Bond funds now?

[Roger_R]

Pardon my newness to some of the investing approaches here. I am still reading my books and your posts.

I am studiying up to consolidate my traditional (ie high expense ratio) stock funds and various money markets and a few intermediate bond funds into lower expense funds with a more planned asset allocation. I am probably looking at 40/60 or 30/70 split into stocks/bonds according to my risk acceptance and desired SWR. This would imply a higher amount of investments into bonds than I currently have. At least one of my considerations has been some of the Vangard balanced funds such as the 2005 Retirement or using a total bond market index fund along with my allocation of stock index funds.

While I am learning that it is not generally the way to try to time the market, it would seem to me like there are indications of rising interest rates slapping us in the face. Am wondering whether to hold off on any bond or balanced fund investments? This of course would mean some potential short term loss of interest income anticipating a decline in NAV.

Your opinions are will be welcome and well considered!

 

[wabmester]

Yes, you're trying to time the market. And I'm here to tell you there's nothing wrong with that! Of course, it requires you to predict the future, but that's not as hard as most people make it out to be

If you're future predicting skills are a little rusty, here are a few safe bets:

1) find a high-yielding CD and you don't have to worry about NAV fluctuations

2) buy some TIPS, which are likely to be less volatile than other bonds assuming a rise in inflation contributes to at least part of rising interest rates

3) buy short-term (i.e., short duration) bonds, such as Vanguard's short-term corporate. Yield is about 3% and duration is only 2 years, so the fund should at least tread water during rising rates.

Be thankful that you already missed over 1% of a rise over the last couple of months, so you're already ahead of most of us by starting now.

 

[mickeyd]

Hey Roger,

My thinking on Bonds is that if you need them to meet our asset allocation, then you need to buy them.

If you are a long term investor, it really won't matter when you acquire the bond fund. If currect interest rates increase (of course they will), your current bonds will lose value BUT if you reinvest your earnings they will purchase bonds with higher rates and eventually offset the decrease in basic bond fund value. Like I said, long term you will be ok but you will feel the sting in the short term.

I like the Vanguard Total Bond Market Index Fund which has a .22% ER as well as the Vanguard Inflation-Protected Securities Fund also with a .22% ER. Maybe a 50/50 mix but that is an individual preference.