to about $990,000 [ aaahhh! I lost $95,000!!!!].  $1,035,000 right now after taking out a bit to live on, so I'm comfy. I know with a heavy stock allocation I should expect big swings; it's just harder to process when it happens right as I am starting out.. with retirement, with asset allocation... and when I am hovering right around "the number." I didn't feel this way when $400,000 turned into $350,000 for some reason.

 

[audreyh1]

Sweet timing - nice going.

Next time you get an urge to re-allocate, drop me a PM, OK? 

LOL! I'm not supposed to be timing, and I usually don't. But with interest rates so low for so long, I couldn't bring myself to rebalance to my normal bond allocation until treasuries finally got back to a "reasonable" rate.

And even now a lot of people think I'm way too early and won't touch bonds because they think rates will go at least to 6%. But that kind of game is endless. At some point you gotta say "enough already" and go on with your life.

Ladelfina - Q1 of this year saw the most painful hit on bonds. That's when the interest rate rises really causes the biggest capital loss. That's why my bond allocation had withered so severely and I finally had to act.

Big swings in the portfolio - you gotta kind of ignore them most of the time. If you are heavily allocated to stocks, bonds won't appear to show much ballast. Large swings can be useful triggers for reviewing your portfolio to see if you need to rebalance. Other than that - volatility just causes unnecessary mental anguish. If it causes too much anguish - that indicates you might need to lower your stock allocation.

Audrey

 

[Rich_by_the_Bay]

At some point you gotta say "enough already" and go on with your life.

Audrey, you sound at peace. How many years' expenses do you have in cash, if I may ask?

 

[Spanky]

HUh? My wacky portfolio is up 9.7% ytd.. the reason it is so LOW ....

That's a very good return.

 

[ladelfina]

Thanks Audrey.. of course you are right about volatility.. I think I gave my reasons for my changes in perception -- from being 'on the cusp', so to speak! Right now about 85/15 stocks/bonds for 'investments'. Roughly 2 years' worth expenses in cash.

Spanky, I laid it all out for you guys.. just sell whatever you've got and dive right in! 

The water's fine (as long as it lasts). Most of you guys don't have the (sucky) dollar/ (stronger) Euro exchange to contend with!!! So aside from cap gains issues w/r/t selling (even at today's low rates I don't want force myself into a higher tax bracket) I don't see a good reason not to keep holding (and buying and holding..).

I "get" Bernstein.. but maybe I am just too scared right now to take a hit in order to get off the gravy train...?? If I were in the US I might have a different mindset right now.

 

[audreyh1]

Audrey, you sound at peace. How many years' expenses do you have in cash, if I may ask?

Rich - I've been living off investments since 1999, so "peace" comes with experience.  I deliberately set up my portfolio with a reasonable allocation according to modern portfolio theory. The idea was to require minimal effort to maintain - just occasional rebalancing.  I really try to avoid timing, but I found I just couldn't bring myself to add to my bond holdings until they got back into historical range.

My portfolio has done fine over the years, and I have definitely seen the benefits of an asset allocation approach and occasional rebalancing.  The truth is that I would have done even better if I'd just put all my money in DODBX and let them take care of me.  If you can find a good quality, low-cost, balanced fund, that's hard to beat.

In general, I keep a couple of years expenses in cash in a separate account from our retirement portfolio.  Then, because we only keep about 55% in equities, and most of the bonds are short-term bonds, by definition we have at least 10 years worth of expenses in non-stock assets in the retirement portfolio.  So I use these non-stock assets to for rebalancing the equities as things go up and down, but it can also be used as a buffer.

Audrey

 

[Rich_by_the_Bay]

In general, I keep a couple of years expenses in cash in a separate account from our retirement portfolio. Then, because we only keep about 55% in equities, and most of the bonds are short-term bonds, by definition we have at least 10 years worth of expenses in non-stock assets in the retirement portfolio. So I use these non-stock assets to for rebalancing the equities as things go up and down, but it can also be used as a buffer.

That's helpful, and comparable to what I plan. It seemed that the small incremental benefit of stretching some of your bond holdings to intermediate or longer just isn't worth the increase in volatility. If you want to trade volatility for gains, do it with your stock holdings.

I'd like to keep about 7 yrs of expenses in nothing longer than short term bonds, too. Maybe 2 years in MMF or the like. If you FIRECalc it out using 5 yr treasuries, this works out well. Glad to hear it works for you in the real world (I'm still in fantasy/working land for a few more years).

 

[cute fuzzy bunny]

Jeez Rich, so you're a belt and suspenders and staple gun to the legs kind of guy then?