Rebalance from GNMA or Total Bond?

[TromboneAl]

For my rebalancing, I need to move a big chunk from bonds to stocks. I could do it from either the Total Bond Index fund (5.13% return in 2008) or the GNMA fund (6.98% return in 2008).

I'd normally move from the GNMA, since it had the higher return, but perhaps that's a better thing to have in the current economic environment?? Perhaps it doesn't make any difference.

Thoughts?

 

[youbet]

Tough decision. Total bond, in my opinion, may do a little better than GNMA in 2009 because high quality corp bonds seem cheap relative to other fixed investments on a risk/reward basis. But GNMA offers full govt backing just in case this mess gets even more messy.

How about taking from both proportionately to preserve the ratio you hold them in now? That is, reduce you fixed percentage relative to equities but maintain your GNMA to total bond relationship that you currently have.

 

[brewer12345]

With mortgage rates dropping and the MBAA mortgage applications index hitting a 5 year high this week, much of the extra juice of a GNMA (or Fannie/Freddie MBS) fund could get refi'd away pretty quickly in the coming year. As such, I would tend to sell the GNMA fund, especially since total bond is about 1/3 agency MBS anyway.

 

[ziggy29]

I don't really think GNMAs will be all that good moving forward with all the refi activity at lower rates, plus the inevitable downside to NAV when rates eventually rise again.

 

[FIREd]

I think that the total bond fund might have more upside potential going forward. I would take the money from the GNMA fund personally (the government is intentionally driving mortgage interests down so on bonds like GNMAs that are subject to calls and have short maturities, it's probably not a good thing).

 

[Dennis]

Yeah, have a similar situation..Alot more Profits from my Bonds this past yr than expected..( ave 19% btwn them )and Selling them off gradually and moving the money around into my Bal. Funds..
I'm not discriminating..taking it equally from all of them....

I use to Guess every Yr doing this, as to which Bond fund would do better than the others? I was Wrong 33% of the time.. 1 out every 3 yrs..

Some are saying Corporates will boom this Yr, others say Treas. will Crash, but the Ylds will go up, Others say GNMA's will be nickel and dimes again or another 03' thru 05' repeat.. IMO? Bonds are even More Complex thatn Equities and stocks and I gave up trying to play that game..Of course, I can afford to now...

If your good at Guessing which will do better? go For it..

 

[TromboneAl]

Thanks guys. I rebalanced from the GNMA fund.