Bond Investment Alternatives

[pb4uski]

When I retired last year I rolled over my 401k, which was all bond funds, into my IRA and had to make decisions on bond investments. I kept my AA but went with intermediate term corporate bonds (investment grad and high yield) and a bit of GNMAs. Overall duration is about 4.8 and weighted average yield is about 2.7% compared to a duration of 5.2 and a yield of 1.6% for Vanguard Total Bond (all as of a month or so ago).

Also, I'm still thinking about redeploying my fixed income to Guggenheim Bulletshares.

 

[samclem]

Are you talking about long term bonds here? The 30 year Treasury is at 3%.

Yes, long term bonds. Cash is yielding about 1% now, and as you say 30 year Treasuries are yielding about 3%, so the difference, 2%, is what I was referring to.

So what's the alternative in the interim, acknowledging that equity corrections have always been larger though not coincident by any means (nor should they be)?

Not arguing, asking your (or like minded others) view...

Sorry, the only "alternatives" to the longer-term bonds are the ones already discussed here--cash, shorter duration bond funds, fixed end-point bond funds (BulletShare, etc). I think three points are important to reinforce:
1) Duration is very important. Everyone reading this board knows that, but an uninformed investor wanting shelter from a risky stock market might very well think that a 20 year bond issued by the government is less risky than a shorter term one. A longer guaranteed return sounds safer to most folks than a shorter guaranteed return.
2) The very small difference in return between cash and even mid-term bonds comes at a big risk. The rush to the exits will be a stampede--everyone has the same idea and is already waiting in the starting blocks to scram. It's a classic unstable positive feedback situation. Take this risk for a couple of percent per year? (and almost everyone agrees that it's a 2-3 year play at max)
3) (Philosophical point): The present situation is not the result of traditional market forces, so I'd argue that those who vary their "normal" AA to stay out of mid- to long-term bonds right now are not market timing. The bond market is being artificially manipulated by the Fed to keep interest rates low. The rates today aren't purely the result of the billions of tiny buy and sell signals that usually set them, they are the result of the decisions of a few central planners. It makes sense to recognize that the game has changed and that it's not smart to rely on the "Wisdom of the Market" as an arbiter of value and risk in this situation. When market forces resume, watch out.